Newsletter September 2008
Lettings market shines bright in housing gloom
The rental market boomed as housing sales in July diminished, says the RICS Lettings Survey.
New instructions (an indicator of supply) to let increased at the fastest pace in the survey’s history as many would-be-sellers found that becoming a landlord is a better option than selling in the current climate.
43 percent more Chartered Surveyors reported a rise than a fall in landlord instructions compared to 30 percent in the previous quarter. Equally both new instructions to let houses and flats increased at the fastest pace in the survey’s history with 47 percent and 39 percent more Chartered Surveyors reporting a rise than a fall respectively. Surveyors report that frustrated vendors have been placing their property in the market to let as they have been unable to agree sales due to a lack of demand in the housing market.
37 percent more Chartered Surveyors reported a rise than a fall in tenant lettings, up from 30 percent in the last quarter. Significantly, demand for family homes remains stronger than for flats. Many would be buyers have been forced to rent as the route to mortgage finance has been blocked. 43 percent more Chartered Surveyors reported a rise than a fall in demand for houses compared to 34 percent Chartered Surveyors who reported a rise in demand for flats.
Rents have continued to rise while house prices fall, driving gross yields upwards. Rising profits have kept landlords committed to the market. The proportion of landlords opting to sell at the expiry of the tenant lease fell to 2.1, the lowest level on record from 4.2 percent. Rental expectations fell slightly with some surveyors expecting over-supply to push rents downwards in the next quarter.
RICS spokesperson James Scott-Lee commented:
“The lettings market is booming with many vendors opting to rent their property while sales in the housing market continue to dry up. Many are willing to “hold” and await the return of capital appreciation. Becoming a landlord is now an increasingly profitable option with rising rents and yields offering good returns. Established investors have been reaping the benefits of the housing downturn for sometime and will continue to do so in the short term. However, ever increasing supply could have an impact on rental growth as tenant options increase.”
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Tighter lending criteria and falling house prices discourage first-time buyers
Remortgaging rose and lending for house purchase held steady in July, by comparison with June, although loans to first-time buyers continued to decline according to the latest survey from the Council of Mortgage Lenders.
There were 47,400 house purchase loans worth £7.1 billion, unchanged from June; this represents a 51% fall by volume and 54% by value from the same month last year. There were 85,000 remortgage loans worth £11.9 billion in July, up 14% in volume and 16% in value from June.
The number of loans to first-time buyers declined to 17,300 in July, down 5% from June and 48% from July 2007. Loans to first-time buyers have declined in the face of tighter lending criteria, as well as the wait-and-see approach now evident in an environment of reduced house prices. The average first-time buyer had a deposit of 15% in July, up from 13% in June, bringing the loan-to-value ratio down to levels not seen since the early 1980s. First-time buyers typically borrowed 3.24 times their income, down from 3.33 in June and the lowest multiple since July 2006.
There were 30,100 loans to home movers in July, up 3% from June but 53% lower than July last year. Home movers typically borrowed 68% of the value of the property, down from 72% in June, and 2.85 times their income, down from 2.94 in June.
The size of the average house purchase loan decreased in July to £120,170, from £125,000 in the previous four months.
Total gross lending rose 5% to £24.7 billion in July from £23.6 billion in June, but this is a decline of 28% from a year ago and the ninth consecutive monthly year-on-year decline. Tracker rate mortgages have increased in popularity as borrowers anticipate the next Bank rate move to be down; 28% of borrowers took out tracker products compared to 21% in June.
CML director general, Michael Coogan, said:
“Tighter lending criteria have clearly made it more difficult for first-time buyers to enter the market. The stamp duty and shared equity measures announced by the government last week will be helpful to those first-time buyers looking to enter now, but many may be waiting for house prices to stabilise.
“Restoring the flow of funding to the mortgage market is crucial to helping the housing market recovery and we look forward to the findings of the Crosby Review at the end of the month.”
Click here for Buy to Let, Commercial , Property Development Finance and Residential mortgage products.
Buy to Let market update from Mortgages for Business
Every news report seems to invariably contain a story about the ‘credit crunch’ and its effects on personal finance and borrowing availability. Since the start of 2008 we’ve seen changes in both the quantity of mortgages on offer and the criteria on those products that are available. So what does the current Buy to Let mortgage market look like:
Tightening of distribution channels
The key consideration of lenders is the quality of mortgage applications they receive. With this in mind lenders such as Mortgage Express have significantly reduced the number of brokers they will accept mortgage applications from. Mortgages for Business are delighted to have been hand picked to continue to be able to offer Mortgage Express’ product range. This trend looks set to continue as regulatory bodies and corporate governance place increasing scrutiny on lending. Loan to Values There has been a definitive shift in the maximum loan to value available to investors. Most products now require a 25% deposit; fewer require a 20% deposit and 15% deposit mortgages are now almost non-existent. It seems unlikely in 2008 we will see loan to values on offer increasing.
Pricing
The majority of Buy to Let products remain priced above 6.50%. This has been the case for some months, however we are starting to see signals that pricing may move downwards. LIBOR (London Interbank Offered Rate), the rate banks lend each other money and basis for mortgage pricing, has started to slowly lower after stubbornly staying at just below 6%. Meanwhile SWAP rates, the basis of fixed rate mortgage pricing, has also began to lower after a period of inflating.
Criteria
Most lenders have limited funding and ‘quality’ is the key driver in lending decisions, with most in situations continuing to take a cautious approach. New builds remain unfavourable amongst lenders as do first time Buy to Let investors.
Product availability
The number of products in the market place remains far lower than many investors may have become accustomed to in the last few years. Securitised lenders, who borrow funds from the money market to support their mortgages, remain unable to begin lending again as the cost of borrowing remains high and financial institutions continue to be unwilling to lend to them. Meanwhile specialist niche brands belonging to banks and building societies have limited tranches of funds because their larger parent firms have less cash readily available. Overall the Buy to Let lending market is still in a situation where lenders are focusing on ‘low risk’ and ‘quality’ applications.
Click here for Buy to Let, Commercial , Property Development Finance and Residential mortgage products.
