imf
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IMF concerned about overvalued UK house prices

The International Monetary Fund (IMF) has issued an extremely concerning report on the worldwide housing market. The IMF believes that house prices in some of the world’s largest economies could be overvalued by an average of 12%. When you consider the average price of a UK property this equates to a potential “overvaluation” of almost £30,000. What is causing these concerns and will the market collapse?

AVERAGE UK PROPERTY PRICE

The average UK home is now valued in the region of £230,000 with a 12% reduction equating to around £27,600. This is slightly over the average UK annual salary to put this into perspective. At this moment in time growth in property prices in the UK has slowed and London has actually moved into negative territory. However, it is worth highlighting the fact that UK house prices are still increasing although at a much reduced rate due to Brexit concerns.

CHEAP FINANCE

Since the 2007 US sub-prime mortgage crash, worldwide interest rates have remained at near historically low levels. This in itself has made cheap funding available for financial institutions, to revive economies, leading to relatively cheap mortgages. Even though the Bank of England recently increased UK interest rates they are unlikely to move to anywhere near historic average levels any time soon. So, concerns about cheap finance will likely continue for some time to come.

GOVERNMENT SCHEMES

The UK government’s Help to Buy scheme has been well received, allowing many people to finally climb onto the property ladder. The problem is that these schemes generally make housing available to those who would not normally be able to afford these properties. The consequence is that the increased demand, which cannot last forever, pushes prices higher and higher. Once the government’s Help to Buy scheme ends, the extra premium forced onto house prices will push them even further out of the range of future first-time buyers.

RENT CONTROLS

Interestingly, the IMF spoke in great depth about rent controls, something which the Labour government has been touting. The IMF believes that any form of rent control will lead to an increase in property prices, creating a lock in effect that sees many renters in accommodation which exceeds their needs.

This would be a little ironic, assistance for tenants from a future Labour government actually playing into the hands of property investors by pushing the value of their assets higher. In many ways, a degree of rent control takes away the uncertainty of the unknown. In any investment market, secure cash flow is the key and rent controls would reduce the risk/reward ratio and potentially push house prices higher.

CONCLUSION

It depends which experts you speak to as to whether they believe the UK property market is undervalued, fair value or overvalued. The fact is that the market dictates the price, based on supply and demand, although cheap finance and government assistance continue to have a major impact. The suggestion that UK house prices could be overvalued to the tune of 12% is alarming but no government could ever allow house prices to fall by that amount. They would simply be voted out of power!

As a consequence, in a worst-case scenario we may well see a slow deflation of the UK house price bubble (assuming there is an actual bubble). The problem is, with interest rates so low, finance so cheap and minimal bank deposit returns, many investors will again turn to property.

Source: Property Forum

hike
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Bank set to hold rates at 0.75% after August hike

Bank of England policymakers are set to sit tight on interest rates next week after last month’s milestone hike and amid a mixed performance across the economy.

The Monetary Policy Committee (MPC) is expected to vote for no-change, having increased rates to the highest level in nearly a decade last month – to 0.75% from 0.5%.

Governor Mark Carney said in August that rates would need to rise further to bring inflation back to the 2% target over the next few years, though he stressed hikes would be “limited” and “gradual”.

But economists are not expecting another rise any time soon, with increasing anxiety over Brexit negotiations seen as holding back growth.

Bank set to hold rates at 0.75% after August hike Commercial Finance Network
Mark Carney told MPs he was willing to stay on for longer to help support Brexit (PA)

Closely-watched industry surveys have pointed to stable growth of 0.4% in the third quarter, but this is thanks to a robust performance among services firms offsetting a dismal showing from the manufacturing and construction sectors.

There had been initial fears the Bank may have acted too soon to raise rates after official figures for the second quarter showed that while growth rebounded overall by 0.4%, expansion stuttered in the final month, with growth of just 0.1% in June.

Howard Archer, chief economic adviser at the EY ITEM Club, said: “The mixed set of August purchasing managers indices reinforce belief that it will be some considerable time before the Bank of England raises interest rates again after August’s hike from 0.50% to 0.75%.

