Posts Tagged ‘halifax’

OLYMPUS DIGITAL CAMERA

According to a Halifax report, new mortgages are at their cheapest level in 14 years. Mortgages taken out during Q1 accounted for just 27 per cent of borrowers’ net income. In 2007 the ratio was 48 per cent; over the last 30 years the ratio was 36 per cent. Yippee to that.

It is just that…

Remember interest rates are at a record low. They are hardly likely to fall, but they are likely to rise. The Bank of England tries to re-assure us by saying rates are unlikely to go up until 2016. Alas, most new borrowers will not be repaying their mortgage in full between now and 2016. Who knows what rates will be in five years’ time, in ten years’ time or in 20 years’ time? It is anyone’s guess.

Remember that the markets have concluded that rates are rising sooner rather than later. The yield on UK government bonds is now at a two year high. Mortgage costs may rise in their wake.

Above all remember this. Sure, over the last 30 years mortgages on average took a higher proportion of new borrowers’ salary than they do now. But over the last 30 years wage inflation was ever present. Who cares about high borrowing to income ratios when incomes are rising so fast?

It is not like that now. Incomes are no longer rising fast, real incomes are falling. Those who celebrate the low cost of mortgages seem to have forgotten this.

© Investment & Business News 2013

Not just one report, but three. And not just one month, but three. For the third month running, the Halifax housing survey, Nationwide and Hometrack all had house prices rising. In April Halifax recorded a 1.3 per cent rise over the previous three months – it was the fifth time in a row it had recorded a rise.

The Nationwide had prices rising by 1.1 per cent.

As for year on year, the Nationwide had prices rising 0.9 per cent per cent; the Halifax by 2.0 per cent.

The trend has been clear of late, house prices are enjoying something of a good spell. The reason is just as clear, it’s funding for lending. The “help to buy” scheme will surely help.

You may recall that during the bubble years and right up to 2008, Halifax reports on the UK housing market were just a tad on the upbeat side. But then Halifax but was a part of HBOS back then, and HBOS was a little on the optimistic side.

It is not like that now. Even when the data says prices rose, Halifax reports strike a distinctly downbeat note.

Take this month for example. Martin Ellis, housing economist for Lloyds TSB – the company behind the Halifax surveys these days – said: “Market activity, however, remains subdued by historical standards with the number of mortgage approvals for house purchases – a leading indicator of completed house sales – easing slightly in the first quarter of 2013, according to the latest industry-wide figures…Weak income growth and continuing below-trend economic growth are likely to remain significant constraints on housing demand during the remainder of 2013.”

Meanwhile data from the Council of Mortgage Lenders revealed that Q1 of this year saw a fall in buy-to-let lending. In total £4.2 billion across 33,500 mortgages was advanced to buy-to-let landlords in the first quarter of 2013. This compares with £4.6 billion the previous quarter. Then again, in Q1 2011 buy-to-let lending was £3.7 billion.

Matthew Pointon, Property Economist at Capital Economics, said: “After a shaky start to 2013, lending to BTL landlords is likely to expand over the remainder of the year. But the increase will be modest.”

© Investment & Business News 2013

The data comes courtesy of the Royal Institution of Chartered Surveyors (RICS), but other data from the Halifax adds to the mood of optimism.

The RICS housing market survey is a good one.  Each month RICS asks estate agents: did house prices go up or down in your neck of the woods over such and such a period?  Well, they are not the precise words, but you get the gist. It takes the percentage difference between those saying up and those saying down, and this forms its headline index.

And in the past the RICS headline index has been a pretty good barometer. The index does not swing widely like surveys from the likes of the Halifax and Nationwide. In fact, if you turn the data into a graph it forms a nice smooth curve which is good at showing when the market turns.

In November the RICS index was still negative, with a score of minus 9, That was actually worse than last month when the index was minus 7, but the trend is clear for all to see.  If the RICS index proves to be as good a guide as it has in the past, UK house prices are close to rising again.

Drill down and the evidence mounts. The sub index tracking enquiries from new buyers is in positive territory too. In October the index stood at plus 17, in November it fell but at plus 11, was still pointing towards growth in demand.

Meanwhile, the sub index tracking new instructions – a guide of future supply – stood at plus 4 in November, down from plus 11 in October.

