News & Views Blog

There has been a late surge in the number of properties coming onto the market as sellers rush to beat the June 1st HIPs deadline. propertyfinder.com has seen a 4% rise in the number of properties listed on the site since the beginning of the month, and predicts HIPs will cause further disruption after their implementation.

Our research carried out at the beginning of May showed there was a worrying level of ignorance in the general public regarding HIPs policy.  However, we are now seeing levels of activity that suggests awareness has increased in the past couple of weeks.  

This late surge will undoubtedly be followed by a drought come June and turbulence in the market will make it difficult to see the true effects of the latest rate rise.  House prices have been pushed up by a chronic lack of supply.  There is a worry that a further tightening of supply - as the market adapts to HIPs - will cause previously moderating house prices to spiral upwards again in the short term.  This will cause difficulties for the MPC’s setting of interest rates – we can only hope that they don’t act prematurely.  Borrowing costs are weighing heavily on people’s minds and it is only a matter of time before the market really begins to see the effects.  It is vital that the MPC sit back and wait for the storm to settle.  The housing market will need time to absorb four rate rises and disruptive new policy.

Table 1: Number of properties on propertyfinder.com - May 2007

Confidence in house prices dented as borrowing costs bite
Confidence in the value of bricks and mortar still remains high but people expect house price growth to slow over the coming months.  83% of people say they expect house prices to continue to rise over the next year.  However the extent to which people expect house prices to inflate has fallen this month from 6.4% to 6.0%.

Three quarters of people predict that if there were a fall in house prices, it would be due to rising interest rates and more than half of home buyers and sellers believe mortgages are unaffordable.  Someone buying a home today will now pay over £140 more in monthly mortgage payments than a year ago - a crippling 19% increase.

Nicholas Leeming added that house price growth was set to continue but that financial constraints will begin to take their toll:

The housing market has experienced rapid growth in house prices over the last 12 months, and prices look set to continue to rise.  However, there were signs that house price inflation was moderating, even before the May rate rise, and the latest move by the MPC is sure to impact further.

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Before the 24th May about-turn, property listings on propertyfinder.com had increased by more than 13% since the beginning of April - a figure well above the usual seasonal rise. This is largely due to people rushing to put their properties on the market in advance of the original1st June HIPs deadline. The number of properties coming onto the market has tailed off inthe last week, rising at under half the rate of the previous three weeks.

However, the surge in supply of properties means that average offer to asking price dropped to its lowest level in nine months.  In contrast to previous months where sellers were achieving at or above the asking price, the HIPS surge in supply gave buyers more power, and they were able to get properties below the asking price, by 1.82% in May. Nicholas Leeming of propertyfinder.com commented:

Although it is good news for home buyers who have got their properties cheaper, the U-turn is hitting home sellers in the pocket.  Supply has already tightened again and sellers who have rushed to sell but not yet purchased property may find the buyer/seller power shift reverses quickly, leaving them out of pocket.  A loss of almost £4,500 will feel like a real blow to these financially stretched home sellers.

Ordinary people are being forced to pay the price for the government’s dithering.  To add insult to injury, a further rate rise is expected and this will add to the financial burden of people who are struggling to keep a foot on the ladder.  HIPs have been nothing but a huge disruption to a fragile market.

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So what do these figures mean to the property market? Nick Leeming from Propertyfinder.com comments:

Evidence is piling up that the housing market is cooling. First confidence began to slip as interest rates rose, then evidence of slowing price growth emerged and now it is quite clear that appetite for mortgage borrowing is waning too. All of this pre-dates the latest interest rate increase and the jump in supply of homes for sale ahead of the abortive attempt to introduce HIPs. Greater supply and lower demand are likely to accelerate the cooling through the summer. It is quite clear that another interest rate increase is unnecesary. We need a period of stability now to allow the market to find its new level.

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Planning laws were given a major shake up yesterday, with Communities and Local Government Secretary Ruth Kelly replacing large planning inquiries with a national independent commission.

Reforms outlined in her Planning White Paper would also reduce the amount of time needed to gain approval for major infrastructure projects and minor developments no longer require planning permission if there is little impact on neighbours.

Ms Kelly hopes to make the "incredibly difficult planning system" simpler and more accessible for everyone, slashing red tape for simple home improvements such as adding a conservatory or converting a loft. Installing energy efficiency measures and green supplies in the home will also become a lot easier.

A survey conducted by propertyfinder.com that looked at public attitudes towards the planning process and new residential developments confirmed the need for these changes.

The majority of respondents who had been involved in a planning application found it overcomplicated, hard to understand, and involving too much red tape. 67.9% of people said the process takes too long, but only half felt that enough consideration was given to local objections.    