“It looks unlikely that interest rates will rise again until after the UK
leaves the EU in March 2019 given the major uncertainties that are likely to occur in the run-up to the UK’s departure.”

The rates decision comes after Mr Carney effectively confirmed plans to stay on past his current departure date of June 2019 to support the UK through Brexit.

He told MPs on Tuesday he was “willing to do whatever” he can to help promote a smooth Brexit and transition at the top of the Bank.

It followed mounting press speculation over whether he would stay on until 2020.

But questions have since been swirling over the talks between Mr Carney and the Chancellor, with some concerned about the lack of transparency.

Former MPC member Andrew Sentance was reported hitting out at process.

He said: “It seems an awful lot is happening in this appointment process behind the scenes and that is not good in terms of the independence of the Bank of England.”

In the hearing with MPs, Mr Carney and other Bank chiefs also warned over the possibility of significant price hikes in the event of a no deal scenario, which the governor said would send the pound lower.

Inflation appears to be back on the rise already after recent brief respite, rising in July for the first time since November, to 2.5% from 2.4% in June, although this was largely due to higher transport costs.

Source: Shropshire Star

Halifax
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UK annual house price growth picks up to nine-month high – Halifax

British house prices rose in the three months to August at their fastest annual rate since November last year, figures from major mortgage lender Halifax showed on Friday, bolstered by a gradual pick-up in wages and limited supply.

Halifax said house prices in the period were 3.7 percent higher than a year earlier, up from a 3.3 percent growth rate in the three months to July but a slightly smaller increase than the average forecast in a Reuters poll.

The figures contrast with data from rival mortgage lender Nationwide last week, which reported prices were up just 2 percent on the year in August, the joint-smallest increase in five years.

Britain’s housing market began slowing in the run-up to June 2016’s Brexit vote. The biggest slowdown has been in London, due to reduced appetite from foreign investors and concerns about the financial services industry, with less of an impact in other parts of the United Kingdom.

A “stable, yet constrained” supply of new homes was supporting prices, as was a gradual pick-up in wage growth, Halifax managing director Russell Galley said.

Looking at the month of August alone, house prices rose 0.1 percent from July, when they jumped by 1.2 percent.

Howard Archer, an economist at consultancy EY ITEM Club, said he did not see an upturn on the way for British house prices and expected annual house price growth of 2.5 percent this year and next.

“Consumer confidence is fragile and appreciable caution persists over engaging in major transactions. Potential house buyers may also be concerned that they are likely to face further interest rate hikes over the medium term following August’s hike,” he said.

The Bank of England raised interest rates to 0.75 percent in August in only its second increase since before the global financial crisis. BoE Governor Mark Carney said market expectations of one rate rise per year over the next few years would be a good rule of thumb for households.

Source: UK Reuters

buy to let
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Buy To Let A Strong Investment For Most

The majority of buy to let investors still see buy to let as a good strong investment, with 56 per cent looking to keep or buy more rental properties.

The majority of landlords still see the sector as offering a good money making opportunity. However, there is concern that it will decline in the future with 44 per cent looking to sell. For those who are looking to leave the sector, 24 per cent are blaming falling yields. 23 per cent are concerned about tax changes and 19 per cent blame a decline in house prices.

60 per cent of landlords feel that property management had become a burden, likely because of growing regulation in the sector. 61 per cent of buy to let investors undervalued the costs that were involved.

However, some of those who are planning to sell their portfolio will remain involved in property, with 27 per cent planning to invest the money into their main property compared to a third who are thinking of re-investing in another asset class.

A significant regional divide was noted in terms of the best performing areas. Analysis from Octopus Choice revealed that typical rental properties in London cost landlords over £1,250 per annum for the first five years. While there are still hotspots such as Tower Hamlets, Barnet and Hackney, three quarters of landlords in the capital think buy to let investment will be less worthwhile in five years.

In Scotland and the East Midlands returns were more plentiful. Scottish landlords saw average annual returns of 8.8 per cent on their investment over an eight-year period, while those in the East Midlands return 8.2 per cent, making buy to let still a strong investment.

