Pace of fall in house prices slowed down in November

The pace of falling house prices has slowed down in November, reported Nationwide. House prices fell by 0.4% in November as compared with 1.3% fall in October. Despite the slowdown, Nationwide believes that recovery in prices in near future was still distant possibility due to continuous deterioration in economy which was putting pressure on housing market.

Nationwide reported that monthly fall has brought down average house price to £158,442 in November. The annual rate of price fall has slowed down to 13.9% as against year-on-year decline of 14.6% in October.
According to Fionnuala Earley, chief economist at Nationwide, conditions were not yet conducive for quick recovery in spite of slowdown in house price falls. He added that continuously falling prices are not encouraging potential borrowers to enter the housing market.

The slump in mortgage lending has subdued the housing market. Borrowers are also finding it difficult to obtain mortgage without higher deposits. This week, former HBOS chief, Sir James Crosby, suggested to the Government to initiate necessary steps so that mortgage funds start flowing. If Government fails to take such actions, Sir James apprehends that mortgage lending would completely stop and lead to further decline in prices and property transactions.

Northern Rock defies Government’s call, raises mortgage rate

Not heeding the Government call to cut rates and commence lending, Northern Rock raised the rates of its competitive home loans. The state-owned mortgage lender was nationalised in February 2008. In blatant defiance of Government guidelines, it has hiked cost of its new fixed-rate mortgages by 0.3 percentage point. This hike would make life of the struggling borrower more difficult with addition of £40 per month to the cost of £150,000 loan.

Northern Rock also hiked one-year tenure lowest rate deal from 3.99% to 4.19%.

Reduced rates are reported to have caused rush of new customers for loans, exhausting Northern Rock’s fund allocation for low-rate deals. This led to increase of 4.19% for lowest rate deal.
Northern Rock justified its hike in rates saying that deals were very much cheaper than those of its competitors. The bank does not want breach of competition constraints which would deprive it benefit of Government guarantee.

The Bank of England considers that persuading banks to extend loans to firms and families was the most pressing task before the nation. Its governor, Mervyn King warned that if lending does not pick up, Government would be forced to nationalise entire banking system.

Lenders issued warning to treat borrowers fairly

The Financial Services Authority (FSA) has issued stern warning to mortgage lenders with 31 January 2009 deadline to prove that they have given fair treatment to customers facing repossessions or arrears.

The FSA rules pertaining to treatment of customers in mortgage arrears demand a written policy from lenders defining efforts being put in to enable customers in paying back arrears over mutually agreed time frame. Customers are required to be provided independent advice and repossession has to be used only as the last resort.

The FSA initiative has been welcomed by the director general of the Building Societies. He emphasised that borrowers struggling to make payments should be heard sympathetically and offered proper advice by the lenders. The borrowers are advised to take all necessary steps to retain their properties and think of repossessions only as last alternative.

FSA had conducted a survey earlier this year and found that there were serious concerns about lenders’ high handedness in dealing with repossessions and arrears. The Council of Mortgage Lenders had reported that 168,000 borrowers were a minimum of three months in arrears by end of September.

In the coming two months from now, lenders are required to inform FSA about the measures taken by them in implementing the guidelines laid down by FSA and would have to sign up their commitment for implementation of guidelines.

70% of empty commercial properties to benefit from tax exemption

With effect from April 2009, empty commercial properties having rateable value below £15,000 will be entitled for business rates exemption. The exemption is expected to bring big relief for nearly 70% of properties in the UK.

The exemption from rate tax was announced in the Pre-Budget Report presented by Chancellor Alistair Darling.

Many firms had demolished their empty commercial properties after withdrawal of tax relief by the Government in April 2008 as they were struggling to continue with rate payment without any income from their empty properties. Payment of tax was mandatory for buildings lying empty for more than 3 months.

The commercial property owners were demanding the Government to reconsider its withdrawal of tax relief. A motion, supporting abolition of tax was introduced by 60 Labour MPs to prevent a collapse of the property market and restrain owners and property developers from denying letting to thousand of potential tenants for the sake of higher rents.

At a time when there is sharp fall in demand for commercial property due to economic downturn, the announcement of relief has come as blessings in disguise. Investment Property Databank figures indicate 4.3% decline in commercial property capital value in last month.

Long-term tenancy agreements can benefit both tenants and landlords

There is growing demand for introduction of long-term tenancy agreements in the UK, a practice which is prevalent in Europe.

