Housing slump likely to be over in 2009, says LSR

A forecast by the Lombard Street Research (LSR) says that the UK housing slump may be over by end of 2009.

LSR, regarded as one of the most reputed economic consultancies of London, claimed that home prices have now come to “affordable” levels.

LSR worked out an affordability index in co-ordination with The Daily Telegraph, which revealed that house prices throughout the UK are far better than their long-term average, for the first time in 5 years.

According to LSR’s senior economist, Jamie Dannhauser, house prices levels will bottom out at the end of 2009, and the recovery will be little extra than the bounce from bottom.

Dannhauser believes that current average prices are quite affordable for those with hefty deposits and good credit rating.

Property prices have gone down by around 20% since onset of credit crunch in last 18 months. There are many industry watchers who are forecasting further decline of 15% on account of rising unemployment.

But LSR believes that combination of low interest rates and falling prices means prevailing prices are good value for those having capacity to pay big deposit.

Earlier in April, Halifax reported 1.9% fall in the UK house prices in March, as compared to February. But just a day later Nationwide’s house price index showed 0.9% increase in March.

The Centre for Economics and Business Research (CERB) also hinted that housing market recovery may be around the corner.

Government launches Homeowners’ Mortgage Support Scheme

The Homeowners’ Mortgage Support Scheme (HMSS) by the Government has been launched on 21 April. Details of scheme were announced last year.

It is aimed at helping homeowners who are losing part of their income and will allow postponement of up to 70% mortgage interest payments.

Housing Minister Margaret Beckett claimed that the Government is aiming to help people who are unable to pay their mortgages because of economic downturn and are ineligible for re-housing.
Applicants will have to have sufficient income to pay at least 30% of their interest.
Those with mortgage debt lower than £400,000 and savings of less than £16,000 will also qualify for the HMSS.

Lenders who have agreed to participate in the scheme include Bradford & Bingley, Lloyds Banking Group, Clydesdale, Yorkshire Banks, RBS, Northern Bank and Cumberland Building Society.
The Post Office, Bank of Ireland and Standard Life Bank are also expected to sign up, as are sub-prime lenders GE Money, GMAC and Kensington.

However response from Council of Mortgage Lenders (CML) to the scheme backed by the Government’s guarantee seems to be gloomy. According to Michael Coogan, director general CML, the HMSS is an additional helpful tool but CML is not sure that guarantee will be triggered in most of the cases.

Borrowers in negative equity being offered 120% mortgages

Halifax, one of the biggest mortgage lenders in the UK has come to the rescue of existing customers with offer of 120% loans at the end of their current deal.

HBOS, member of the Lloyds Banking Group is planning to offer new loans to customers who are in negative equity and whose current deals such as fixed rate are about to expire.

Normally in case of borrowers in negative equity, rates are reverted to standard variable rate (SVR) and it becomes difficult for them to re-mortgage if the amount of new loan exceeds property’s current value on account of house price decline.

Lenders are approving loans up to 95% of property value, but the customers bargaining for most competitive deals have to borrow not more than 60 to 75%.

However Halifax and bank of Scotland are offering same rates of 95% loans to re-mortgage customers who require 120% of the property value.

HBOS are extending negative equity loans this month up to 120% LTV, but will not be publicizing this anywhere. Brokers believe HBOS is possibly the only major lender helping the customers in negative equity.

Melanie Bien of Savills Private Finance remarked that HBOS was doing decent thing by providing loans at fixed rate to those in negative equity, which is normally given only to customers borrowing at 95% LTV. She urged other lenders to follow HBOS’s good example.

900,000 borrowers enter into negative equity, reports CML

Data released by the Council of Mortgage Lenders (CML) reveals that nearly 900,000 borrowers are in negative equity due to continuing fall in house prices.

After reaching a high in summer 2007, house prices in the market have plunged by 20%, leaving those with mortgages more than property value, with too little equity.

Negative equity poses a problem only when people are compelled to move. Those who can continue to stay in their homes will gain in future as the market starts stabilising.

CML figures indicate that borrowers from North are the worst affected, with 9.2% (over 70,000) of homes occupied by owners in the region falling in negative equity.

The number of those in negative equity in the South East is 150,000, equating to 5.7% of homes in that region. However, situation in Scotland is not that bad with only 1% of owners in negative equity.
CML recalls that 1.5 million borrowers had gone in negative equity during early 1990s housing slump, but recovered later. CML is expecting similar outcome for the present borrowers particularly in the backdrop of easing of situation due to lower interest rates.

Survey by the research group GfK NOP, conducted in February, had forecast negative equity for 5 million homeowners by the end of 2009, if down trend in house prices continues.

But these figures are termed as “a little extreme” by the Royal Institution of Chartered Surveyors. CML also called these estimates as alarming and implausible.

Inquiries from middle-class homeowners for help surge 220%

Latest report by a company, which buys properties from cash-strapped sellers, the middle-class homeowner is the biggest sufferer of the economic slowdown and collapse of the housing market.

The property recovery specialist firm, the Property Portfolio Rescue (PPR), informs that 3,000 homeowners have sought its help in last 3 months while inquiries from middle-class homeowners soared by 220% since last year.

PPR states that large number of buy-to-let landlords are being forced to sell their holdings as they are unable to refinance mortgage deals. However most of them are seeking company’s help to avoid repossession of properties.

The firm is apprehending repossession of 70,000 homes, amounting to 60% increase over last year. According to company director, Nick Hopkinson, this surge is an indication that recession is biting the whole UK economy. He feels that more small buy-to-let landlords would face financial difficulties since lower mortgage costs will not be available for longer period.

