News & Views Blog

1. Low Mortgage Rates - Independence for the Bank of England brings the lowest mortgage rates in a generation.  The average mortgage rate for the Blair years was 5.9% compared to 8.8% for the ten years before him.
2. House Prices Boom - Labour’s low inflation, low interest rate economy kicked off a 189% rise in house prices between May 1997 and May 2007.  The average house price rose from £68,000 in May 1997 to £197,000 at the end of Blair’s premiership.
   
3. Mortgage Borrowing Soars - A typical home buyer borrowed £47,000 when Blair took office compared to £125,000 when he left.
   
4. But so does Housing Equity - Over the same period, the average homeowner saw his equity grow a massive £74,000, from £29,000 to over £103,000, a rise of 254%. 
   
5. Mortgage Mountial Grows - The stock of outstanding mortgages in the UK rose 162% from just £420billion at the end of the John Major’s time in office to a staggering £1.2trillion by the time Tony Blair’s ten years were up.
   
6. First-Time Buyers Decline - First-time buyers shrink from 45% of mortgage borrowers in 1997 to just over a third in 2007 as house prices stretch beyond the reach of many.  Affordability stretches such that the typical first-time buyer now borrows 3.3x income compared to just 2.3x ten years ago.
7. Stamp Duty Brings Smiles at the Treasury - The introduction of stamp duty bands and the speed with which house values rapidly moved up into the new bands made stamp duty a major earner for the Treasury.  In the year before Labour took power, stamp duty receipts in England and Wales were just £675m.  By 2006, they had hit £6.3billion and continue to rise.
8. Cost of Moving Home Triples - The overall cost of moving home for the average homebuyer and seller rose from £2,927 in the year before the Blair removal van arrived in Downing Street to £9,486 today.  As part of these costs, stamp duty per transaction rose from just £543 to a whopping £5,009.  By contrast, the average household income rose just 43%.
9. Private Rented Sector Rises - Buy-to-let emerges as a new industry.  Demographic change, rising student numbers, high immigration, and rising affordability constraints lead to an explosion in demand for rented housing.  Social housing provision remains static. Private landlords step into the market to fill the gap. By 2007, the private rented sector makes up 12% of UK housing stock and the level of owner occupation begins to fall for the first time in two generations.
10. Housing Market Remains Unreformed - After ten years in office Blair’s government failed to simplify and speed up the notoriously awkward process of buying a home in England and Wales.  Home Information Packs were repeatedly diluted and delayed until an embarrassing collapse just ten days before their final planned introduction on 1st June 2007.

Warren Bright, chief executive of propertyfinder.com commented:

The housing market has been extraordinarily energetic during the Blair years.  Homeowners and property investors have seen the value of their homes rise hugely, and have enjoyed an even bigger boost in the equity in their properties.  Unfortunately one of the side effects has been the increasing gap between the housing haves and have-nots with the bottom rungs on the housing ladder moving out of reach of many.  We estimate that 3.1m people who had expected to retire in their own home will live out their golden years in rented accommodation.

Although home owners have done well, the Treasury has been by far the biggest winner as the tenfold growth in stamp duty has far outstripped the rise in house prices.

For the Brown years, we hope to see firm action to tackle the shortage of housing supply.  This will mean a commitment to building far more new homes to meet the housing needs of our growing population.

Posted by Bronwyn at 10:20 AM | Permalink | Comments (0)

Am I better off continuing to rent or risk going for a 100% mortgage?

This week's expert, Sophie Curtis from Savills in London suggests:

It is really a gamble either way. You are better off renting if you are risk-averse, especially with interest rates likely to increase and talk of a possible 'crash' in the housing market.

However, if you continue to rent, sales prices may keep increasing and it will be harder to get on the property ladder.

If you decide to buy and go for a 100% mortgage you are banking on the value of the property increasing and it would probably be better to go for a fixed rate repayment mortgage. 

Posted by at 11:40 AM | Permalink | Comments (0)

The extent to which people expect house prices to rise fell in June to just below 5%, down from over 6% in May.  

The main cause for the shift in people’s expectations is the May rate rise, as well as the well publicised probability of a further hike to 6% before the end of the year, with 88% of people stating that a further cooling of the market would be primarily due to rate hikes. Warren Bright, Chief Executive of propertyfinder.com, commented:

The housing market is undoubtedly slowing. The May rate rise has had an immediate impact on homebuyer confidence and fears of more to come are dampening expectations for house prices.  We would expect future price growth to moderate in line with current confidence levels.

Mervyn King has now made clear that higher rates are almost certainly on the way.  The MPC directly affects what happens to variable rate mortgages but recent developments in the bond markets make it much more likely that longer term fixed rates are going to rise as well.  Homebuyers may be wise to lock in sooner rather than later.

