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Lenders offering more deals to UK residential property developers, new survey finds
Lenders to residential developers in the UK are taking on more risk as property markets stabilise after the financial crash, a survey of more than 50 major institutions has found. The respondents, which include a mix of banks, institutional investors and private equity funds, are increasingly funding schemes outside London, plan to grow their loan books over the next year and are more open to planning risks and higher loan to value lending. The findings of Knight Frank’s latest survey marks another step on the return to a more liquid lending environment following the financial crisis, when banks retreated from the sector. It points out that the UK economy is tentatively returning to health and the prospect of a normalised interest rate environment. In September, the Office for National Statistics said the country’s economy was 2.7% larger in the second quarter of the year compared to its pre-crisis peak. ‘This was reflected in the number of lenders who intend to grow their loan books over the next year, with the figure rising to 78% in the third quarter of 2014 against 75% in the third quarter of 2013. Furthermore, the amount of respondents that would consider a scheme with planning risk increased to 60% from 50% last year,’ the report says. ‘However, there is no sign banks are returning to the years of higher risk lending that preceded the financial crash and they are joined by other lenders including hedge funds and other institutions that are attracted by relatively high returns in a world of low yielding assets,’ it adds. It points out that this increased competition has forced down the cost of debt. Indeed, some 36% of respondents said they had reduced their pricing as a result of this increased competition while more than a quarter said they were prepared to take on more planning risk or boost the loan to gross development value ratio. However, as more lenders enter the market following the retreat of the banks, some are struggling to lend in sufficient quantity or at the returns of about 13% that they envisaged. As a result, many so-called alternative lenders, who planned to offer higher yielding mezzanine finance, have been forced to provide senior debt. As these lines blur, with High Street increasingly open to mezzanine finance and specialist funds providing senior debt, and Peter MacAllan at Knight Frank Finance warned the lending market could not become much more crowded after the transformation it underwent following the financial crisis that brought a range of new entrants. ‘I have a feeling we are reaching saturation point. There are too many lenders chasing the same deals,’ he explained. The report also points out that the sustainability of house price inflation is a concern for lenders, particularly in London, despite recent signs of moderation. Some 83% said they would consider schemes in zone 1 of London while 89% said they would consider zone 2 and beyond. That compares to 97% who would consider schemes… Continue reading
England and Wales house prices showing strongest annual growth since 2005
House prices in England and Wales increased by 0.8% in November with values climbing across all regions taking the average price to £280,733. The LSL Property Services/Acadata index also shows that annual growth accelerated to 11.3% but it points out that strong growth is buoyed by London and the South East. Excluding them takes the annual growth to 5.7%. But it does mean that the average house price has now exceeded £280,000 for the first time and annual growth is the strongest it has been for almost a decade. However, completed house sales have been squeezed by slow supply. ‘Annual house price growth across England and Wales has more than doubled over the last 12 months, accelerating from 5.4% in November 2013, to 11.3% during the past year,’ said David Newnes, director of Reeds Rains and Your Move estate agents. ‘These figures are spurred on by London and the South East, where the housing recovery has been fast tracked. When these regions are removed from the calculations, a calmer 5.7% annual rise in house prices materialises, the largest divergence on record,’ he explained. ‘After a temporary hiatus at the highest tiers of the property market, growth has rallied again in the capital with values in prime spots such as Kensington and Chelsea, and Hammersmith and Fulham surging 5.3% over the course of the month, hitting new price records along the way,’ he added. He also pointed out that overall, average house prices in London are now 1.9% higher than September, rebounding back from a more moderate 0.8% increase the previous month, and driving annual price rises to 19.7% in the year to October 2014. However, after a solid advance in activity throughout 2014 to date, completed house sales withdrew last month, from a particularly busy October. House sale completions in November also dipped below the level witnessed a year previously. ‘This doesn’t undermine the strength and stability of the growth in activity experienced over the year as a whole in some locations. For instance, completions have jumped 58% in Slough in the last year, propelling an 18.5% increase in average house prices in the area over this time,’ said Newnes. He also explained that the changes to Stamp Duty should also allow activity to build further at the bottom rungs of the ladder, facilitating hefty savings. ‘This should help erode the upfront barriers of purchasing a home for the significant majority of buyers and sellers may feel the benefit of weightier demand, as well as being able to price their homes more realistically, without having to tactically negotiate threshold barriers,’ Newnes said. ‘Meanwhile, the impact on the top end of the market isn’t as black and white as it may seem at first glance with properties ranging between £1 million and £1,125,000 liable for less stamp duty than before although above that there are no winners,’ he added. ‘In the year to September 2014, some 69% of completed house sales on properties worth £1,125,000 or more were in London, and a… Continue reading
UK house price growth falls in UK for sixth month in a row
UK house price growth in November dipped for the sixth consecutive month but changes to the Stamp Duty property tax is expected to boost sales, according to the latest report from the Royal Institution of Chartered Surveyors (RICS). The tax changes announced last week in the Chancellor’s Autumn Statement could result in a sales boost of between 2% and 5%, according to the RICS Residential Market Survey. Despite 15% more surveyors reporting a decline in new buyer enquiries and a fourth consecutive fall in supply to the market, surveyors are expecting more house sales in response to the reforms, although expectations in the capital were more muted. As speculation continues over how much the new changes will encourage existing property owners to put properties on the market, the reforms come in a month that saw house price growth fall to its slowest pace since May 2013, a 13% net balance, and the number of houses for sale per branch fall back to its second lowest reading of 56. It was also clear from member comments that uncertainty surrounding the outcome of the forthcoming general election is providing potential purchasers with a reason to sit on their hands and new buyer enquiries have now declined for five consecutive months. Across the UK, price growth was strongest in Scotland and the South West, both with a net balance of 37%, and weakest in the North of England and London. Meanwhile in the rental market, tenant demand was steady in November, but landlord instructions declined for the eighth successive month and member' forecasts for rent over the next 12 months now stand at 2%. ‘The Stamp Duty reform could reverse the softer trend in buyer enquiries that has been visible in recent months but a critical issue in terms of how it plays out with prices is whether it also encourages more vendors to consider putting their properties back onto the market,’ said Simon Rubinsohn, RICS chief economist. ‘The expectation from members that transactions could increase by up to 5% over the next year on the back of this measure suggests that there is a belief that supply will indeed respond to the tax change. This is all the more important given that the latest RICS data suggests that the average level of inventory on surveyors' books is close to a historic low,’ he added. According to Jeremy Blackburn, head of policy at RICS, it is no surprise that surveyors are expecting an uplift in the market in response to the long overdue reforms to the stamp duty tax system. ‘Removing the dead zones will reduce the distortion in the market and ensure that those at the top end of the market will now contribute fairly, while those at the bottom will be given a fairer chance to get on the ladder,’ he explained. Continue reading