Head of Octopus Choice, Sam Handfield-Jones, said: ‘Brits still have an incessant love affair with bricks and mortar – but the hassle and cost of buy to let is a source of growing frustration, and some landlords may find that their once reliable day-to-day income is becoming harder and harder to come by. But this isn’t the case across all parts of the market, with money still to be made from the right property in the right region.’

Source: Residential Landlord

UK house prices
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UK house prices hold steady in August with limited gains expected in remainder of 2018

UK house prices held steady in August with a 0.1 per cent month-on-month increase, according to new figures.

Across the UK, the average house price was £229,958, marking a 3.7 per cent increase on a year earlier, the latest Halifax index has revealed.

Annual price growth accelerated from a 3.3 per cent jump in July – and the 3.7 per cent rise in August was the highest year-on-year increase since November 2017.

Halifax managing director Russell Galley said the latest figures are positive.

“With the average house price now £229,958, prices in the three months to August were also 1.9 per cent higher than in the previous quarter,” he said.

“While the pace of employment growth has recently slowed, a low unemployment rate and a gradual pick-up in wage growth are helping to support household finances.

“This has been accompanied by interest rates still remaining at a historically low rate and a stable, yet constrained, supply of new homes on to the market further supporting house prices.”

Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics), said the snapshot of housing market performance “is sending a mixed message”.

“Prices are rising more slowly on a monthly basis but accelerating when annualised,” he said.

“What we are finding on the ground is a market largely stuck in neutral – shortage of stock is supporting modest price increases, particularly outside London.

“There is an opportunity now for serious sellers to take advantage of increased buyer activity, which we have already encountered, as many return from holidays keen to make decisions about property and move before Christmas if possible.

“But both buyers and sellers need to come to terms with new market realities. Those who do will take advantage; otherwise, nothing much is likely to change.”

Howard Archer, chief economic adviser at EY Item Club does not expect any meaningful upturn in the market over the coming months

“We expect house price gains over 2018 will be limited to around 2.5 per cent. At this stage, we expect a similar rise (around 2.5 per cent) in 2019.”

Sam Mitchell, CEO of online estate agents Housesimple.com, added:

“The end of summer report is that the property market is in better health than the doom-mongers have led us to believe.

“A persistent supply shortage and low interest rates may be helping to support property prices, but we don’t have one foot over the abyss just yet.

“The danger of constantly talking down the property market is that we will talk the market into a crash, particularly if we focus too much on what’s happening in London.

“Investment in the regions is paying dividends. The strength of local economies, with thriving business hubs attracting talent to the areas, is having a positive effect on property prices.

“And whereas in London, affordability has been a recurring problem, in other regions there is still plenty of room for house prices to grow before affordability becomes an issue.”

Source: Irish News

FTSE UK economy
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Britain’s FTSE falls on trade fears as pound strengthens

The UK’s blue-chip index fell on Friday as investors awaited news on whether the United States would impose new tariffs on Chinese imports while a data breach at British Airways triggered a fall in its owner’s shares.

The FTSE 100 .FTSE fell 0.6 percent at 7,277.70 points, accelerating losses in afternoon trading as the pound rose after EU negotiator Michel Barnier said the bloc was open to discussing other “backstops” on the Brexit issue.

“As it has done for much of the week, the pound came to dominate on Friday, punishing the FTSE in the process,” said Connor Campbell, analyst for Spreadex.com.

Later in the session White House Economic Adviser Larry Kudlow told CNBC that the United States continued to talk with China about a number of trade issues but added that so far China has not met U.S. requests.

The FTSE ended at a fresh five-month low, down more than 2 percent on the week.

Shares in British Airways’ parent International Airlines Group (ICAG.L) fell 1.4 percent after the airline reported the theft of financial and personal data of potentially hundreds of thousands of customers.

Among mid-caps, British pub operator Greene King (GNK.L) surged 7.5 percent after reporting a boost in sales thanks to exceptionally warm weather and the soccer World Cup.

