UK Property
by theWatchdog.co.uk

 

Information on the UK Property Market

The property market within the UK has been the subject of debate and discussion for many decades. In more recent years the buy-to-let market has led to a huge increase in property purchases for investment, not just for those will a few million to invest, but for almost anyone who can obtain a mortgage.

There are many reasons that have resulted in the expanding UK property market, these include private investors or property buyers who see property as an alternative form of future pension income, then there is the rising population fueled largely by the expansion of the EU, and finally there is bank base rates which have been favorable to property investors in recent years.

But things can and will change, interest rates change frequently, the population growth will eventually slow down, and the government could change taxation and regulation to alter the dynamics of the UK property market.

What this web site aims to do is provide information on the UK property market and to provide useful resources to help people to optimise their investment choices.

APRIL 2009

Bank base rates are held at 0.5%, this was not a surprise to most economists, many arguing that further cuts would have virtually no impact on the cost of borrowing given the current market conditions.

 

MARCH 2009

How far will base rates fall? The Bank of England MPC announced on 5 March that base rate will reduce from 1% to 0.5%. They key issue many anyalsts are now talking about is whether these further reductions will have any effect on lending. As money market rates are higher than bank base rates it makes it very unlikely that these discounts can be passed on to the mortgage borrowers.

 

FEBRUARY 2009

Bank of England continues to reduce base rates, a further reduction of 0.5% to 1%, can it go much lower?

MPs expenses continue to be in the news, reports suggesting that Jacqui Smith designates here sister's home as her 'main home'. Whilst many are truggling with the financial realities of life it all seems a little surreal.

The Head of the IMF (Dominique Strauss Kahn) states in an interview with the BBC that the IMF wanred leaders of the impending financial crisis. Perhaps more worryingly the IMF warn of a second wave of crisis to hit countires including the new European democracies.

Almost unthinkable a year aog, China announces that its biggest challenge is not the slowing growth, but the rise in unemployment.

JANUARY 2009

12 months ago who would have predicted what we are seeing now (well, there maybe one or two), bank base rates reduced a further 0.5% to 1.5%.

The IMF reports that it expects World Growth to fall to 0.5% in 2009, its lowest rate since the 1940s.

The British Chambers of Commerce preducts UK GDP to fall 2.9%v between Q3 2008 and Q3 2009 and a risk of "deflation" in the second half of 2009. Perhaps even more worryinlgy for most people is the BCC prediction that unemployment will increase to a peak of 3.1m, soem 10% of the workforce, over the next 2 years.

BCC Director-General, David Frost, said: “I've worked through three recessions now and 2009 looks like it will be one of the toughest years I've ever seen for UK plc.

DECEMBER 2008

On 4 December another headline grabbing annoucement as the Bank of England MPC announce a 1% cut in bank base rates to 2%, this is almost unheard of for the UK. Such cuts in base rates emphasise the MPC's concern at the dire situation of the UK economy.

The UK Government announces its stimulus package including a reduction in VAT fro 12 months, reducing the rate from 17.5% to 15%. Econmoists seem to be reporting with mixed views, some saying this will help retail sales (and jobs), others saying the effectt is too minimal to have an impact that justifies the increase in borrowing needed.

Political debate also surrounds the £20 billion "borrowing binge" (refered to be David Cameron), it is argued that these additional fiscal stimuli will increase the tax burden on generations to come.

NOVEMBER 2008

As the global financial crisis depens "World Finance Chiefs" from the G20 summit in Brazil announce that they want to increase the role of "Emerging Nations" as part of reforms to tackle the current crisis.

The Bank of England also makes a mojor announcement with a headline grabbing 1.5% drop in base rates to 3%. Some analysts report that maybe rates should have been cut earlier, any many are saying there will be more cuts in bank base rates to follow.

Whilst the cut in base rates is generally good news to existing borrowers, it is only beneficial if mortgages/loans track the bank base rates. it is estimated that around 50% of UK home owners are on fixed rate products, so they will not see any benefit for the time being.

OCTOBER 2008 UPDATE

The 0.5% drop in bank base rates is welcome news but many are saying this simply is not enough given the turmoil in the markets. Property prices continue to fall with almost universally shared views that property prices will fall throughout 2010. It is not just that property prices are going through a correction, it is also because of the difficulty in obtaining a mortgage.

