In the not too distant past people had almost gotten used to the fact that their home was in great positive equity and were very much using that equity as part of their disposable income. Recent figures revealed at the G20 conference suggest that that attitude has now completely changed.

To give you a feel for how complete the turnaround is here are a few figures. In the final quarter of 2008 just over £8 billion pounds was repaid. Compare that to the figure of £1.8 billion in the second quarter of last year, the first quarter actually saw people withdrawing equity to the tune of 6.5 billion. Striking isn’t it?

People are clearly now seeing their home mortgage as a debt they want to be rid of as quickly as possible. Instead of ripping money out of their homes to fund their lifestyle they are now trying to put it back in. There is also the practical reality that in a lot of cases people find themselves in a position where there is no equity in their houses. They are left with little choice but to knuckle down to getting it paid off.

Whatever the thinking behind it it is clear that things have changed dramatically and all predictions indicate that this new attitude is likely to keep up for some time. An even bigger repayment figure is expected in the first quarter of 2009.

Some are suggesting that the property party is over.

It was very heartening last week to see Times Columnist Lucy Denyer start speaking about green shoots in the economy and healthy ones at that. She cites the 19 percent rise in mortgage approvals as part of her evidence for this sunny news.

She even suggests that it may be enough for as to conclude that things may be on the up and up for the property market.

It seems that the caution being displayed by homeowners in terms of when to sell has caused a few supply and demand problems in certain desirable areas of the UK. And for once we are talking about there being more demand than supply, a very welcome change.

Of course it depends very much on the type of place you are selling and even more so in which area.

It appears Highgate is one area in London that is in demand. The article quotes Chris Underhill, a partner with Prickett & Ellis estate agency as saying “We have 1,600 buyers on our books and less than 0.5% of the housing stock in the area actually available,”
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We seem to be experiencing a period of extremely mixed signals in the property market at the moment.

While Nationwide reported an unexpected and extremely welcome rise in house prices last week, not three days later Halifax released figures that indicated we were far from out of the woods. Data from Nationwide showed house prices as rising 0.9 percent in March where as the Halifax’s data is a direct contradiction of that indicating a 1.9 percent drop over the exact same period.

Apparently the fact that each index uses a different sample of properties has caused the disparity in the figures. Due to the sharp fall we have experienced over the past twelve months, small differences can cause huge effect on the figures.

Perhaps the most sensible comment I have come across this week comes from Liam Bailey, head of residential research at Knight Frank, he says “We may have seen the end to continual and significant price falls but I don’t think we are quite at the bottom, for the rest of the year I think we will see alternating months of growth and falls.”

That seems quite likely and though it is true that it is far too early for predictions of rebound prices, only the most deeply pessimistic of financial commentators are predicting that prices will continue to fall as sharply as they have been.

Are we in the middle of recovery? Probably not just yet. But is there cause for cautious optimism? Yeah I think there is.

In what I find to be a simply stunning story the FT this week wrote that the NatWest bank was demanding that clients stump up us much as £1 million in a month to cover the fact that the equity in their portfolios had decreased dramatically because of falling house prices.

All this despite the fact that there was no suggestion that the landlords were likely to default on their payments.

Savills Private Finance, a prominent mortgage broker says it has seen quite a bit of evidence recently of the banks willingness to unexpectedly demand money from clients with high value property business’.

Melanie Bien, director of Savills, said this was a new trend as the buy-to-let market was not established in the previous market downturn in the early 1990s. “It is really a feature of the buy-to-let boom and credit crunch.”

The banks say that they are within their rights to do this as they have clauses in their contracts with these clients that state they can review agreements in certain circumstances one of which is if the bank believes there is not enough rental income being made on the property to cover the interest payments.

The really interesting thing is that people who have had the banks do this to them are denying this is even the case with their business. It all sounds like a bit of a worry to me.

In the wake of a lot of the large buy to let lenders indicating that they are only willing to deal with FSA regulated brokers, Mortgages For Business have launched a network for unregulated advisers who wish to transact buy-to-let business only.

They seem to think that this network is the best solution to allow unregulated mortgage brokers who are only interested in this section of the market to continue to trade. The reason they have opted for such a specialist network is so that they do not create a situation where brokers are not paying for services they will never utilise.

Nick Blunt, head of business partner development at Mortgages for Business, explained: “The solution for many brokers would be to join a large mortgage network where they can access a number of services – this would include residential services among other things. However, this solution means that brokers could be paying for services that they do not necessarily require.”

The fees they have indicated are £75 a month for appointed representatives and £17.50 for introducer appointed representatives. This will entitle the member to FSA registration, access to products and access to the sourcing and portfolio management tool Mortgage Flow.