The company, which owns ale brands such as Greene King IPA, Old Speckled Hen and Abbot Ale, said it sold 3.7 million pints of beer during England’s seven World Cup matches.

Shares in Ashmore (ASHM.L) rose 1.4 percent after the emerging markets asset manager published full-year results.

UK-focused oil company EnQuest (ENQ.L) fell more than 13 percent after announcing plans for a rights issue to finance acquisition of an oilfield from BP (BP.L).

Online retail trading platform Plus500 (PLUSP.L) lost 7.3 percent to 15.44 pounds after Playtech (PTEC.L) said it has sold its entire 10 percent shareholding for about 176 million pounds, equating to 15.50 pence per share.

Source: UK Reuters

remortgage
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There was a spike in remortgage completions ahead of the base rate rise

Over three quarters (76%) of remortgage applications via intermediaries resulted in a completion during Q2 2018, up from 70% in the previous quarter, as activity spiked ahead of the Bank of England’s anticipated decision to raise interest rates above 0.5%.

The Mortgage Market Tracker from the Intermediary Mortgage Lenders Association (IMLA) found for the second time in the last 12 months, the number of homeowners acting to protect themselves from the effects of higher rates and secure the most affordable deals on offer increased in the quarter.

This was directly before a much-anticipated, albeit modest, increase in the  Bank of England’s base rate.

Kate Davies, executive director of IMLA, said: “The last 12 months have seen the end of a decade of record low interest rates that many borrowers have become accustomed to.

“The Bank of England’s response to managing rising inflation had been widely anticipated by the industry and consumers, and it is inevitable that many borrowers will have sought to take advantage of opportunities to lock into very low-rate deals while these are available.

“While customers who remain on tracker and standard variable rates are having to adjust to a second increase in monthly loan repayments in twelve months, competition in the market remains strong and should ensure keen and competitive pricing.

“The enhanced affordability rules introduced in April 2014, following the Mortgage Market Review, were specifically designed to ensure that borrowers would be able to absorb rate increases without suffering detriment.

“For those who took out their mortgages before that date, some may be eligible for further support from the commitment, made by more than 90% of lenders in response to the FCA’s recent Mortgage Market Report to help borrowers switch to better offers.”

A similar spike in activity occurred in Q3 2017 – ahead of the first rate rise in a decade in November, from 0.25% to 0.5%.  At that time, 78% of applications led to completions, an increase from 59% in the previous year.

Data from UK Finance shows that 115,00 homeowner remortgages were completed in Q2 2018, with a combined value of £20.7bn.

The volume of remortgages in June alone increased by 8.4% compared to a year earlier, as homeowners prepared for the Bank of England’s decision.

Separate IMLA research suggested that more than one in 10 (11%) brokers expect the Bank of England to raise rates again before the end of 2018.

Although the majority see no change, more than a quarter of brokers (28%) predicted the remortgage market will continue to grow significantly in H2.

Elsewhere in the market, the picture was generally positive in Q2 2018, with nearly nine in 10 (88%) of all mortgage applications leading to offers. The vast majority (95%) of brokers reported having a confident outlook for the mortgage industry.

Source: Mortgage Introducer

BoE survey
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More Britons expect interest rates to rise over next year – BoE survey

The proportion of British people expecting interest rates to rise over the next 12 months increased in August, following the Bank of England’s decision to raise rates at the start of the month, a BoE survey showed on Friday.

Some 58 percent of people expect a rate rise over the next 12 months, up from 51 percent in May when the central bank shied away from a rate increase which had been widely expected in financial markets.

Last month, after the BoE increased its Bank Rate to 0.75 percent from 0.5 percent, BoE Governor Mark Carney said market expectations of roughly one 25 basis point rate rise a year in future were a reasonable rule of thumb for households.

Public inflation expectations were little changed from May.

The BoE survey was conducted by market research company TNS between Aug. 3 and Aug. 7 and interviewed 2,134 people.

Source: UK Reuters

Rental
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Rental growth showing signs of a sustained recovery

The average rent has risen by 0.13%, the highest monthly increase since April 2016, Landbay’s Rental Index has found.