Hopkinson says that landlords will face mortgage cost time bomb when inflation pushes up interest rates again. He suggests them to save against this eventuality or reduce debt liability.

Last week, first time since last 5 months of continuous rate cuts, the Bank of England stopped further cuts and retained base rate at 0.5%.

HSBC offering competitive deals to first time buyers

Those who were struggling so far to get onto property ladder due to demand of hefty deposits by lenders have got a boost with an attractive offer from HSBC of a competitive deal that requires a deposit of only 10%.

A 2-year fixed-rate of 4.99% is being offered with maximum 90% loan-to-value at a nominal fee of £199.

Apart form this; a lifetime tracker mortgage is also being floated at 4.09% above current base rate of 4.59% and fees of £999. Borrowers will be allowed to switch to another deal in case interest rates go up, since HSBC will not be charging exit fee.

However, only those holding a HSBC Plus or Premier current account will be eligible to apply.

According to General Manager, Joe Garner, of HSBC’s personal financial services, although house prices will continue to fall, it will not be so forever. He claimed that HSBC had been standing by its customers through thick and thin and the changes in offer represent HSBC’s resolve to provide best possible deals to customers on their mortgage.

Ray Boulger of mortgage broker John Charcol, welcomed new deals and urged the Government to compel three lenders, Northern Rock, RBS and Lloyds Banking Group to follow suit.

Two-thirds of mortgage borrowers still required to pay heavy deposits

Despite claims of increase in mortgage lending, the borrowers did not get any relief as two-thirds of deals are offered only on heavy deposits.

A latest report by Moneyfacts reveals that 68% of the 1,485 deals are still demanding deposit of minimum 25%.

It is also pointed out that 101 deals were offered at 90% of property’s value in the beginning of March, but the figure is down to 93 deals currently. However the number of deals with 85% of value has gone up significantly from 21 to 258 during same period.

A good news for borrowers is that Lloyds Banking Group and Royal Bank of Scotland will be offering more loans to homeowners who sign up to the Asset Protection Scheme announced by the Government.

Recent reports are indicating recovery signs in the housing market following the Bank of England’s announcement that number of mortgage approvals increased to 38,000 in February, up 6,000 reported in January.

However, keen market observers have cautioned that it will take quite long for the market to reach normal levels.

Mean time the Royal Institute of Chartered Surveyors warned that it is too early to assume that property prices are on the way to recovery, as the Halifax house price index showed fall of 1.9% in the average price in March.

Base Interest Rates can rise again, warn mortgage experts

In spite of the fact that the Bank of England reduced base interest rate to a level seen only in 17th century, mortgage experts warned landlords that rates can begin to rise once again in a matter of time.

It will add new financial burden for the buy-to-let investors. Residential landlords are advised to get prepared for rate hikes that may be introduced in 2nd half of the year.

Hopkinson, at Property Portfolio Rescue, described the situation as “a ticking time bomb which could prove disastrous”. The landlords with flexible rate mortgage contracts or tracker would be the worst sufferer of rising rates. Some of them escaped from high rate over past many months, but could be deprived of this advantage any time. Those intending to re-mortgage later this year will also be required to pay higher rates.

Considering that Hopkinson’s projections will prove to be correct, 20% of landlords will go into repossession by the end of year. Hopkinson warns landlords not to feel secure in the hope of market bounce back, even after increase in interest rates. He advises them to augment their liquid cash reserves during low interest period for the anticipated hike.

Sellers beware, Hips is now in force

The controversial Hips (Home Information Packs) which have been criticised as “waste of time” are now into force from April. The sellers will have to put it in place before going for sale of property.

Prior to introduction of new changes, vendors were able to order a Hip before putting up ‘for sale’ board, but now they are required to furnish additional details in new questionnaire.

The seller is supposed to provide pre-sale information such as council tax band, utilities, parking arrangements and details of structural alterations in the new Property Information Questionnaire (PIQ). This information will help buyer in deciding whether to make an offer.

The Association of Home Information Pack Providers (AHIPP) believes that changes in Hips will be beneficial to the buyers.

Contrary to this belief, the National Association of Estate Agents (NAEA) argues that 89% of property professionals disagree with AHIPP’s views. NAEA, which has been opposing packs since day one, considers them as costly, unnecessary and a total failure.

NAEA also alleges that people are refraining from putting their property on sale because of Hips, as they are required to pay up to £400 for it irrespective of sale or no sale.

However, if any vendor or estate agent puts a property on sale without PIQ or Hips he/she could be fined £200.

As per the new changes, property owners will be required to wait 3 to 5 days to get required information for a pack.

Home prices up by 0.9 per cent, reports Nationwide

Average cost of house has gone up for first time in last sixteen months, but year-on-year values are still reported to be down.

Home prices had gone up by 1 percentage point in March 2009, leading to speculations that UK’s property market was on the way to revival.

According to Nationwide, home cost rose by 0.9%, raising average property price to £150,946 from £147,746. But chief economist Fionnuala Earley and other experts warned that this improvement should not be taken as an end to house price downturn.

Fionnuala pointed out that the Bank of England had already initiated strong measures to help financial and economic markets by lowering rates and commencing quantitative easing. But it will take some more time into the housing market for recovery in home prices.

Nationwide’s report is followed by another good news on housing market that mortgage approvals at the Bank of England had gone up by 19% in February.

According to the Royal Institute of Chartered Surveyors, there is increase in inquiries from potential buyers for the fourth consecutive month. While Nationwide said that upturn in activity in the month of March was indication of return of buyers who postponed buying a home during financial turmoil at the end of 2008.

According to the chief UK and European Economist, Howard Archer, at HIS Global Insight, too much should not be read into house price rise in March, but nevertheless there are strong indications that housing market’s worst is probably over.