Tag Archives: finance-update
Caution due to Brexit likely to affect UK housing market in short term
Caution is likely to affect sales in the mainstream housing market in the UK as a result of the decision to leave the European Union but low interest rates will underpin prices, according to a new analysis. The market is seeing initial caution, particularly among discretionary buyers, and this likely to curtail housing market activity as buyers’ willingness to commit to a major purchase weakens. Over the medium term, the analysis from real estate firm Savills, suggests that sentiment will improve but also fluctuate as negotiations to leave the EU proceed. It also suggests that buyer sentiment is likely to lead to lower sales volumes in the short term. Also, the possibility of tighter lending could pull transactions numbers further down from recent UK highs of 1.3 million a year. ‘However, at this stage, we do not expect sales volumes to decline to post credit crunch lows,’ said Lucian Cook, director of residential research as Savills. The report points out that so far it has been business as usual for lending. ‘Should downside risks persist, there is a possibility that lenders tighten lending criteria. If stricter borrowing rules come into play, first time buyers and second steppers will be the most affected,’ Cook explained. He believes that low interest rates will underpin house prices with the prospect of a cut in base rates and this may present opportunities for those on low loan to value mortgages. Overall, house price growth is likely to slacken as a result of weaker demand in the short to medium term but looking ahead, Cook said that the possibility of a slower economy could have an impact on price growth. ‘We do not rule out the possibility of price falls in weaker markets. Low levels of house building has resulted in a market that is fundamentally undersupplied. This has not changed,’ he added. The analysis report also points out that the short term impact on sentiment is also likely to vary geographically and between different buyer groups, in part dependent on the level of opposition to or support for Brexit. That would potentially indicate more caution in the domestic markets of London and among first-time buyers and second steppers but less among mature home owners. ‘While this short term sentiment effect is likely to take longer to feed into the house price indices, we would expect the first indications of this impact to come from consumer confidence surveys and mortgage approvals,’ Cook pointed out. ‘At this stage, it appears that the downside risks to the housing market are milder than the events that led to the 2008 financial crisis. However, political and economic uncertainty is likely to curtail housing market activity initially as discretionary buyers exercise caution,’ he said. ‘The potential for lenders to tighten lending criteria presents a longer term risk to market activity, especially among first time buyers and second steppers. This could mean that UK housing transactions, which reached a post credit crunch high… Continue reading
Research reveals poor record on new home building in England
The shortage of housing in England is set to become more acute due to the decision to leave the European Union with current levels 30% below those recorded before the economic downturn in 2008. Indeed, recommendations put forward by the Barker Review of housing supply in 2004 that 270,000 new homes should be built every year have never been met, according to a new report from the Yorkshire Building Society. It means that the country has missed its house building targets by a 1,199,180 since 2004. And despite the government pledging in 2015 to build a million homes by 2020 only 142,890 were built in 2015 as a whole, 29% less than the 200,000 homes which would need to be built per year to reach the one million target by 2020. The Barker Review highlighted that England alone would need to increase its level of house building by 145,000 in order to reduce annual house price inflation to 1.1%, regarded as a more controlled level of growth. This figure was based on there being 125,000 completions in 2002/2003, meaning that the recommended number of homes needed per year to reduce house price growth to 1.1% was 270,000. Given that this recommended level of house building has never been reached in the years since and that the recommendations in the Review only relate to England alone, the number of properties needed in the UK each year to reduce house price inflation to 1.1% is now likely to be significantly higher than the 270,000 figure, the report points out. The figures therefore show that the government’s target of building 200,000 homes per year is at least 70,000 properties a year short of what the country needs. The UK came closest to the 270,000 figure in the years leading up to the 2007 financial crisis. In the years between the publication of the Barker Review in 2004 and the advent of the financial crisis in 2007, an average of 213,080 homes were built each year. By comparison, the average number of homes built in the eight years since the financial crisis is 30% below the pre-crisis average, at 148,563 properties. ‘The Brexit decision and the uncertainty it creates around the prospects for private sector house builders, not to mention the country’s economic outlook, is likely to heighten the housing crisis,’ said Andrew McPhillips, chief economist at Yorkshire Building Society. ‘Addressing the shortage of homes must remain high on the Government’s agenda regardless of the work required following the EU vote. We need a clear strategy to deliver the 1.2 million additional homes and options like giving local councils fuller control of existing housing funding, as well as freedom to develop surplus public land, should form a key part of that,’ he explained. ‘The longer we leave the supply crisis to worsen, the more difficult it will be to resolve. The UK has failed to build the number of homes needed to meet demand year after year, which… Continue reading
No interest rate cut in UK unlikely to affect property market
The surprise decision by the Bank of England not to announce a cut in the UK’s already historic low interest rates is unlikely to have much impact on the property market with some experts believing it could boost real estate. Even if the bank rate had been cut to 0.25% from 0.5% there would have been little room for improvement, according to David Whittaker, managing director of Mortgages for Business, who pointed out that mortgage rates are already at record lows and there is little room for them to go much lower. ‘Inter lender competition has played a significant part in this and with yields on swaps and UK gilts remaining near record lows, mortgage borrowers will continue to benefit from enhanced affordability for some time. Property investors with sound financial planning and a long term outlook are therefore well placed to take advantage of continued generous pricing,’ he said. ‘Property prices could be a little bumpy in the short term and the Monetary Policy Committee has highlighted a weakening of activity in the housing market. This might trim some short term capital gains on offer but in the long term, the outlook for investors remains positive. Supply of housing in the UK remains significantly out of sync with demand which will support price increases over coming years. Furthermore, high levels of demand for rental accommodation will provide landlords with strong yields,’ he added. Lucian Cook, Savills UK head of residential research, explained that the two year fixed rate has already levelled out. ‘We may now see lenders margins edge up. However, this is likely to be no more than a squeeze on affordability for mortgaged home owners, suggesting that what happens to the housing market in the short term will have more to do with sentiment than the cost of debt,’ he said. ‘The cost of borrowing will become more important once we see the economic impact of the decision to leave the EU, but for now the Bank still has the option of reducing rates up its sleeve,’ he added. ‘A greater level of political stability following the appointment of the new Prime Minister probably helped to steer the decision to hold interest rates, according to Andrew Burrell, head of forecasting at JLL. ‘This can also be taken as a move to reassure the market that the Bank will not take knee jerk reactions and will remain calm under pressure. The market itself is also operating at low rate levels which may have removed the urgency to cut rates this month,’ he pointed out. ‘Indeed, interest rates continue to soften along the yield curve with most maturities at record lows. A cut shouldn’t be ruled out in August, however, after the market has been given more time to adjust and longer term sentiment is clearer,’ he concluded. Adam Challis, head of residential research at JLL, pointed out that even if there had been a cut… Continue reading
