Home ownership is set to drop to the lowest level since the 80’s as house prices and rents are still growing. Alarming figures released from a study by the National Housing Federation is predicting home ownership will drop to 63.8%. This could leave a generation simply priced out of the housing market and facing ever increasing rents. The trio of rising house prices, stricter lending criteria and large deposits leaves home ownership just a dream for many. The conclusions of this study are an increase in the private rented sector, increasing house prices and huge social housing waiting lists. Interestingly it predicts house prices in England would rise by 21% over the next five years. So why are we suddenly entering another housing boom when there is no slack in the economy to fund the increase in house prices. Simple supply and demand the low levels of new builds for the last few years is taking its toll on the housing supply.
A huge fall in the share values of many European banks has been lead by the RBS and Societe Generale as further evidence of toxic debts has come to light. This has had a very detrimental affect on the Euro interbank lending rate. Simply meaning that Banks are asking more and more questions about not just which banks they lend to but what the borrowers intend to do with the funds. Some of the less risk adverse investors and hedge fund managers are seeing the bad news as a signal to invest. Why? They figure that when things are bad, governments will be forced to intervene and markets will bounce back. Making them a lovely short term cash gain.
The amount of money lent to UK home owners has continued to drop and is now languishing at 8% lower than this time last year. These figures have come from the British Banking Association while it is true that net mortgage lending has increased. It is also true that the return of funds through mortgage repayments has reduced the overall figure. This will improve the balance sheets of the banks but does little to assist those stuck with unsalable properties. Many properties are suffering from a buyers strike caused by the continued lack of suitable mortgage lending for those with smaller deposits.
The good news is as interest rates are set to remain low for the foreseeable future banks do feel more confident in the home owner’s ability to cover mortgage payments. This is key to the ongoing recovery in the housing market.
Vendors will be quoting reports in national newspapers that house prices will raise by 10,000 pounds this year. Papers quoted figures that the end of 2010 had seen house prices rise by over nine thousand pounds over the year. That takes house prices back up towards their pre recession peak stopping just nine percent below that figure. With a lack of new supply of properties to the market as the house building industry continues to struggle with their property development funding requirements. The number of properties coming to market is seeing no great increase but pent up demand from first time buyers and property investors continues to rise. The property market often reacts to government intervention remember the mirus tax relief system? Well many are predicting a surge in the top end of the market as wealthy buyers look to buy before April to bet the five percent stamp duty rate.
The Royal Institute of Chartered Surveyors has claimed that the new National Planning Policy Framework is an important step in the right direction to aid economic growth in the UK. The National Planning Policy Framework is designed to make planning less complex and to assist with stainable growth. This will please government planning officials as the draft documents have so far received a mixed response. The biggest criticism has been put forward by the National Trust who has expressed fears that the new guidelines could damage the Landscape of the UK. The government and planners always have to tread the path between preserving the environment and stimulating stainable growth. With the announcement of new enterprise zones this will also strengthen the government’s position with business.
Many in the property industry have long criticised the old planning system as long winded and unwieldy with the new planning framework more focused on stainable growth. This should appease the house building sector that have often sited planning policy as a barrier to hitting the number of new house build targets.
The government has targeted April 2012 for the introduction of the new policies with the close of the consultation period by the 17th of October this year.
What makes a good contractor, well some would argue that simply turning up on time is the biggest hurdle? Well as we all know the construction industry does not always have the best of reputation with the words cowboy and builder often ending up in the same sentences. There are so many things that set a premium contractor apart from their competitors. I think the simplest to explain is the attention to detail, let’s take one important part of a home extension. Let’s look at how two contractors tackle the job of the masonry to a home extension, it does not matter if it is brick or stone the same concepts apply.
Builder one turns up having successfully won the job with his one page A4 word document (usually on price). He knows things are tight and after all “time is money”, so quick photo on the old mobile phone down to his favourite (cheapest) builders merchant and off to get the bricks. Quick chat with the chap on the counter and before you know it 3,000 bricks that “look a bit like yours” are arriving on the drive. Quick chat with the home owner to allay their fears that the bricks don’t look quite the same. “Not to worry gov, they will weather in”, and off you go laying them.
Builder two arrives, checks with their customer that everything on their extensive and itemised quote captures their customers’ requirements. Then find the correct bricks, so off to the best three builder’s merchants in town. Ask them to arrange with the client and send some reps out to match the bricks. Once this is done back to the merchants to pick up the samples, advise the client that it might be best to lay a mix of three of the nearest bricks to get the best match. Then off back to get some of these from one merchant and the rest delivered from the other. Now ready to start? No, now we need to run up some sample panels for the customer while we are getting the ground works underway. Customer asks why there are three sample panels with the same bricks. That because I have added a different amount of mortar pigment to each mortar mix so you can chose which one you feel best suits the existing. Yes that’s great I agree says builder two. He also points out that he will be matching the brick bond and the type of pointing weather strike.
So what’s the difference? Builder one and builder two have done the same quality of workmanship but builder one was cheaper? Yes that’s correct, but builder ones customer now has a home extension that could have potentially had a negative effect on his properties value. Why? Well the bricks don’t match; the brick bond is wrong because stretcher bond is much quicker. The mortar colour is wrong and the joint finish is also incorrect. These may seem like little details but they have a huge impact on the finish of your home extension and that can ultimately affect the value of your property.
The enterprise zones are designated geographical areas that are designed to stimulate economic growth. This is encouraged by a number of government back stimulus in the form of zero business rates for up to five years and simplified planning rules. These measured are often designed to make border line speculative property development deals tip the scales and go live. Banks look at lending on these property development sites more favourably as they have a more saleable asset to leverage.
It seems not, research from the council of mortgage lending shows that the average household owes less than 60 percent of their homes value. Interestingly the number of homes in negative equity has hardly changed since 2009 levels even though prices have dropped. With talk in some of the tabloid press of interest rates being cut many think that the residential property market may have bottomed? Who will be the brave commentator who will call the turn in the market? If they are brave and get it right they will be heralded as a well researched expert. If they get it wrong they will just look like a member of the UK or USA economic growth forecast team.
Valuations of residential properties have increased by an impressive 32 percent on last July’s figures with many agents reporting their strongest July in a four year period. Many in the property industry attribute this to a boarder range of mortgage products giving home owners more scope to move. Lenders have made the traditional rush to hit half year lending targets which has lead to another group of lenders entering the increasingly competitive buy to let market. One in nine property valuations is now for property investors, this is an amazing figure given the percentage of residential properties that are suitable as buy to let stock. Landlords are rapidly expanding their property portfolios as rents hit record highs and investment returns increase. If you look at a very average terrace property in a good area say at around the 90k figure and it costs with deposit and fees 25K of capital. That will give you around 11 percent return on your cash investment dependent on deal structure. You can see why buy to let is no longer the dirty phase it has been in the last few years.
A well known property REIT public company has been quietly buying up property that offers small retail units spending around 22 million on these properties. The company has reported a 0.5% reduction in their vacant stock a sure reflection that many retailers are looking to play it safe with smaller leases. With this said many commercial property buyers comment that banks are reluctant to off load distressed stock at discounted rates. Many banks are instead choosing to put their holdings under management and take a longer term view on recovering their loans.