Property Bank lending

I am afraid it is not looking positive.

Yes, off course banks are lending, but do they really want to expand lending to the property sector? Often a simplistic response to the credit crunch of the last few years is that too much money was loaned to the property sector to fuel the greed of developers. However, I feel it is safe to say many sectors were borrowing when money was relatively easy to obtain – a very good example is all the leveraged buyouts, incidently not all of these were by private equity firms.

Property though is now a large proportion of the loan book that many lenders are sitting on. I have heard the comment that why if they are sitting on property loans that banks are struggling to know what to do with would they lend to another property scheme? I understand bank HQs have revisited what proportion of their loan book they want on property and have set targets to manage DOWN to this level. I read in the press that in the last week or some lenders are increasing interest rates on loans as a way of reducing applications. I remember having a discussion with a mortgage lender in the recent past that they were horrified to being in the top ten of best mortgages – bottom ten they would have been happy with.

So whether you are looking for a mortgage or to fund a development money is scarce and will continue to be for some time. I have said in other blogs that money is out there  – this is the case – but you are battling against lenders looking to rebalance their lending books.

Property Prices for 2010 . . .

There are many property price predictions doing the rounds currently.

I thought I would share what investors are forecasting for the coming year. Our latest Young Index show that investors forecast 2010 to be a year of consolidation and stability in the residential property market.

Far from the large property price changes foretold at either extreme of the wide ranging predictions made by agents, lenders and economists, the man in the street expects UK house prices to fall by a modest 1.0% during the course of 2010.  London, on the other hand, is predicted to perform slightly stronger than the national average by charting a growth of 0.7%.

Price Forecasts 2010

We directly poll the opinions of property owners – people who own their own homes and also investment properties – and it’s clear that they remain cautiously optimistic, expecting prices to remain relatively unchanged during 2010.  Interestingly, Young Index reveals that London is expected to out-perform the rest of the UK and is set to lead the market recovery.

The consolidation indicated by average price expectations is also reflected by the fact that 59% of those questioned are considering purchasing additional residential property assets to rent out within London over the next 12 months, compared to 43% who are looking at opportunities in the UK outside of the capital.  This compares to 33% and 8%, respectively, in Q4 2008 and is a continuation of last quarter’s upward trend.

However, again the lack of buy-to-let mortgages is of increasing concern to UK residential landlords, more so than any other aspect of the rental sector. When asked what improvement they would most like to see in 2010, 39% indicated that they long for more buy-to-let finance options. This is a significant increase on the fourth quarter of 2008, when 28% picked the lack of buy-to-let mortgages loans as their major concern.

So let’s see what happens . . .

What a shame we need regulation

Is it to do with the changing society, people’s values or an over zealous government? Whenever there is a problem that hits the news the answer that seems to be proposed is more regulation.

The property market is a case in point – whether it relates to estate agents, mortgage brokers or investment companies. May be I am yearning for an era that never really existed, but why can’t people act in an appropriate way? Why does it require many hours of meetings, committees and drafting to come up with regulations that are unneccessary if people used good old fashioned common sense?

May be it is people’s greed. It is frustrating when regulation is introduced and ignores fundamental points. When the mortgage market was regulated, why were only residential mortgages covered? To ignore buy-to-let mortgages seems bizarre. Surprise surprise, there is a drive now to regulate buy-to-let mortgages!

The other old favourite for regulation is estate agents. There is a difference here between letting agents and sales agents. It is the handling of money that needs to be considered. With the latter, solicitors are involved. Therefore all monies and documents that are required go through the solicitor. Yes there is a question around advice that an agent gives, however, as with any ‘sales’ person you need to do your own research. There are good sales agents that will guide you through and give good guidance, but ultimately the decision is yours.

As regards residential letting agents, solicitors are rarely involved. The letting agent deals with the monies and documents. There is regulation around the holding of deposits, but beyond this there is little. Your decision needs to be based on reputation, trust and industry recognition. However, many people don’t spend enough time doing their research and get caught out when it is too late.

Unfortunately, I do feel that estate agents require regulation because there are firms out there that do not share the values of trust, honesty and integrity. When mortgage brokers were regulated some years ago it did result in many unscrupulous ones closing down – I believe this would also be the case with Estate Agents.

In conclusion, there are cases where regulation is required, that is where society has taken us.

Thoughts?

Buy-to-let lives on – obviously

There was an article on the Sunday Times yesterday saying how Buy-to-let lives on. To me this seems a bit of a non story.

Over the last few years commentators have been speculating that buy-to-let does not have a future. Do these people not take note what is happening in the real world.

A few months ago we at Young Group wrote a paper which looked at the demographics of the UK going forward. One of the most obvious findings was the increase in ‘solo’ households – in 2006 it was 6.8 million, forecast for 2031 by the Communities and Local Government is for it to rise to 10.9 million, a 60%+ increase. This is driven by a selection of factors, including increased immigration, people marrying later, higher divorce rate, and importantly individuals wanting greater flexibility.

These points coupled with a growing population/households (in the same 25 year period, UK households are set to increase from 21.5 million to 27.8 million), lead to a need for more housing. However, many of these groups are unable to afford to buy – especially with the current difficulties in raising funds – therefore they look to the rental market.

The term buy-to-let came about in the late ’90’s when the Council of Mortgage Lenders (CML) worked with some lenders to offer more widely investment mortgages. However, there were many investors who had been doing this for years, it was not a new phenomenon but one that in many ways was just a case of rebranding.

For all the years I have been going to property events (MIPIM, Property Week’s Resi, etc) there has been a lot of talk about institutions such as Aviva, Legal & General, etc investing in residential property as was the case early in the last century. Apart from a few funds this has not materialised. It does make sense for them to invest in this asset class – and many are currently evaluating this as an option – but no action has taken place.

This has to be the biggest asset class where the individual investor has greater exposure than institutions. Despite the headlines of the last few years most who have invested in residential property are committed to it. Our recent Young Index survey shows that 98% of investors surveyed intend to hold for the next 12 months, with almost half planning on holding for at least the next 10 years. There are good returns to make out of this sector, seeing it as a long term investment is important.

So, let’s stop trying to kill off one of our oldest and most fundamental industries, and encourage it, as it is paramount for the future growth of the economy.

Are buy to let mortgages increasing?

Buy to Let Mortgage Growth

The buy to let mortgage sector has seen a return to growth for the first time in two years. Figures from the Council of Mortgage Lenders (CML) show that the number of loans approved to investors rose from 21,600 in Q2 to 23,700 in Q3 this year, taking the total number of outstanding buy to let loans to 1,205,000, 11% of the mortgage market, with an outstanding value of £144.2billion.

This is encouraging, however, lenders are still reluctant to lend. Through Young Finance we are seeing an increase in enquiries for buy to let mortgages, but they are still difficult to place.

This coupled with a lack of supply of good rental property to buy will keep the mortgage volumes low for some time.