The difficulty in obtaining a mortgage was highlighted by the RICS survey in October which identified that house sales hit "a new 30 year low". Or to look at it another way property sales are lower than they were at any time during the property downturn in the early 1990s.

Combined with the low property sales the number of UK property repossessions continues to increase. For Q3 the total number of properties repossessed increased to 11,000, that is an increase of over 70% on Q2. Lets hope those in power take some action to stimulate the economy, and more importantly return some liquidity to the credit markets.

SEPETEMBER 2008 UPDATE

This is probably the month that will go down in history as the defining point of the credit crunch.

The Halifax reported that UK house prices had fallen at an annual rate of 10.9% by August 2008 with prices falling by over 1% for the month. There has to be some degree of scepticism on the accuracy of such figures in a market with low volumes of sales, however it is clear that prices are continuing to slide.

But, the biggest news of this month has to be the spectacular meltdown of major banks and insurance companies. In the USA we first saw Lehman Brothers file for bankruptcy, then AIG, the world's largest insurance company, was effectively taken over the the USA Government.

Within the UK the HBOS group shares started to slide as rumours grew about its ability to survive, the result was the UK Government authorising Lloyds TSB to purchase HBOS for £12 billion. In normal circumstances this purchase would not have been approved as it undermines market competition, but this is considered to be a better solution than allowing HBOS to go out of business.

Looking forward what will September mean for the UK property market? One the one side there has been increased assurances that western economies will not allow retail banks to fail, thus helping to provide a small degree of comfort in this turbulent market, but, on the other side, it could mean a more prolonged period before confidence returns to the financial markets and ultimately to the property market.

AUGUST 2008 update

Following the announcement by the USA government to effectively take over the huge mortgage companies, Fannie Mae and Freddie Mac (who though of those names?) a degree of optimism was found in the press as people started to report that maybe this will help underpin and see the gradual return of normality in the credit markets.

Some UK mortgage lenders are starting to reduce mortgage rates for home owners and buy to lets, this is great news and a welcome relief for many. However with property prices continuing to fall it is still a very tough time for property owners. Gloomy data from mortgage lenders and property companies indicated price falls of 2.3% across the UK with a fall of 5.3% for Greater London.

The Bank of England again decided to keep the base rate on hold at 5%, arguing that the threat of inflation was a greater problem than the risk of recession. That said many analysts were suggesting the inflation would peak and start to fall by the end of 2008, and thus leave scope for the Bank of England to cut rates - we shall wait and see!

In the USA a well respected economist, Kenneth Rogoff (Harvard Professor), predicted that one or more major USA banks will "go under" in the coming months as the impact of the credit crunch takes further effect on the banking system.

Overall August has been a relatively tough month for the UK property market, historically a month when we should be seeing a buoyant market for house sales, instead we are seeing falling prices and falling number of sales.

July 2008 update

Once again the Bank of England chose to hold interest rates at 5%, however there were mixed views within the committee that decides on interest rates with one voting for a cut and another voting for a rise. This probably highlights the dilemma for the UK economy (and housing market), the complexity of the economic conditions that result in strong arguments for increasing rates, reducing rates, and keeping them on hold. With inflation continuing to rise it is extremely difficult for the Bank of England to sanction a cut in rates.

In July there were also further reports of falls in house prices, figures ranged from 1.8% to 2% for England and Wales. As the spring and summer months are the most buoyant for sales each year this would suggest there is much more pain to come as we enter the winter months. Even when the normally stronger house market regions are considered significant price falls are prevalent, for example within London the districts of Greenwich, Wandsworth and Brent were reported to have seen falls of 6% to 7%. It is clear that the UK housing market is still in the early stages of price correction, the questions is how much of a correction will take place?

June 2008 update

With increasing oil and food prices there is no sign of inflation easing any time soon, these factors were again cited by the Bank of England as it maintained base rates at 5% fearing any reduction could trigger higher inflation. Some economists have even talked about the risk of stagflation affecting the UK economy - this is where we have a combination of high inflation and a fall in economic growth. All the signs are that we will not see any sort-medium term reductions in bank base rates.