New measures will introduce an "impact test" that will replace rules on how much extra floor area is permitted before formal permission is required.

On a larger scale, reforms will see the final decision on major planning projects, such as airport terminals and power stations taken by an independent commission - made up of planners, lawyers and environmentalists - rather than ministers.

The Independent Planning Commission (IPC) would look at the potential local impact of these large projects, such as on air quality, noise and traffic problems.

Ms Kelly commented:

If you take a major infrastructure project like terminal five at Heathrow - that took seven years to go through the planning application process - it had to be considered under 37 different applications, seven different pieces of legislation. Now, local people find that an incredibly difficulty planning system to manage. The system that we want to set up is one that is much simpler to understand, and where the public is locked in at every stage of the consultation process.

However, some feel there is a danger that the new system would "strip democratic accountability out of the planning system" and Neil Sinden, policy director at the Campaign to Protect Rural England, is not as reassured as he would like to be about these safeguards.

He added:

The planning system is there to help us debate issues. Inquiries do take time, these issues are complex. We need to balance national and local issues.

Hugh Ellis of Friends of the Earth continued:

The planning white paper will give the green light to massive new developments while stripping away opportunities for affected communities or the wider public to input on decisions. This is policy making at its worse. It will destroy local communities and exacerbate climate change.

The chairman of Local Government Association, Lord Bruce Lockhart agrees a less bureaucratic system was needed and that is exactly what Ms Kelly is hoping to achieve, in supporting people's aspirations to improve their homes, while retaining safeguards on noise, sighting and size to protect their neighbours.

The level of private planning applications have more than doubled since 1995 to almost 330,000 per year, and ministers are hoping to reduce this number citing them as 'costly and cumbersome to home owners'.

Ms Kelly confirmed:

The new system will replace over eight different planning regimes and could save more than £1 billion within 10 years. It will create the legal framework to meet the country's key infrastructire needs for the next 10 to 25 years. 

Key Proposals

• Long-term "national planning statements" by ministers

• Independent commission to replace large planning inquiries

• Quicker home improvement applications and appeals

• Planning permission not needed for small projects where no impact on neighbours

• Policies to keep "vibrant" town centres

• Developers legally obliged to consult public

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Owing to the shortage of properties for sale in some locations, an extraordinary side-effect is emerging and the usual gap between prices of un-modernised and modernised homes is narrowing. Currently, this trend is only apparent in Central London, but some are convinced that it could occur in other places where there is very little available to buy.

Ed mead of Douglas & Gordon, Chelsea adds:

It used to be that the single biggest variable when valuing a property was its condition. But there is now no difference between un-modernised and modernised property. This does not make sense, but this is not a market that makes sense.

There is a danger that if this pattern starts to alter nationwide, then renovating a wreck would become more tricky - which would come as a blow to most looking to take this popular route to home-ownership. It would also confirm that television property makeover shows have made everyone itch to get in touch with their inner architect.

Estate agents observing the be-your-own-Norman-Foster movement in the capital say that wealthy buyers are increasingly possessed by a creative vision of their own perfect pad. Agents also discern a new desire amongst these buyers to remodel and stay put for at least the next decade, which may be why they are wary of the quality of other people's refurbishment programmes.

Barbara Mansour of Cluttons, Hyde Park reports that one jarring element in a renovated property will lead some buyers to suspect that there are more serious, hidden defects. But this may not necessarily be the reason why one of Ms Mansour's customer was willing to pay more per square foot for an un-modernised house in Connaught Square (site of the Blair family mansion) than for an already renovated property.

Several features apparently bind many of the capital's grandiose refurbishment programmes. Kitchens installed as recently as five years ago can be considered outdated - a view with which it is difficult to have much sympathy, especially as the unwanted units are probably not recycled. The desperation to buy also causes prospective owners to underestimate the cost of work. This is probably the common thread that unites all fixer-upper projects, whatever the value of the home.

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What is the best way to help my children get onto the property ladder?

This week's expert, Jonathon Hudson from Hudson Property in London suggests:

It's a fact of 21st century life that not only rocketing prices, but in London particularly, the lack of housing stock is making it very hard for people in the 18 to 30 age group to buy property. There are always the tried and tested methods such as buying with a friend, taking in a lodger, or buying under a shared ownership scheme but there are several ways in which parents can make home purchase more affordable for their children.

They can, for example: buy a share of the property; pay part of their offspring's mortgage' borrow money; remortgage their property; or act as guarantors. Mortgage lenders with their finger on the pulse want to encourage first-time buyers, so the market is seeing some innovative products to help parents help out without necessarily giving up their savings or getting further into debt themselves. One such product adds the income of parents - as long as they're under 55 - to that of the first-time buyer when calculating the size of the mortgage available.

