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UK housing market slows after buy let rush in March, latest index shows
UK house prices increased by 0.2% in April but annual house price growth has slowed to 4.9%, down from 5.7% the month before, the latest index figures show. This takes the average price of a home to £202,436 with the slowing of activity not a surprise due to increased market growth in March due to stamp duty changes, according to the index report from the Nationwide. Robert Gardner, Nationwide's chief economist, said that the slowdown returns the annual pace of house price growth to the fairly narrow range between 3% and 5% that had been prevailing since the summer of 2015. ‘It may be that the surge in house purchase activity resulting from the increase in stamp duty on second homes provided a temporary boost to prices in March. However, it is possible that the recent pattern of strong employment growth, rising real earnings, low borrowing costs and constrained supply will tilt the demand/supply balance in favour of sellers and exert upward pressure on price growth once again in the quarters ahead,’ he explained. He pointed out that there were 165,400 transactions in March, an all-time high, some 11% higher than the previous peak of 149,000 recorded in January 2007 and estimates from the Council of Mortgage Lenders suggests that mortgage lending also rose sharply, to almost £26 billion in March, up 43% from the £18 billion recorded in February. ‘If confirmed by Bank of England data later this week, this would suggest a strong outcome, up nearly 60% year on year and also well above recent highs of £22 billion per month recorded in early 2015, though still well below the all-time high of £34.9 billion recorded in June 2007,’ Gardner said. ‘The increase in mortgage lending is likely to have been driven by a sharp increase in buy to let investors bringing forward their purchases before the stamp duty changes took effect. Buy to let has accounted for an unusually high share of lending in recent months, at around 19% of lending in the three months to February, but the strength of activity suggests its share could surpass 25% in March,’ he explained. ‘Viewing the transactions and mortgage lending data together suggests that, while buy to let lending is likely to have risen strongly in March, a large proportion of the boost to house purchase activity came from cash buyers,’ he added. Gardner also pointed out that cash purchasers have become a more significant part of the market since the financial crisis, accounting for around 35% of all transactions since 2008 compared with around 25% in 2006/20007. ‘Cash investors would have also been better placed to buy properties in the relatively short period of time between the stamp duty announcement at the November Autumn Statement and the implementation on 01 April,’ he added. But a continued limited supply of properties could mean that the market could still be lively in the coming months, according to Michelle Grant, investment director of Grant… Continue reading
Almost 60% of prime London properties sold to second home owners and buy let investors
Buy to let investors and second home owners were behind three in five property purchases made in the prime London market in the first quarter of 2016, new research shows. This boosted the overall proportion of purchases made in cash, according to the latest London Property Monitor report from estate agent Marsh & Parsons. Accounting for 36% of all sales from January to March, buy to let investors were the most prolific type of buyer across the prime London market in the three months immediately preceding the 01 April implementation of an additional 3% stamp duty on additional homes. This represents a significant rise from 26% of purchases during the previous quarter, and a sudden reversal of the recent trend of weakening investor influence. Investor share of the market has been in slow decline last year since it peaked at 37% in the fourth quarter of 2014. Those purchasing an additional residence became the second most prominent type of buyer in the prime London sector during the first quarter of 2016. This buyer group saw an even bigger jump in market share quarter on quarter, with second home owners accounting for 23% of all purchases, up from just 14% in the fourth quarter of 2015. Together, buy to let investors and second home owners accounted for 59% of all purchases in the prime London market in the first quarter of 2016 and in the prime central London market it was even higher at 76%. The research also shows that second home owners overtook investors as the most common type of buyer witnessed in prime central London during the first quarter of the year. Some 41% of all property purchases were made by those buying an additional residence, a significant leap from 24% in the final quarter of 2015. Property investors also seeking to circumvent the extra 3% levy accounted for a further 35% of property sales. This preponderance of second home owners and buy to let investors has translated into a much higher proportion of cash purchases in the prime London market. Some 40% of property purchases were made by cash buyers in the first three months of the year, an increase from 34% in the previous quarter and up 36% year on year. In Prime central London areas this rose to 46%. ‘Investors will always be the stalwarts of the prime London property market as it’s the golden goose of capital returns. But second home owners were much more prominent in the market than we would typically expect,’ said David Brown, chief executive officer of Marsh & Parsons. But he pointed out that this was by no means a typical quarter and sales activity in the opening three months of this year has been exceptionally skewed by the additional layer of stamp duty for both buy to let and second home purchases. ‘Naturally, the knee jerk reaction among these groups has been to hurry… Continue reading
Mortgage lenders concerned about impact of banking reforms on UK housing market
First time buyers and housing associations in the UK could bear the brunt of banking reforms which affect credit risk, it is claimed. Proposals from the Basel Committee on Banking Supervision to revise its standardised approach for credit risk could adversely affect parts of the UK housing market, according to the Intermediary Mortgage Lenders Association (IMLA). The Basel framework ensures that banks, building societies and other deposit taking institutions have sufficient capital for the underlying risks they bear. While supporting this objective, the IMLA has raised significant concerns over some proposed revisions in the latest Basel consultation, which it argues are not justified by differences in risk and could limit access to mortgage finance in key areas of the UK housing market. In particular, one of the most serious impacts could be on lending to UK housing associations. By preventing lenders from taking into account borrowers’ financial strength, the Basel proposals could see loans to many housing associations redefined and subject to much higher capital requirements, despite the exemplary payment track record and their government regulated status. The same proposals mean the regulatory cost of buy to let lending could far outweigh the risks involved, as they do not accommodate the fact that many buy to let borrowers are substantially more financially secure than the average owner occupier. IMLA also strongly disagrees with proposals which could distort mortgage pricing and push up the cost of higher loan to value (LTV) mortgages, which are relied on by many first time buyers to become home owners. Doing so could incentivise them to seek out unsecured ‘top up’ loans to fund their house purchases with a lower LTV mortgage, which would be potentially harmful to their finances. The IMLA’s consultation response highlights how aspects of the Basel proposals could create a ‘bizarre’ situation where unsecured lending can be given a lower risk weighting than secured lending to the same borrower. It could also penalise lenders that have adopted conservative lending standards and create an artificial incentive to lenders to remortgage or ‘churn’ customers, creating outcomes that would not be deemed good for either the customer or the lender. ‘It is vital to have the right checks and balances in place so lenders can provide mortgage finance where there is a legitimate need while maintaining a stable UK housing market,’ said Peter Williams, IMLA executive director. ‘The Basel consultation sets out with the important aim of ensuring capital requirements are appropriate to the underlying risk, but we are concerned that the current proposals will not meet this goal,’ he explained. ‘Government and industry need to work together to bring greater balance to the UK housing market. This includes ironing out the technical details of the Basel proposals to defend consumer interests across all housing tenures,’ he added. Continue reading