(Almost) irrespective of the UK economic situation there are no signs of the bank lending situation improving with effective mortgage rates increasing (in particular within the buy-to-let market) as banks continue to be unwilling to take on more lending. There was also the debacle surrounding Bradford and Bingley (B&B), a major player in the UK buy to let market. B&B struggled to raise cash with the result that other UK banks took up shares to maintain confidence in the banking system.

May 2008 update

As many predicted the Bank of England held the base rate at 5%, largely because of inflation fears. Immediately following the Bank of England's decision not to cut rates in May there were many analysts predicting a cut of 0.25% in June 2008, with at least one more cut in rates before the end of 2008. But then came the major announcement from Mervyn King (Bank of England Governor) that inflation was expected to increase in 2008, with an expectation that it would reach 3.7%. Mervyn King also added that we could expect a continued period of economic difficulty in 2008 and 2009. This announcement then led analysts to report that we may not see any further cuts in base rates before 2010.

The key issue for home owners is what this means for mortgage rates. For the last few years it has been quite easy to take out a new mortgage (or remortgage) at interest rates at or below the bank base rate, this has been largely due to banks targeting market share. Going forward, at least for the next few years, it is going to be more the exception to find a mortgage at or below bank base rates. The conjecture is that banks will start to maintain higher margins over base rates, so maybe the days of 'cheap lending' are history?

On another note, there have been some sensationalist articles published, such as the housing market worst for 30 years, these headlines can be misleading. For example, in the 1990s property slump the number of repossessions peaked at around 75,000 in 1991, and totaled around 345,000 between 1990 and 1995. In 2007 the number of repossessions were less than 30,000 with many analysts suggesting a 50% increase for 2008, this is well below the 1990s figures. So, yes we are in a period of house price correction, but maybe not on the same scale as was experienced in the 1990s. Time will tell!

One last comment for this month. Up until now we have been hearing from the Government that there will not be a property market crash, but then came that unfortunate oversight. The housing minister, Caroline Flint, unintentionally leaked her briefing notes stating the in 2008 property prices would fall by 5% to 10%. If the effect of 3.7% inflation is added into this that would mean 'real' price falls of 8.7% to 13.7%

April 2008 update

So you thought March 2008 was a bad month. In April 2008 some analysts are now predicting property prices will fall by as much as 20% or more. Even the IMF (International Monetary Fund) published a press release suggesting the UK property prices were going to fall. This is very bad news indeed. With lenders now demanding 10% to 20% deposit for a mortgage, those who took out mortgages in the last year or two could find that with prices falling there is no option to remortgage as they have little or no equity left in their property.

RICS also published a report in April with a survey identifying that 78% of its members were experiencing falling prices in Q1 of 2008. The worst affected area was identified as East Midlands, the least affected area was Scotland. This is more bad news for home owners. Lets hope the banks get some liquidity soon so that mortgage lending becomes a little easier and the impact on property prices minimised.

Ending on some good news, the Bank of England did reduce base rates by 0.25% to 5%. All we need now is for banks to pass on the lower rates to borrowers. Lets hope we start to see this happen in the next month or two!

March 2008 update

This will be remembered as the month when the credit crunch really started to take effect on the UK property market. Many banks started to withdraw 'attractive' mortgage deals simply because they did not have the funds to lend, the credit crunch had hit with a big thump.

But there was more bad news for those wanting to take out a new mortgage, suddenly your credit rating may be an issue in taking out a mortgage. This is because lenders were now being far more selective on who they lend to. So if you were one of those customers who had just come out of a fixed rate deal at 4.99% you now find yourself on the lenders standard variable rate of 7% or higher and no chance to remortgage elsewhere. In effect your mortgage payments increase by 40% without any option to refinance on a more competitive rate. Ouch!

February 2008 update

What a month it has turned out to be. The Bank of England chose not to cut rates this month as fears of inflation take centre stage. But, much of this inflation is form higher fuel costs - which is going to be a factor for many years to come as demand exceeds supply.

RICS subsequently stated their concerns for the UK housing market with an increased number of surveyors (now over 50%) identifying house price falls in January 2008. In part this is put down to the tightening of mortgages and home loans, but there is also the underlying factor of historically high house prices.