According to the product information it can take into account up to three incomes, and the term is linked to the young buyer's age - and as it can extend to 40 years the monthly repayments are easier. The best advice is to speak to a financial advisor who will have a wider view on the options available.

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The housing market is not in trouble, but today’s data serves as a timely reminder that we are still experiencing the effects of the three rate rises between August and January.  March DCLG figures show a gradual slowing in house price growth, even before another burden was placed on home owners last week.  The latest rise means an average homebuyer is facing nearly £1,700 extra in mortgage repayments than a year ago and this is certain to have a further cooling effect.  The housing market is reacting slowly but surely, another 0.25% hike this summer would be heavy handed to say the least.  If the MPC acts again before the effects of four rate increases have been fully absorbed, the housing market could be the victim of fools rushing in.

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The Bank of England today announced plans to lift interest rates to a six-year high to curb inflation, currently at a 14-year peak. The quarter of a point raise, to 5.5, per cent pushes the cost of borrowing  to its highest level for six years.

The decision by the Bank’s Monetary Policy Committee has been widely expected for weeks amid strong consumer demand that has caused inflation to sit at it's highest point since the Bank gained independence in 1997.

The quarter-point rise will add an additional £31.25 a month to the typical cost of an interest-only mortgage for a house worth £150,000.

Nick Leeming, Director of propertyfinder.com commented:

The property boom is not unstoppable.  There are already early signs that the housing market is slowing down – price growth and demand for mortgages are both moderating. 

Despite inflation climbing to 3.1 per cent in March, the Bank repeated that it expected inflation to fall back "to around the 2 per cent target in the course of this year" because of lower gas and electricity prices and weaker import price inflation.

Nick Leeming added:

With four rate hikes since the summer to contend with, new home buyers in particular are facing much higher mortgage costs and inevitably that will reduce appetite to buy a home. Someone buying a home today will now pay over £150 more in monthly mortgage payments than a year ago. That’s a crippling 25% increase.  Today’s move may prove a step too far.

Uncertainty now prevails over the Bank’s next move, although further increases in the Bank of England base rate are predicted.

And while the rate increase will come as a blow to borrowers, it spells good news for savers as the latest increase should take the best buy rates on easy access accounts close to the 6 per cent mark.
However, Sue Hannums, savings manager at AWD Chase de Vere, an independent financial adviser, warns "savers should be on their guard, because not all banks and building societies pass on the full rate rise to their customers". 

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With under a month to go until Home Information Packs are due to become reality, a propertyfinder.com survey of almost 2,000 people suggests the housing market is in for a rough ride.

Most buyers and sellers have heard of a HIP

36% of the general public thought that HIP stood for Homeland Immigration Policy, while only 27% correctly identified it as a Home Information Pack.  People actually buying and selling property at the moment were much better informed; with 80% of buyers and 94% of sellers picking the correct answer.

Confusion over the content
 
There is widespread confusion over what a HIP will contain with three fifths of buyers expecting to receive at least a home condition report, and two fifths expecting a full structural survey.  They will be disappointed.   Most people correctly picked the energy performance certificate, but astonishingly less than half of buyers expected evidence of title or a search, the two key legal documents in the pack.

Warren Bright, chief executive of propertyfinder.com said:

No rush to beat the HIPs

In propertyfinder.com’s April survey of estate agents, 57% reported an increase in the number of instructions they had received, while 43% said instructions had fallen or stayed the same. The number of properties propertyfinder.com listed in the last week of April was 5.4% higher than the number listed in the first week.  Both these statistics are in line with normal seasonal patterns in the housing market.  Furthermore, given that 93% of sellers knew that sellers will have to pay for a HIP and yet still supply has not increased beyond normal, there is nothing to suggest sellers are rushing to beat the deadline.

Warren Bright continued:

Cost expectations for HIPs don’t reflect reality

On average, sellers expected to pay £496 for a HIP, while buyers thought they would cost £549.

Commenting on the costs, Warren Bright said:

The pricing of HIPs is still a mystery to many in the industry, not just to those selling their home.  Given that most people, especially buyers, expect either a full structural survey or at least a home condition report, they will be in for a shock when they see they’ll still need to pay to see if their chosen property is in a fit state to buy.

For more information on Home Information Packs, and to ensure you're ready for June 1st, visit our HIPs Section for all you need to know.

Thank you to all of those who took part in our HIPs survey. propertyfinder.com surveyed 1,502 home buyers and sellers online on 28th and 29th April 2007. A further 301 members of the general public  were surveyed in central London on 28th April.

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