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Home buyers set to see sustained period of low borrowing in UK
Home buyers in the UK, including buy to let investors can look forward to a sustained period of low borrowing rates, according to housing market lenders, due to the lowest ever bank base rate. The decision by the Bank of England to reduce the interest rate to 0.25% and the possibility of it going even lower, brings to an end the longest period of no change in rates since the War/post-War years of 1937 to 1951. Bank rate was cut from 1% to 0.5% in March 2009, and remained there till it was cut again last week. The Council of Mortgage Lenders (CML) points out that mortgage rates have fallen significantly over that period. The average mortgage rate over that period has fallen from 3.8% to 2.9%. It also points out that the bank rate is not the only influence. Funding costs, levels of competition, targeted levels of profitability, and an assessment of current and future market conditions to price appropriately for risk are also relevant factors. So it also follows that a rate cut does not automatically feed through on a like for like basis to mortgage rates. Future pricing will depend on all the factors above and is a matter for individual lenders. Around 50% of borrowers are currently on fixed rates and will therefore see no immediate impact on their payments in any case. Of the remaining 4.9 million home owners with a variable rate mortgage, over 1.5 million have a tracker rate mortgage and these borrowers may automatically see a rate reduction depending on their mortgage contract but some will have a lower level below which rates cannot fall. For new borrowers, mortgage pricing is extremely competitive and set to remain so. However, it is worth noting that the Bank has also been urging borrowers to plan ahead for the prospect of higher rates in the future and the CML said consumers should not assume that just because rates are low now, they will necessarily stay that way for a prolonged period. Recently, fixed rates have been accounting for about 90% of new lending, and while this is partly because they have been priced attractively, it's also likely to reflect a consumer appetite for certainty about outgoings. CML director general Paul Smee believes that some hesitation on the part of consumers thinking about buying property is understandable against the backdrop of recent political uncertainty. However, mortgage lenders are well capitalised and resilient and open for business to lend, in line with consumer demand as and when confidence levels bounce back. ‘Since the last change in official rate in March 2009, the average mortgage rate has already fallen from 3.8% to 2.9%. This confirms that bank rate is not the only influence on mortgage pricing; we feel that the mortgage market is at present well capitalised, resilient and open for business. Housing market fundamentals are sound,’ he explained. ‘So, we see the cut as a wider reaction to the economic effects of… Continue reading
Auckland house market shows unmistakable signs of slowing
For the first time in five years the housing market in Auckland, New Zealand’s largest urban area, is showing signs that prices are stabilising, and may even be slowing. The average price in July was $867,681, a fall of 4.5% from the previous month and 2% below the average price for the previous three months, according to the latest data from Barfoot & Thompson. The trend is not as evident in the median price, which at $840,000 was the same as in June, and 2.1% higher than the median price for the previous three months. ‘There has been a definite change in the market in the last month. The winter months, school holidays and a slowing in the number of new listings all contributed to the slowdown in July, but buyer determination to pay whatever is necessary to achieve a property was tempered,’ said Wendy Alexander, chief executive officer of Barfoot & Thompson. ‘Buyers remain prepared to pay a fair price, and under the hammer sales at auctions of 70% were still high, but sales activity is slower than it was at the same time last year. In the three months May to July this year we sold 3,508 properties. In the same period last year we sold 3780, a 7.8% difference,’ she explained. She pointed out that the year on year increase in prices is still occurring, but at a much slower rate than in the past four years. The average price has increased by 5.3% over the past seven months compared to 2015’s full year average price increase of 14%. Meanwhile, the median price increase over the past seven months has been 6% compared to 17.4% for 2015. ‘Whether price increases will continue in the remaining months of the year is unclear. Normally, prices rise as we enter the spring/summer months, but the Reserve Bank’s new regulations affecting investors will start to have an impact from August,’ said Alexander. The data also shows that in July Barfoot & Thompson sold 1,034 properties, down 11.5% on the number in June and down 25.5% on those for the same month last year. New listings at 1,426 were down 19.4% on those in June and down 19.6% for those in July last year. At end of the month the firm had 3,012 properties on its books, some 2.6% higher than in June and 7.5% higher than in July last year. During July the firm sold 383 properties, or 37% of all sales, for more than $1 million and sold 94 properties, or 9.1% of sales, for under $500,000. Continue reading
UK house prices down by 1% month on month, too early to judge Brexit effect
House prices in the UK fell by 1% between June and July, taking the average price to £214,678, according to the latest index which also shows that overall growth is slowing. In the three months to July prices were 1.6% higher than in the preceding three months, above June’s 1.1% increase and similar to the rates recorded in April and May of 1.5% but it significantly lower than in February and March. The data from leading lender the Halifax, also shows that prices in the three months to July were 8.4% higher than in the same three months a year earlier, unchanged from June but the lowest since July 2015 when it was 7.8%. The month on month decline largely offset the 1.2% increase in June, but Martin Ellis, Halifax housing economist pointed out that month on month changes can be erratic and monthly falls often occur within an upward trend. He explained that it was the third monthly fall so far this year and was smaller than February’s decline of 1.5% and the quarter on quarter change is a more reliable indicator of the underlying trend. The number of first time buyers increased by an estimated 10% in the first six months of 2016 compared with the same period in 2015, according to the Halifax First Time Buyer Review. There were an estimated 154,200 first time buyers in the first half of 2016 compared with 140,500 in the same period last year. This was more than double the market low in the first half of 2009 when it was 72,700. Nonetheless, the number of first time buyers in the first half of 2016 was nearly a fifth lower than in 2006. ‘There are signs that house price growth is slowing with a deceleration in both the annual and quarterly rates of increase in the past few months. Nonetheless, the current rates remain robust. Overall, it remains too early to determine if there has been any impact on the housing market as a result of June’s EU referendum result,’ Ellis added. Alex Gosling, chief executive officer of online estate agents HouseSimple, also believes that too much should not be taken from the monthly figure. ‘There are so many factors at play right now, we're probably going to have to wait until September to get a clearer picture of how the housing market is coping with this headwind of political and economic uncertainty,’ he said. ‘Property transaction levels traditionally drop off during the summer months,’; he explained, adding that there have been a number of other factors impacting the housing market in recent months such as April stamp duty changes, the EU Referendum, and the cut in interest rates. ‘The Bank of England's decision to cut interest rates yesterday should definitely provide a stabilising effect on the economy. Whether that will be enough to inject the necessary confidence into the property market only time will tell. It will certainly provide a level of confidence… Continue reading