No one knows for sure what is going to happen to the UK housing market this year however a major factor is economic growth, providing the UK economy keeps growing and we do not enter a downturn in employment then it may just be a short-term bumpy ride for property prices.

On the positive side for the housing market, whilst many economists are now suggesting there will not be a UK base rate cut until May 2008, many are also predicting cuts of up to 1% over the next 12 months. We shall wait and see!

January 2008 update

The USA announcement of a 0.75% cut in lending rates took the markets by surprise, but it will take time before we see what longer term impact this will have. Some analysts are currently forecasting that there will be a 0.25% cut in the UK base rate in February, followed by a further 0.25% cut in March or April. The key factor defining how much this will help borrowers is what the lenders do. As posted earlier, many have loses to recover, they also have to borrow money at the inter-bank lending rate (LIBOR).

So what does this mean for the borrower?

In short it is good news, these rate cuts will eventually feed through and lower the actual mortgage lending rates. BUT, for those with adverse credit history there will be less benefit in that they will still find it difficult to pull away from the SVR (Standard Variable Rate) charged by lenders - these are almost always higher than the interest rates offered to new borrowers or those with good credit history who can change mortgage deals with their existing lender.

And what about the property market?

There are still some fundamentals in the UK property market to be aware of; firstly the positives which are a shortage of homes and interest rates trending down, these are what will help to maintain prices; secondly there are the negatives, these are the relatively high prices making homes unaffordable for many, and then there is the increased rate of repossessions which will bring more properties on the market at a discounted price.

In summary, the news in January is relatively good for the UK property market, but it is not enough to prevent house price corrections, in particular in areas where properties are over-valued against the fundamental of local affordability.

December 2007 update

The recent announcement of a quarter percent drop in bank base rates is a glimmer of hope for most home owners but it is just that, a glimmer of hope. What everyone is really hoping for is further cuts in the base rate in 2008, with some suggesting that half a percent drop is likely during the year.

For those coming onto the housing ladder this will be a big help, and for many people with standard variable rate (SVR), discount or tracker rate mortgages this will also be good news. But, as we posted earlier, it is not good news for everyone. Many lenders who had originally provided a fixed term deal, such as a fixed term tracker or fixed interest rate, are now taking the stance that your mortgage will switch to a higher SVR mortgage.

For some people the answer is simple, you vote with your feet and move to a new mortgage provider. But for others its not that easy, if you have a poor credit history it will become increasingly difficult to find mortgage providers that will take you on, let alone provide you with one of their 'new attractive deals'. The upshot is that for those with poor credit history and just coming out of a fixed term deal, there is a bumpy ride ahead.

November 2007 update

There has been some good news, economists are now starting to predict that there will be a fall in interest rates in 2008, possibly 0.5% or more. For those with a good credit history this should mean that they will find some better mortgage rate deals. However many are also predicting that lenders will not pass on much (or any) of the forecasted fall in interest rates, this is because many lenders still have losses to write off from the sub-prime failures.

The upshot is that anyone with 'less than good' credit history could find it increasingly difficult to find good mortgage deals, thus when they exit their discounted and fixed rate deals they may find themselves trapped with higher 'standard variable rate' mortgages.

As for property prices, much will depend on first time buyers entering the market and the ability for people to move up to a higher value property. Economists are predicting that property prices will fall in some parts of the country and within certain price bands (e.g. below £350,000) there will be a bigger impact. But, falls may not be that great with some forecasters suggesting that prices may stay flat with any effective fall being relative to not keeping up with annual inflation rates of around 2%.

October 2007 update

Following the recent fall-out from the sub-prime market in USA and the virtual collapse on UK's Northern Rock there has been some more bad news for borrowers.

An influential group of UK economists are now predicting higher costs of borrowing for those with an adverse credit history, this is in addition to any movement on bank base rates. This approach by the lenders will help to mitigate future bad debts and to some degree help reduce losses from previous sub-prime lending.

The outcome of such a move by lenders will no doubt impact the housing market as it will effectively cut out a significant number of potential buyers who will not be able to afford the higher costs of borrowing.

If you have a property to let and looking to screen a tenant then you can obtain tenant screening services at Credit Check Services.