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Prime London property market likely to be subdued until after election in May
The mood of buyers and vendors alike in the prime London residential market is likely to remain subdued up until after the general election in May, it is claimed. Uncertainty surrounding a potential mansion tax, interest rates and the introduction of capital gains tax liability for non-resident owners are also contributing to the general market angst, according to the 2015 market forecast report from Chestertons. Moreover, a tightening mortgage regulatory environment with the European Mortgage Credit Directive due for implementation by 2016 and the Basel III requirements by 2019 on top of recent new UK rules, may see lenders become more cautious, the firm believes. Indeed, anecdotal evidence suggests that even high net worth individuals are experiencing more difficulty in having their mortgage applications processed despite the fact that exemptions from MMR requirements were given to those with a net annual income of at least £300,000 or a net worth of at least £3 million. The report points out that the UK economy, although forecast to slow this year, is nonetheless expected to remain one of the best performing among developed countries. Indeed, the HM Treasury panel of independent forecasters currently projects GDP growth of 2.6% compared to an estimated out turn of 3% in 2014, although it expects unemployment to reduce further. The panel also forecasts inflation will creep up, although much depends on the price of crude oil and household expenditure. For the time being, the possibility of deflation remains real. It also points out that pricing is likely to become more sensitive in the shorter term following the revision of Stamp Duty and the potential introduction of a mansion tax, and as buyers sense that they have the upper hand in a softening market. ‘Nonetheless, there are pockets of the market which should be active in 2015. Foreign investment driven purchases should remain robust especially in the new build sector which remains buoyant in terms of both buyer demand and price growth,’ the report says. ‘The UK should enhance its attraction as a safe haven for flight capital from a troubled Eurozone and countries with historic ties with Britain who are experiencing geo-political unrest, such as Egypt, Nigeria and other parts of west Africa. Moreover, various surveys indicate that UK buy to let landlords are keen to expand their portfolios while the attraction of property as a pension supplement for households in or approaching retirement continues to grow in popularity as evidenced by the increase in buy to let mortgage lending last year,’ it explains. ‘As we suggested in our previous report, the outcome of the election could have a considerable impact on the prime London residential market. We expect values to remain flat or see further slight reduction in the run-up to the election,’ it points out. ‘Thereafter, if a Conservative Government or a Conservative led coalition is returned the firm anticipates a gradual uplift in values over the remainder of the year. Otherwise, any combination of Labour/Liberal… Continue reading
Affordability could put brakes on house price growth in London
Affordability constraints will limit house price growth in mainstream London over the next five years, according to a new analysis report. In London, the total value of housing rose by 20% or £247 billion in 2014 alone and by 61% or £563 billion over the past five years and this has huge consequences for Londoners, whose finances are being stretched further and further as house prices continue to rise at a disproportionate rate to the rest of the country.? According to the analysis by real estate firm Savills, this value gap simply cannot widen at this rate indefinitely, which is why the firm expects mainstream London to see just 10.4% growth over the next five years, compared to 19.3% across the UK as a whole. Katy Warrick, London development researcher at Savills, pointed out that mortgage regulation is one of the main constraining factors to further house price growth. ‘This new lending environment is one of loan to income caps, stress testing of borrowers’ affordability and capital repayment requirements. Coupled with fast moving house prices against a context of limited income growth, this means higher deposits are required,’ she said. ‘Jump forward five years and we expect that prices will grow just 10.4%, as fewer first time buyers will have been able to access home ownership for these reasons,’ she added. The analysis shows that at the end of the third quarter of 2013, a first time buyer household earning £53,000, the median in London according to the Council of Mortgage Lenders, could have afforded to buy a property worth £264,000 at 3.74 loan to income multiple with a 75% loan to value mortgage. This assumes they could raise the required £65,000 deposit. At prevailing interest rates servicing this mortgage would account for 21% of gross household income. ‘Over the course of 2014 incomes grew by 4%, and if we assume the same mortgage conditions as before our hypothetical buyer can now borrow £206,000 and afford a property worth £274,000. The amount they can afford has risen by 4%, but, as we have seen, house prices will have risen much more,’ explained Warrick. In this example, the £264,000 house is now worth £320,000, resulting in a funding shortfall of some £46,000. ‘The options for buyers are pretty stark; find a much bigger deposit, borrow more money at an even higher multiple of income, or buy a smaller property or one in a less expensive area. The first two options may not be possible, the last may not be desirable,’ she added. If the same example is taken into 2019, the property would be worth £353,000 while incomes will have risen by 22% according to Oxford Economics. Assuming loan to value ratios remain the same, the buyer could now obtain a property worth £324,000 with a £252,000 mortgage. This means that while the funding shortfall is reduced, it still sits at £29,000. ‘Even if that shortfall can be found, the costs of servicing the mortgage… Continue reading
UK home lending approvals up almost 10%
House lending approvals in the UK have seen the fastest month on month increase in over five and a half years, up 9.1%. There were 65,778 house purchase approvals in January but on an annual basis they fell 12.9%, according to the latest Mortgage Monitor from e.surv, one the UK’s largest chartered surveyors. This makes January 2015 the fifth consecutive month in which the number of loans has fallen on an annual basis. ‘Lenders have a desire to return to growth and the January lending uptick is testament to this, as borrowers key in to mortgages while interest rates remain at historic lows. However, undoubtedly, some potential borrowers remain thoughtful about the approaching election and are playing a waiting game,’ said Richard Sexton, director of e.surv chartered surveyors. ‘Whilst the Mortgage Market Review and LTI caps are preventing what has previously been perceived as higher risk lending, equally we have Help to Buy supporting and encouraging first time buyers. With the announcement that the Bank’s Monetary Policy Committee is going to be given new abilities to place caps on LTV ratios, it looks like the purchase mortgage market could be closely managed and scrutinised in the run-up to the General Election,’ he added. The data also shows that loans to higher LTV borrowers grew 20.1% between December and January. The first month of 2015 saw 10,064 loans to borrowers with deposits worth 15% or less of their property’s total value, compared to 8,378 in December. While this month on month growth is partly due to the increase in the total number of approvals, higher LTV borrowers also occupied a larger proportion of borrowers in January. Some 15.3% of borrowers were higher LTV, compared to 13.9% December. On an annual basis, the proportion of higher LTV borrowers is 1.7% higher than January 2013, when they made up 13.6% of all house purchase loans. The latest First Time Buyer Opinion Barometer from Your Move and Reeds Rains found that the number of first-time buyer property completions fell to 24,800 in December from 25,900 in November, a 4.2% drop. January’s month on month increase in mortgage approvals could, however, boost numbers of first time buyers further. ‘Help to Buy is doing its work, plugging the savings gap left by low interest rates, enabling first-time buyers to get on the property ladder despite only being able to save small deposits. Lenders are locked in a price war, offering ever lower repayment rates to try and bring in borrowers,’ explained Sexton. But first time buyers can be challenged by the introduction of new regulation. No matter how you slice and dice it, caps add another layer of complexity for people fresh to the house-purchase market. With the Bank of England’s new powers to reign in LTVs, first time buyers are a group that could be more affected than others,’ he pointed out. ‘While regulatory supervision… Continue reading
