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Latest index provides further evidence of UK house price growth slowing
UK house prices increased by 0.5% in October but annual residential property price growth slowed to 9%, according to the latest index from the Nationwide building society. It is the second month in a row when annual property price growth has fallen and Nationwide chief economist Robert Gardner said that a variety of indicators suggest that the market has lost momentum. ‘The number of mortgages approved for house purchase in September was almost 20% below the level prevailing at the start of the year. Some forward looking indicators, such as new buyer enquiries, suggest that activity may soften further in the near term, especially in London,’ he pointed out. ‘However, broader economic indicators remain positive. The labour market has continued to improve, with the unemployment rate falling to 6% in the three months to August and mortgage rates have fallen back towards all-time lows. Indicators of consumer confidence have also remained close to recent highs,’ he explained. ‘If the economy and the labour market remain in good shape, activity is likely to pick up in the quarters ahead providing mortgage rates do not rise sharply,’ he added. The Nationwide report also points out that an increasing number of borrowers have been opting for fixed rate mortgage deals in recent times. Data from the Council of Mortgage Lenders suggests that around 90% of new mortgages were contracted on fixed rates in recent months, up from 67% two years ago. ‘Fixed rate deals are most popular amongst first time buyers for whom certainty over monthly payments is likely to be particularly important. Some 95% of new mortgage lending to first time buyers is currently on fixed rates,’ said Gardner. ‘Borrowers taking out fixed rate mortgages have benefited from historically low interest rates. For example, the average two year fix for those with a 25% deposit is currently 2.46%. While this is a little higher than earlier this year, it is still more than one percentage point below the level prevailing in 2012. Moreover, for borrowers with a 10% deposit, the rates available for two year fixes are the lowest on record,’ he explained. ‘This has helped, in part, to offset the negative impact of rising house prices on affordability. Indeed, even though house prices are at an all-time high, the cost of servicing a typical mortgage is still close to the long term average as a share of take home pay,’ he added. However, despite the high proportion of new mortgage lending on fixed rates, the majority of the stock of outstanding mortgages, around 60%, is on variable interest rates. Gardner said this is a marked shift from the pre-crisis period where the proportion of mortgages on variable rates was 38%. Moreover, the majority of recent fixes are for relatively short time periods with 62% for two years and around 30% for five years. Gardner believes that the housing market should be able to cope with higher interest rates, provided the increase is gradual and the economy and the labour… Continue reading
UK estate agents see surge in home hunters as supply remains low
The number of house hunters recorded by estate agents in the UK is at the highest level in nearly 10 years as supply is at a 12 year low. The latest figures from the National Association of Estate Agents shows that in September its members reported an average of 405 house hunters per branch, the highest since October 2004 with each agent averaging 511 buyers. The September Housing Market report also reveals that 82% of homes sold for less than the original asking price, suggesting that sellers still need to be flexible when it comes to pricing. While supply of housing increased slightly from last month, from 49 houses available in August to 51 in September, this figure is seasonally low for September. The last time that supply levels were lower for September was in 2002, when 43 houses were available per NAEA member branch. The NAEA says that it is promising to see that first time buyers now account for 30% of all sales estate agents reported for the month of September, compared to 28% in August and 20% in July. ‘The report demonstrates to us that people are ready to get on or move up the housing ladder, but the supply levels do not match demand,’ said Mark Hayward, NAEA managing director. ‘September is a notoriously busy month in the housing market. The kids have gone back to school after the summer and people want to get sorted before Christmas, however it seems a lack of affordable and quality housing has been a problem this month. Now that the economy is picking up and Brits are in more comfortable financial situations, more people will want to buy and sell homes, but may be restricted,’ he explained. Despite high volumes of house hunters, the majority of houses are being sold for under the sellers’ original asking price. Only 4% of properties sold in September were sold for more than the original asking price, and a stark 82% were sold for less than asking price, some 16% more than in July, when this was last reported on. The report also shows that 70% of estate agents agreed that the impending interest rate rise set for 2015 is already effecting demand in the housing market, this is up by a quarter from September when only 39% thought that the rise was already effecting demand. ‘There’s still a visible gap in the number of house hunters, and the number of properties available and the impending base rate rise is likely to have an effect on this, with almost three quarters of agents reporting evidence of the rise affecting demand already,’ said Hayward. ‘All of our research does emphasise the need for the government to take action and ensure measures are in place for more homes to be built in order for supply to eventually meet the growing demand,’ he added. Continue reading
Falling buy to let mortgage costs benefiting UK landlords
UK landlords are benefitting from tumbling mortgage charges and longer fixed rate deals with fees falling for all except the highest LTV loans, new research shows. Short term fixes are now less prevalent as longer initial terms form a growing proportion of mortgages and almost one in five of all available buy to let mortgage products (19%) are now five year fixed rate deals, says the latest index from Mortgages for Business. It says that overall competition is driving buy to let lenders to cut their charges and fees as well as to offer longer term fixed rates. On average the effect of fees and charges on buy to let mortgages was to raise the overall cost for comparison by just 0.54% per annum in the third quarter of the year. This is significantly lower than the average of 0.67% extra in fees and charges seen at the start of 2013, and down from 0.58% in the second quarter of 2014. However, beneath this overall trend there is also a growing divide between fees for buy to let borrowers at different loan to value ratios. For example, charges for low LTV up to 65% of property value and medium LTV from 65% to 75% buy to let mortgages have fallen dramatically. By contrast, charges for high LTV at 80% and above loans have increased. In the first quarter of 2013 the effect of these, at 0.71%, was broadly in line with that for medium LTV loans. Yet since then charges have mounted, to add an additional 0.84% to the average cost of buy to let borrowing at higher LTVs in the third quarter of 2014. ‘Healthy competition is good news for landlords, who can now choose from a pool of in excess of 700 different buy to let mortgages,’ said David Whittaker, managing director of Mortgages for Business. ‘Meanwhile, the wider benefits of more buy to let funding are being felt by everyone in the private rented sector, including tenants who have seen a growing supply of homes to let this year. This is a vote of confidence in landlords, at a time when lenders remain under serious pressure to maintain the safest possible loan books,’ he explained. ‘Yet the details are even more encouraging. Prioritising middle and lower LTVs is prudent but the most encouraging signs are lenders offering landlords what they need. Longer term fixed rates are the best option for landlords looking to protect their future income and minimise any risk associated with interest rate rises, and there are now many more of these options available,’ he added. The index report also shows that five year deals now make up almost one in five fixed rate mortgages on the market, at 19%, up rapidly from 15% in the second quarter of this year. By contrast three year fixed rate deals have dropped from 19% to 17% of all products in the third quarter while two… Continue reading
