Mortgage Rate Commentary
House prices outlook
In short, debt-financed housing boom. Innovative mortgage schemes tempted borrowers, and this led to demand weighs heavier than supply and inflated prices. This was unsustainable in the credit crisis, where prices were dragged back to more realistic levels.
The market bottom in early 2009 at C.20% discount on peak and since then prices have gradually moved upward. That is until now when the indices reported a fall in February, although prices vary depending on which index you favor. Below Above Financials examine data and outlook.
Land Registration Office
Average Price £ 164k (February 2010 data)
Monthly Change - 0.3%
Yearly Change + 7.0%
Nationwide
Average Price GBP165K (March 2010 data)
Monthly Shift + 0.7%
Annual change + 9.0%
Halifax
Average price GBP169K (March 2010 data)
Monthly change + 1.1%
Annual change + 5.2%
"The Index"
Why central index paints a different picture of the market? Simply because they use different criteria. Land Registry index covering all completed house sales, even those for cash (C.30% of total sales under Council of mortgage lenders) itself is limited to homes in England and Wales. lenders, but record prices at the time when they agree Mortgages and so exclude cash buyers, but includes Northern Ireland (where prices have declined considerably) and Scotland.
To add further confusion, in early 2010 was not typical in the market because of the extremely bad weather and the end of the stamp duty holiday. Our advice: follow the development and not switch between index commentary especially when it comes to time and regional differences.
So what lies ahead? Consensus shows that house prices are still too high with some forecasting a double dip. proof of this lies in the fact that the average house price to income ratio is still much higher than the long-term average.
"The balance between supply and demand still the key "
Recovery to date have been helped by a significant reduction in mortgage rates. Despite this, recent data suggest that lending has actually fallen indeed reflects a decrease in demand and more cautious lending criteria. Bank of England has again kept the official bank rate, but lenders compete more fiercely for deposits and their margins tight this can cause pressure to raise mortgage rates, which will feed through to prices as the market is dominated of short-term trades.
Demand will also continue to be adversely affected by: household wealth driven by persistent unemployment, shorter working hours wage freezes, tax and inflation, the fact that government schemes can not continue to support mortgage indefinitely and that it is necessary banks to raise capital and strengthen their own balance sheets if they are to continue lending.
On the supply side, the recovery has so far been built on the scarcity of housing for sale as owners have been reluctant to lock in losses, has Housebuilder cut production and planning authorities have fallen well short of government targets. In January / February 2010, however, the supply of housing has risen as sellers back to the market, and builders increased activity in March and growth in the number of homes coming on the market actually exceeded new buyers registered.
With initiatives such as Persimmon's flat-packed "home, can deliver quickly to match demand, with an average land bank is now pushing upward to nearly six years, there's no shortage of land on which to make these dwellings. This should prove useful to absorb pent-up demand after hopefully it settles after elections.
"We are currently still in a state of political and economic uncertainty"
Budget met with positive industry comment in the form of increased stamp duty threshold for first time buyers and facilitation of trade regulation. Alone, it is hardly sufficient to overcome a mountain of negative factors, especially as elections hovers disturbing than the peak spring season.
Labour has been criticized for his proposed increase in National Insurance, which could dampen demand in spite of stamp duty leave his promise cheaper housing and an agreement that banks will lend to homebuyers GBP105Bn / companies over the next year.
The Conservatives meanwhile will make stamp duty threshold increase permanent, final hips and let councils keep more of the proceeds from council tax / business rates on new developments boost the market.
The Liberals promise cheap renovation loans to owners of 250,000 empty homes to bring them back into use.
A hung parliament is expected to do something for the industry with political uncertainty could boost interest rates.
House The auction prices often seen as an early measurable with respect to the future of the housing market and auctioned homes are currently selling at a huge discount to the conventional market suggests that prices still do not fully correct. Regional differences will continue to apply especially in London.
"The rise in UK house prices are decreasing "
While demand will probably continue to exceed supply, there is evidence that the imbalance between the two is reducing.
Current data suggest that more people now viewing this as a time to sell rather than buy homes and as a result this will help contain the upward pressure on house prices going forward.
Quick Facts
– The average age for a first time buyer with parental care is now the 37th
– In April 2008, Halifax mortgage rate for existing borrowers was 7.25%, over twice the current rate.
– The Land Registry index, while more comprehensive data on housing in England and Wales lagging Nationwide Index in terms of timing of c.one months.
– The house price to earnings ratio is now at almost 5.5x to have peaked recently at more than 6x against a long-term average of 4x.
– 20% of Persimmon new stock reflects factory built, flat packed home. They predict this will rise to 50%.
– February home auction prices were discounted 30%.
– The upper end second home market is still rising due to cash buyers and a weak pound, despite higher taxation threats.
– Cornwall is one of the hottest second home locations.
London
– London enjoys an acute shortage of housing and higher overseas demand. This has recently been further boosted by the weaker pound.
– Over the past few months the London market has also benefited from the upturn in the financial services sector.
– The price of the average home in the capital differs depending on your choice of measurement. This ranges from GBP270K to GBP370K twice the national average.
– Trends show strong annual growth while month month increases are slowing with the Land Registry reporting a 0.5% drop in prices last month.
– CB Richard Ellis estimates that you need for an average salary of over GBP56K supporting mortgages in London.
– With its large number of high income with expensive properties, London likely be most affected by the upcoming election results. This is because Labour has proposed tax increases in both income and upper-end stamp duty.
– New initiatives in the capital to support homebuyers include "Pocket" home. These represent low cost, extremely compact homes for key employees.
About the Author
Delphine Paterson is a Director at Forward Financials providing business and financial analysis to take businesses forward. Qualified Accountants, Qualified Bankers and City Analysts combined.