Whilst most of the country is in slow down mode, a few regions continue to power ahead due to localised market influences.  Whilst most areas are conscious of the impact of rising borrowing costs, people in London and the South East remain confident that the market in these regions will continue to benefit from the wealth and success of the City.   Scotland and Northern Ireland remain optimistic due to the exceptional growth they have experienced lately.  They have been playing catch up in terms of house prices, particularly Northern Ireland, where until recently political turmoil had held the market back.  However, it is surprising – given recent growth rates – that people in Scotland and Ireland are not even more positive in their outlook.

The market is finding a new level but it remains strong and there is no sign of long term supply constraints easing any time soon.  However, there are potential disruptions on the horizon.  On top of another rate rise, the ongoing farce of HIPs is likely to cause further confusion in the market.

Posted by Bronwyn at 04:41 PM | Permalink | Comments (0)

By not increasing the cost of borrowing by a further 25 basis points in June, the Bank’s rate setting body has signaled it is prepared to wait and see how effective previous rate rises have been in cooling inflationary pressures.

It may also suggest that next week’s consumer prices report - to which the Bank will have been privy - shows that inflation is easing back as expected.

Consequently any further increase in rates is seen as a question of ‘when’ rather than ‘if’. The last time the MPC opted for consecutive monthly increases was in May and June of 2004, towards the beginning of the current cycle.

Posted by at 01:58 PM | Permalink | Comments (0)

Almost 80,000 landlords who may have claimed too much tax relief are facing a shock as the HM Revenue & Customs looks to claw back unpaid tax from as far back as six years.

The taxman is preparing to clamp down on tens of thousands of buy-to-let property owners who may not have paid enough tax or failed to declare the amount of rent they receive from the property, or a capital gain made on its sale.

The Revenue has the power to impose penalties, which can reach the same value of the unpaid tax bill, which could see some people face bills so large that they may have to sell their property. The campaign is the latest attempt to extract as much tax as possible and boost revenue for the Exchequer, with Britain on target to have the biggest budget deficit in Western Europe next year. As part of the campaign to tighten up the buy-to-let market, landlords who have failed to declare themselves as property owners will also be targeted. Information from banks, tenants and letting advert will be used to establish these "ghost" landlords.

Landlords have to pay income tax on the rents they receive from tenants, but under the law they can offset some of the tax they pay if they have an interest-only mortgage. It's understood many who have under-declared have incorrectly claimed deductions for these mortgage repayments. Buy-to-let mortgages have become more easier to obtain, and this coupled with buoyant house prices, has led to a boom in the investment property market over the past decade. Over £94 billion was borrowed in 2006, and the figure of buy-to-let landlords is now standing at 400,000.

Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, commented:

Buy-to-let investors are generally not tax evaders. Many think the mortgage interest is at such a level that it covers the rental income and they don't have any additional tax to pay. But the tax situation is so complex they may well have to pay.

A leaflet on rental income and capital gains tax will be sent by the taxman, alerting landlords to potential discrepancies in their records. And the Revenue is offering a 90 per cent discount on the usual penalties that apply if individuals confess to unpaid tax on offshore income before June 22. Landlords in Britain face a capital gains tax bill of more than £4.1 billion, with landlords facing an average bill of £48,600 based on 2006 housing prices, according to figures from buy-to-let mortgage broker Landlord Mortgages.

Posted by at 11:39 AM | Permalink | Comments (0)

My son is going to university - is it a good investment to buy a house and rent it to him and fellow students?

This week's property expert, Ian Balfour, from Coombe Residential in London says:

It is foremost an investment decision and thus one has to look at the current cost of the property against rent received (the yield). If you are able to absorb the, presumably higher, cost of the mortgage against he and his friends paying rent and/or you have a large sum of money that you wish to invest, then why not? It is every parent's wish to make their children's lives as comfortable as possible.

However, as an investment it is not as simple as a plain yes or no - I would wish to know two more things; firstly, which city/town the university is in and what has been the market history (because in South West London the market has seen a 10% rise in the last four months but this is not necessarily reflected elsewhere). Secondly how long do you wish to retain the property for, i.e. do you see this as a long term investment of over ten years? The market has risen for 12 years now and so if you intend to sell it when your son leaves in three years or so, and the market drops, then it would not be the best time to buy. One main tip though, try to buy an investment property near good transport links.

A university town is always going to have a ready list of tenants but students will not pay as highly as corporate tenants or young professionals, thus your yield may be lower. If your kindness towards your son overrides your investment decision then it is truly a gift that will help your son, I just hope that he and his friends look after the property.

Posted by at 08:35 AM | Permalink | Comments (0)