Market activity over the last month has remained at healthy levels, albeit definitive reports from The British Bankers’ Association and the Land Registry confirm our comments last month that the market has started to stabilise. The BBA recently reported that mortgage approvals were down for the fourth month in a row in May, and the Land Registry figures show a small monthly increase in prices of less than half a percent.
Hometrack recorded a continuation of this trend with a 0.3% increase for June, but surprisingly Nationwide reported a 1% increase for the month (based on mortgage approvals).
The market has undoubtedly been affected by the changes brought by the Mortgage Market Review, announced earlier this year, which has both increased the time taken to process mortgage applications and made the application process more complex. More significantly, interest rate expectations have also changed as a result of the Mansion House Speech by Bank of England Governor, Mark Carney, in which he said an increase in Bank Rate “could happen sooner than markets expect”.
The Bank also introduced new rules last month which require lenders to not only assess whether a borrower could still afford their mortgage if Bank Rate were to increase by 3% from the time of the loan, but also limit the number of loans greater than 4.5 times a borrower’s income to 15% of the lender’s new residential mortgages.
The newly announced rules are less onerous than the market was expecting, and are unlikely to have much impact in the short term. The rules are in line with the current practice of prudent lenders, and the current share of new mortgage lending with Loan to Income (LTI) in excess of 4.5 times has not increased greatly in the last few years to the present level of 10%, as shown in the graph below. Whilst these changes are unlikely to have a noticeable difference on the prime market, changes may have a more profound effect on the more credit reliant mass sector of the market.
The economic background remains firmly supportive of strong economic growth, with British manufacturers achieving their best quarter of production for two decades. This in turn has boosted employment with manufacturers hiring staff at the fastest pace for more than three years. A strong economy and stable inflation and interest rates provide the basis for further strength in the housing market, with shortage of stock continuing to be a problem in many areas.
Tour de UK
With a reported global TV audience of 3.5 billion viewers, the start of the Tour de France has focused attention on the UK, and is predicted to provide a significant boost to the economy through tourism and inward investment. One estimate suggests that the start in Yorkshire alone may have generated £100m. According to the Land Registry, prices in Yorkshire & The Humber fell by 0.9% in May, which was the area of the UK with the largest price fall, making it still attractive for yield driven investment buyers who are looking at above average returns. The market does however remain polarised. Garrington’s Harrogate office is seeing new to the market prime properties, which when correctly priced, are selling very quickly. However, there still remains a dearth of new property coming on to the market in this area, as with many other prime micro markets.
Elsewhere in the UK we are seeing a market which has already started to slow earlier than usual as we approach the traditional quieter summer holiday period. It is also clear that new buyers are being more cautious after one of the busiest starts to the year for many years.
Land Registry figures at the end of May show a monthly increase in national house prices of only 0.4% and an increase of 6.7% since last May (London prices +2.5% in May and 18.5% annual).
Buy to Let
According to data from LSL, rents have been rising by less than inflation for the last 12 months, with the average residential rent nationally only 1.1% higher than a year ago. However, total returns are now at the highest level since June 2010.
Investors who are prepared to look at total returns rather than just yields can still expect attractive returns over the medium term.
Garrington’s Property Cycle
A team from Garrington recently cycled 320 miles from London to Paris over 3 days in order to raise money for charity. Notwithstanding being physically challenging, and despite adverse weather conditions, all the team completed the ride and proudly cycled up the Champs Elysees, which was closed to traffic for the event. The team would like to thank all those who supported them with donations for Garrington’s charity of the year – CLIC Sargent – if you would like to show your support there is still time by going to www.justgiving.com/garringtonproperty.