We have spoken before in this blog about the number of new landlords that are entering into the market, almost accidently. These are people who bought properties to renovate during the times where it seemed like an easy way to make money and metaphorically got left holding the baby when house prices dropped dramatically.

A lot of these people chose to hold on to their properties and become reluctant landlords rather than sell and make a huge loss.

Now Christopher Hamer, from the Ombudsman for estate Agents, is suggesting that complaint figure jumps in this area suggest some of these perhaps naive, definitely inexperienced landlords may need protecting.

Ian Wilson, Managing Director of Martin & Co, has picked up on this and issues this warning “As properties fail to sell, we have seen a sizeable increase in the number of new (and sometimes reluctant) landlords entering the market. These are the very people who need protecting from the unscrupulous, uneducated or inexperienced letting agent who claims to be able to represent their best interests.”

It seems fair to say that if you are a new landlord it is a good idea to be extra carful about choosing your letting agent. Perhaps ask around more experienced landlords.

Recommendations are always a good way to eliminate some of the risk.

In an interesting take on why there appears to be signs of life in the buy to let sector Knight Frank’s residential development team suggest it could be because it looks like a more attractive prospect than leaving the cash in the bank.

It is an interesting theory. They cite the example of ‘The Waterside’ on the River Severn in Royal Worcester which is apparently achieving rental yields of around 5 percent on buy-to-let purchases.

It could be argued, I guess, that this is more attractive than the current super low interest rates being offered by the banks. As Lyndsey Bellingham, of Elbey Solutions Ltd. says: “Following the recent drop in interest rates many investors are now seeking alternative options to achieve more favourable returns.”

It would seem on the surface that there is more risk involved in choosing the property investment route over shoving your money in the bank but as the old saying goes ‘ you have to speculate to accumulate’, and who am I to try and burst their bubble.
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According to an article in Reuters UK last week, Hometrack have reported that March’s annual prices show a fall that is the biggest ever in England and Wales. Overall house prices are a record 10.3 percent lower than they were a year ago.

This could be slightly misleading though because this shows the fall over the whole year, it is worth noting that the pace of the fall in March was the slowest it has been for 10 months. Still it gives us a perspective on the year in house marketing.

Hometrack further reports that the average selling price for houses in March was £156 000 which was 0.6 percent lower than February and represents the lowest monthly fall since May 2008. They do say, however, that this slow in the rate prices are dropping could be mainly down to seasonal factors.

“With the expectation of continued increases in unemployment and weak economic growth together with restricted availability of mortgages, it seems doubtful whether the increase in activity and sales will continue to gather momentum in the coming months,” said Richard Donnell, Hometrack’s director of research.

“Prices look set to remain under downward pressure over the rest of 2009,” he added.
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Daniel Thomas of the Financial Times reported last week that things may be on the up and up in the buy to let sector.

His source for this heartening claim is the Association of Residential Letting Agents (ARLA). They have indicated that for the first time in over two years landlords appear to be buying more properties than they are selling.

As there is never any good news without the bad at the moment you will not be surprised to hear that ARLA’s quarterly survey also showed that some landlords were struggling to meet mortgage payments as house prices continued to fall.

Still the fact that people are starting to buy again is at least cheerful news. ARLA contribute this increase to the fact that landlords in a position to are snapping up houses that have fallen to a bargain low price.

Ian Potter, operations manager of ARLA, said: “The data shows that there are bargains to be had in the property market at the moment for those with a keen eye.”

So, as we have said before, despite all the doom and gloom there are still people out their with money who are willing to take a risk.

Last week in The Guardian Patrick Collinson wrote an interesting article on how this country is going to avoid a house price explosion of the type that many believe lead to our current financial situation.

His article was quite critical of the Labour Government in that he says two years ago they thought it was a great idea ‘for households to buy over-priced houses by borrowing loans equal to five or even six times’ joint income.’ He also questions the intelligence of 100% buy to let mortgages and buy to let lending financed through global wholesale markets.

He maintains that Britain and America’s attitude to lending was responsible for this financial crisis we find ourselves in, I would suggest that they were not on their own, in fact virtually every well off country on the planet did the same thing, but I guess he is largely right. So what does he suggest is the way to proof ourselves against this sort of disaster in the future?

Basically, don’t trust the banks to run the country’s finances. He states that after 12 years labour have finally worked that out. Lord Turner has made a number of suggestions for government regulation of the finance industry and most of them do seem sensible.

Collinson points out that these are not new ideas and that countries such as Germany and Hong Kong have had these policies for years.  He also sounds this warning Continue reading →