But then if you add evidence from RICS to evidence from the Halifax index, the story becomes more interesting. According to the Halifax housing index, November saw the biggest monthly rise in house prices in eight months. They were in fact up by 1 per cent month on month.

It is just that other data is not so clear cut, the Nationwide had prices flat, while Hometrack recorded them falling.

And frankly, while the RICS data is promising, the headline index is still negative. It is not yet pointing to rising house prices and it may not do so for a very long time.

Frankly a bigger puzzle relates to why house prices have not crashed.

The truth is that average house prices to income are still way above the historic average. And since real wages – that’s wages after inflation – are falling, it is hard to see how households can suddenly afford to spend more money on a home.

It boils down to mortgage availability, and the Funding for Lending scheme may be helping.

But actually, it may be a puzzle as to why house prices have not fallen, but it isn’t a very good puzzle. Record low interest rates and reluctance from banks to repossess properties have stopped the UK housing market from caving in.

So the market exists in a kind of limbo. When will the limbo come to an end?

Well it may end if we see a return to a noughties credit bubble. It may end in a few years’ time when inflation has eroded the cost of house prices so much that they start to look cheap, or it may end if the global flow of money and the relationship between global supply of saving, and global demand for investment changes, forcing up interest rates worldwide.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

The latest data from the Nationwide, Hometrack and Halifax on UK house prices was out last week. And for the second time in three months they were unanimous. They all had month on month house prices falling: Hometrack by 0.1 per cent, Nationwide by 0.4 per cent, and the Halifax index recorded a 0.4 per cent drop in September. It has been frustrating over the last couple of years observing these housing surveys. Each month they have seemed to contradict each other. But all three reported falls in July, and in August two of the three reported falls (Nationwide had prices rising), and in September this rare agreement thing has happened again.

Perhaps more to the point, on an annual basis all three had prices falling too: Hometrack by 0.5 per cent, Nationwide by 1.4 per cent and Halifax by 1.2 per cent.

Mind you, they might have prices falling but house prices are not exactly crashing.

Meanwhile, politicians are busy trying to dream up ideas to try to get prices up. Nick Clegg wants to use money sitting in pension schemes to fund deposits, while Ed Balls has mooted the idea of using income from licensing 4G to fund a cut in stamp duty.

But, as is their wont, while on one hand the government is trying to dream up ideas to kick start the property market – such as funding for lending – is the other hand is also busy coming up with ideas to derail the market. According to analysis from Morgan Stanley, banks could be forced to find an extra £22bn in capital to fund changes to the way in which mortgages are risk weighted. The issue is complicated. Under the Basel rules, banks are required to hold a certain amount of capital. And under impending changes they will need to maintain 10 per cent capital ratios – other than mortgages, that is. Mortgages are seen as different, and carry a much lower risk rating than other asset classes. And who chooses this risk rating? Why the banks themselves, of course. It turns out that some banks have put such a low risk rating on their mortgage assets that, in fact, they can achieve leverage of near 100 to one – or one per cent capital.

It is not difficult to understand why the regulator is worried about this. This may seem like a radical concept, but some might say that it should not be down to the banks to risk assess their own assets.

So far then it all makes sense. Banks should not be allowed to risk assess their assets, and should not be allowed leverage of around 100:1 on some mortgage debt. It is just that if the regulators’ perfectly reasonable reservations were taken into account, bank mortgage lending might crash faster than you can say ‘property snakes and ladders’.

And that brings us to the baby boomers – you know those people who are due to swell the ranks of the retired to record levels. According to research from Lloyds Bank, just over half (51 per cent) of potential home movers are looking to ‘downsize’ within the next three years, compared to just a fifth (22 per cent) looking to trade up to a larger property. It is not that rare for home owners reaching retirement to downsize. The Lloyds TSB report, however, found that the reasons for downsizing have broadened in these tough economic times. Whilst 59 per cent want to move to a smaller property that is better suited to their circumstances, a third of potential downsizers would like to move to a smaller property to help reduce bills. Almost two fifths would like to free up equity in the property, and almost one in three said they want to downsize to help support retirement plans. A fifth of those considering downsizing are looking to trade down earlier than expected, with the majority citing financial concerns as the key driver.

So there you have it. The government can try to nudge us all into saving more, but as the UK enters the demographic moment of dread – the retirement of baby boomers – we are set to see a rush of people downsizing, creating an influx of supply onto the property market.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here