Rental market is highly developed in France and long-term agreements are well established option for tenants who are more interested in living their lives with better financial planning.

According to Mike Goddard, chief executive of the UK’s renowned letting agency, Belvoir, landlords and tenants could derive benefit from security of long-term agreements, by recognising that renting could be a sensible lifestyle and a financially viable solution.

It is predicted that 2 million people will slip into negative equity by 2010 and more people than ever will become tenants and landlords. This is evident from data which indicates that mortgage approvals have gone down by 95%, house prices fell by £15,000 while sales of houses touched a 30-year low.

Mike Goddard believes that there is total shift in public perception that renting was second rate option. It is now being looked at as better option in the prevailing economic conditions. He added that more tenants expect longer tenure of secured tenancy which is not available under existing Housing Act in the UK.

Goddard is confident that the UK would be moving in the same direction and short-term tenancy would not remain the only option. According to him long-term agreements would be easily available. Goddard believes that if tenants accept responsibility for maintenance and repair, it could be an incentive for landlords for long-term tenancy.

There is growing demand for introduction of long-term tenancy agreements in the UK, a practice which is prevalent in Europe.

Rental market is highly developed in France and long-term agreements are well established option for tenants who are more interested in living their lives with better financial planning.

According to Mike Goddard, chief executive of the UK’s renowned letting agency, Belvoir, landlords and tenants could derive benefit from security of long-term agreements, by recognising that renting could be a sensible lifestyle and a financially viable solution.

It is predicted that 2 million people would slip into negative equity by 2010 and more people than ever would becoming tenants and landlords. This is evident from data which indicates that mortgage approvals have gone down by 95%, house prices fell by £15,000 while sales of houses touched 30-year low.

Mike Goddard believes that there is total shift in public perception that renting was second rate option. It is now being looked at as better option in the prevailing economic conditions. He added that more tenants expect longer tenure of secured tenancy which is not available under existing Housing Act in the UK.

Goddard is confident that the UK would be moving in the same direction and short-term tenancy would not remain the only option. According to him long-term agreements would be easily available. Goddard believes that if tenants accept responsibility for maintenance and repair, it could be an incentive for landlords for long-term tenancy.

Net new mortgage lending likely to decline to zero in 2009

According to the Crosby Report submitted to the Government, net new mortgage lending will decline to zero in 2009. Total lending in 2007 was £108bn and is expected to touch not more than £40bn during 2008.

Sir James Crosby, who was requested by the Government to prepare a report, informs that majority lenders have plans to reduce lending during 2009 and 2010. They are apprehensive of getting severely affected by redemptions of mortgaged-backed securities, totalling £160bn during this period. This situation led Sir James Crosby to conclude that net new mortgage lending would go down to zero next year. According to him modest recovery in lending was expected in 2010.

Sir Crosby, former chief executive of HBOS, recommends that banking industry should be encouraged by the Government for standardising mortgage-backed securities.

He considers that the International Accounting Standards Board’s fair-value accounting strategy has compelled banks to reduce their assets value causing seize up of inter-bank lending. Sir Crosby suggests Government to persuade the Board to reconsider its strategy.

Report also recommends Government’s intervention in mortgage finance markets by offering £100bn guarantee of mortgage-backed securities in 2009 and 2010.

Chancellor Alistair Darling who has supported the proposal would take up the issue with the EU since state aids require its approval.

British Land reports 11% fall in portfolio value

British Land, which owns office and business park developments and retail across the UK, reported 10.8% drop in portfolio valuation in six months to September 2008. Its offices in City of London, which constitute 29% of British Land’s portfolio, fell by 14.1%.

The UK’s second-largest real estate trust has stakes in Songbird Estates Plc and owns 11% in Canary Wharf. The demise of its tenants including Lehman Brothers, led to 40% fall in the value of stake.

British Land suffered pre-tax loss of £1.33bn by end of second quarter including write down, but had surplus of £144m after stripping these out. Its chairman, Chris Gibson Smith, claimed that company has performed well in spite of higher stress in markets.

Smith added that although results were reflecting softening in yields, company’s long leases, higher occupancy levels and vast diversity of industries and tenants, provided cash-flow security. The group’s office-development activities would come to a halt until market conditions become more favourable.

Rental growth is likely to suffer in short term due to downturn in retailers’ trading, although there were no significant defaults in case of British Land tenants.

Chief executive, Stephen Hester, left British Land in October to join Royal Bank of Scotland as new chief executive. The successor is likely to be appointed by Christmas.