The increase pushes the average rent paid for a property up to £1,209 per month, dropping to £767 if London is excluded. Rental growth on an annual basis also showed signs of a sustained recovery, with rents across the UK increasing to 0.97%, the highest level seen since May 2017.

John Goodall, chief executive and co-founder of Landbay said: “The figures point to a possible start of sustained rental rises in the UK. Following a slowdown in rental growth the changes are likely influenced by a number of regulatory and tax changes introduced over the past two years.

“As landlords begin to feel the pinch from these changes, combined with a reduction in the supply of new homes, the inevitable consequence is an upward pressure on prices.

“The government must start to see landlords as a vital part of the UK housing market, rather than an easy target for raising the coffers. Any further changes to regulation or taxation will only end up on the tenant’s door.

“For brokers, this provides them with the opportunity to give expert advice to their clients about changing elements of the housing market and which areas have the most potential in the coming months.”

Annual rental growth in London, which had been in negative territory for more than a year before the first positive movement in April 2018, also showed a marked uplift.

Rents in the capital increased at the fastest pace in almost two years, rising to 0.44% in the year up to August 2018. However, it is still some way off the average annual growth rate of 1.36%.

At a London borough level, rents have risen in 27 of the 33 boroughs over the course of the last 12 months. Four of the London boroughs exceeded the average annual rental growth rate, including the City of London (2.25%), Bexley (1.48%), Southwark (1.48%) and Lambeth (1.44%)

Further signals of a strengthening rental market have begun to emerge. The East Midlands posted the highest monthly rise (0.32%) for an English region in 40 months, and the third highest monthly regional rise since the index began.

Additionally, eight of the 30 bottom performing areas experienced positive movements on an annual basis.

These include Slough (0.26%), Kingston upon Thames, Surrey (0.22%) Kingston upon Thames (0.21%), Surrey (0.14%), County Durham (0.12%), Haringey (0.09%), Hammersmith and Fulham (0.08%) and Blackpool (0.03%).

Source: Mortgage Introducer

mis-selling scandal Landlords
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Fight or flight? Landlords split over prospects for the buy-to-let sector

Landlords are almost evenly split between those pressing on despite tax changes and others heading for the exit.

Analysis by peer-to-peer property lender Octopus Choice of more than 1,000 buy-to-let investors found that 56% want to keep or buy more rental properties in contrast to 44% who are looking to sell.

A quarter blamed falling yields or tax changes, while a fifth said they were leaving due to cooling house prices.

Another 60% said property management had become a burden and 61% undervalued the costs involved.

Millennial landlords – those aged 18 to 35 – were more inclined to sell than stay with two thirds planning to offload one or more of their properties. This compares to 29% of over-55s.

Younger landlords were also more likely to admit that managing a buy-to-let has become a hassle, at 81% compared to 39% of investors over 55.

The analysis also found that London landlords have been hardest hit by tax changes.

The platform built a model to analyse the income and costs associated with buying, running and selling an additional property over an eight-year period, including repairs, mortgage charges and annual agency fees of 15% of rent.

It used the 2017 average UK house price growth statistics and rental yield figures from LiveYield, revealing that a landlord with an average property in London worth £475,000 would have to sell it for £590,000, a 2.46% return, just to break even.

In contrast, those in the east midlands and Scotland have seen growth from their portfolios of above 8%.

Sam Handfield-Jones, head of Octopus Choice, said: “Brits still have an incessant love affair with bricks and mortar – but the hassle and cost of buy-to-let is a source of growing frustration, and some landlords may find that their once reliable day-to-day income is becoming harder and harder to come by.

“But this isn’t the case across all parts of the market, with money still to be made from the right property in the right region.”

Overall return after eight years, by region

 

London

-2.46%

Wales

0.26%

North East

1.72%

East

2.19%

South East

2.29%

Yorkshire & Humber

3.36%

South West

3.91%

North West

3.96%

West Midlands

6.47%

East Midlands

8.18%

Scotland

8.82%

Source: Property Industry Eye