Guest Liam Posted April 24, 2009 Share Posted April 24, 2009 It’s hard to believe that the credit crunch has been with us for almost two years. Property was one of the first sectors to succumb as mortgage finance dried up and confidence began to ebb. With buyers staying away from the market property prices fell. It was not long before the effects of the credit crunch were felt by the rest of the economy. FINANCE Q1 of 2009 saw The Bank of England reducing the base rate from 1.5% to 0.5%, the lowest level since the bank was founded in 1694. This has been followed by “Quantitative Easing” where central banks have introduced liquidity to the economy through the purchase of illiquid assets from commercial banks in order to thaw the frozen credit markets. A recent Bank of England survey suggested that the supply of credit to both homebuyers and businesses had began to improve. Their figures showed that mortgage approvals have increased to just under 38,000 in March, up 19% on February and 39% higher than November 2008. In turn the number of new competitive mortgage products coming to market has increased, enabling first time buyers to take advantage of lower prices through lower rates and higher loan to values (LTV’s) of up to 90%. The credit thaw is also spreading to buy to let mortgages with investors achieving up to 85% LTV’s at competitive rates. The best deals are reserved for buyers with larger deposits with rates from as little as 2.99%. Lender Rate Max LTV Type First Direct 2.99% (2 yr fixed) 75% Residential HSBC 4.99% (2 yr fixed) 90% Residential Abbey 5.85% (4 yr fixed) 85% Residential Mortgage Works 3.39% (1yr fixed) 60% BTL Lloyds TSB 5.29% (3yr fixed) 75% BTL Bank of Scotland Base + 3.89% 85% BTL BoS Offshore Base + 2.89% 70% Overseas BTL Source: Moneysupermarket.com & Charcol.co.uk SUPPLY There is a myth permeating the market that House builders the length and breadth of the UK are walking the fine line of corporate implosion. In practice this is very much an urban myth. Without question it has been extreme trading conditions for all House builders in the last eighteen months however the announcement last week from Taylor Wimpey that it has reached agreement on a debt deal market the last of the major listed PLC’s to secure their short to mid-term position, in Taylor Wimpey’s case through until 2012. From ongoing conversations we are having it is evident that several of the listed House builders have regions that have performed in excess of target in securing reservations and sales through Quarter 1 2009. This has clearly further relieved pressures on standing stock that there were at the end of 2008, further assisted by high volume sales to Housing Associations and huge levels of interest in the Government HomeBuy Scheme and House builders own in house shared equity programs, Barratt Homes announcing last week that in Q1 they alone received 20,000 enquiries to purchase on the HomeBuy Scheme. Working concurrently to this is a situation of reduced completion levels and huge drop of in forward build meaning that there is very little inventory of standing stock to carry forward into Q2. Every major listed House builder has laid of high numbers of staff and associated contractors over the past year meaning that a lot of departments, especially those functions servicing construction, are running on skeleton staff and now proportionally as busy as they have ever been working on a “just in time” program to meet strategically allocated completions. Carrying this forward to the market we have seen availability of standing stock in the North West, North East and East Midlands which is a situation created most likely from lack of higher loan to value mortgage funding on new build property nationwide but accentuated in these lower income demographic areas. Contrast that with the South East where there is very little standing stock at all prevalent in the market. This pincer situation in our opinion is leading to a slow and subtle shift in the market. Less stock being completed and sold reduced supply while steady sales, all be they at lower levels, have in the main removed the pressure building on unsold units that developers have alleviated through price competition and reductions and sales as described above. This contraction perhaps marks the new norm for the medium term through 2009. The correction in the housing sector was so sudden and unpredicted that it was impossible for these huge building heavy weights to react fast enough to bring their house in order and has taken almost twelve months for them to get themselves into a position of partial stability but now that they are there this will be the trend for the remainder of the year perhaps. ARE WE OUT? According to data from Halifax the average price of UK house price fell by 19.9% during 2008 with the most recent data from the Land Registry showing a fall of 16.5% over the last 12 months. Several reports from city firms have gone further to suggest the market will fall 40% from peak to trough. If the consensus is that house prices were overvalued and a correction was overdue, is there a case to suggest that the market has overcorrected. Data from Nationwide indicated that house prices increased by 0.9% in February, while this was contradicted the Halifax showing a 1.9% fall, The Royal Institution of Chartered Surveyors said the number of new enquires rose for the fifth month in a row. At the resent Allsop residential auction, 85% of the listed property was sold on an unconditional basis. What was of more interest was that distressed lots represented 48% of the catalogue, down from 80% in the final quarter of 2008. The stock market also appears to have taken note. While the FTSE 100 has fallen by 2% since the beginning of 2009, the top seven listed property developers increased by an average of 90%. House Builder Stock Ticker 3 month Low Current Price* % Change Taylor Wimpey TW.L 14p 52p 271%↑ Barratt BDEV.L 66p 159p 141%↑ Redrow RDW.L 122p 209p 58% ↑ Persimmon PSN.L 270p 390p 45% ↑ Bellway BWY.L 530p 767p 45% ↑ Bovis BVS.L 350p 477p 36% ↑ Berkeley Group BKG.L 760p 1002p 32% ↑ *As of 16/04/09 While we are not predicting that property prices will rocket just yet, we are of the opinion that that prices have stablised. Currently London is generating yields of between 5.5%-6.5% depending on the specific location and type of property being acquired. In other parts of the country you can expect to achieve between 7%-10%. At these levels we are seeing investors move out of cash they have been sitting on and into property. While keeping the cash in their pockets will have served them well, they are well aware that with the global economic stimulus packages starting to take effect, it will not be long before the inflation takes hold. It is no longer a case of whether the property market will recover but a matter of when. As the first in, it appears it will be the first out. Link to comment Share on other sites More sharing options...
Guest Wallsandfutures Posted May 4, 2009 Share Posted May 4, 2009 Glad to see you guys enjoyed my article. For further information and more upto date news and views on the UK property investment market go to : Walls & Futures - Property Investment Consultants or follow us on Joe McTaggart (wallsandfutures) on Twitter W&F Link to comment Share on other sites More sharing options...
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