Showing posts with label UK housing. Show all posts
Showing posts with label UK housing. Show all posts

Tuesday 10 January 2023

Over 800,000 UK households to see mortgage rates double in 2023

Publish date: Tue, 10 Jan 2023

Over 800,000 UK households will see their mortgage rates more than double this year as they come off low fixed-rate deals, adding to the pressure on living standards.

In total, more than 1.4 million fixed-rate borrowers will have to renew their mortgage in 2023, with 57% currently on deals of less than 2%, according to an Office for National Statistics (ONS) analysis of Bank of England (BOE) data. The average variable rate mortgage is currently 4.41% and fixed-rate deals start at around 5%.

A typical fixed-rate mortgagor faces a £250 increase in their monthly payments if their deal expires this year. The hit will squeeze incomes further for those already reeling from soaring prices of energy and other goods.

Including households on variable deals, a total of four million UK homeowners are exposed to rate rises this year, the BOE said in December.

Banks and building societies have raised their mortgage offers because the BOE raised interest rates from 0.1% in December 2021 to 3.5% last month to tame double-digit inflation. Rates are expected to reach between 4% and 4.5% this year.

The ONS warned that the living-standard squeeze may be even harder for private tenants as rents are currently rising at 4%, the fastest pace since records began in 2016 as landlords pass on higher mortgage costs.

Private renters spend on average £106.50 a week on rent, compared with £140.80 for mortgage holders. However, as homeowners tend to be wealthier, the sums amount to 24% of weekly spending for renters and just 16% for mortgagors. For low-income renters, housing accounts for 30% of spending, the ONS added.

The ONS’s opinions and lifestyle survey found that both renters and mortgage borrowers are finding their housing costs “increasingly difficult to service”.

Landlords are particularly exposed to rising rates because the majority are on interest-only deals. More than a third of deals expire in the next two years, at which point landlords will have to choose between increasing rents to cover their costs or selling.

 


  - Bloomberg



Additional notes:

Interest-only mortgage security (IO)—interest payments stripped from a pool of mortgages which, for a given change in interest rates, fluctuates in value inversely to conventional mortgages (see principal-only mortgage security) 

Principal-only mortgage security (PO)—principal payments stripped from a pool of mortgages which, in response to changes in interest rates, fluctuate in value in the same direction as conventional mortgages but with greater volatility 

Monday 13 August 2018

Housing is a volatile investment indeed, at least for most people.


Statistics show that housing on the whole is a relatively tame investment:

  • Average annual percent change:  3.1%
  • Number of years positive:  15
  • Number of years negative:  5
  • Number of years between 0 and 10% positive:  13.
  • Number of years more than 20 percent positive: 0
  • Number of years more than 20 percent negative: 0
[Housing is thus an example of low volatility investment, with a tame and steady 3.1% annual gain with 15 positive years out of 20 and no 20% annual fluctuations.  Also, you get to live in it.]


Two caveats.  

Caveat number one is:  the price of a house is very large.  So a 5% (or $10,000) move on a $200,000 asset is significant and a 20% (or $40,000) move is gigantic.  Volatility as a percentage should naturally attenuate as the base of an index rises.  Sometimes the opposite happens when bubbles go into correction.

The second caveat is: leverage magnifies volatility.  Suppose you buy a $200,000 house and that you, like most others do, borrowed 80% of the value.  Your equity is $40,000.  A 5% or $10,000 price decrease now translates into a 25% ($10,000/$40,000) change.  [The mathematics:  if your equity is only a fifth of the asset value, you must multiply the volatility figures by 5x.]

Here are the housing volatility figures, this time assuming an 80% mortgage:
  • Average annual percent change:  15.5%
  • Number of years positive:  15 
  • Number of years negative:  5
  • Number of years between 0 and 10% positive:  2
  • Number of years more than 20% positive:  10
  • Number of years more than 20% negative: 2
Note especially the decline in the number of years between 0 and 10 percent positive:  from 13 to 2.  Looked at it in this light, housing is a volatile investment indeed, at least for most people.


[Remember too the impact of leverage on volatility.  This comes into play, too, when looking at companies to invest in.  If they've borrowed a lot of to finance the business, that, too, can lead to higher volatility.]







Wednesday 23 March 2016

UK student property getting popular in Malaysia

March 18, 2016, Friday

London Spring Place is a new purpose-built student housing project comprising 386 fully managed en-suite rooms and self-contained studio suites.
London Spring Place is a new purpose-built student housing project comprising 386 fully managed en-suite rooms and self-contained studio suites.
KUALA LUMPUR: Cornerstone International Properties has launched the second phase of the London Spring Place (LSP) project in Malaysia following the sell-out launch of Phase 1 in Malaysia in 2015. London Spring Place is a purpose built student accommodation in the UK.
In a press statement to The Borneo Post yesterday, it stated that Phase 1 of LSP, which sold out within months, was a runaway success in Malaysia, a sign that more Malaysians are seeing the viability and benefit of investing in UK student property, especially in light of the ringgit volatility and local and global economic uncertainty.
“Traditionally reserved for institutional investors, UK student property is now open to individual and private investors and has grown in popularity in Malaysia,” said Cornerstone International Properties director Virata Thaivasigamony.
“We are firm believers in this investment type as it has proven to be recession-proof and the strongest performing asset class in the UK with annual nett yields as high as 8 per cent, superseding the meagre 4 per cent and 2.5 per cent gross yields from residential rental projects in Kuala Lumpur and London, respectively,” said Virata, citing Felda’s investment in a student property in the UK in 2015 in a move to diversify assets.
“We saw a sharp increase in our UK student property sales numbers compared to residential property in Malaysia. In 2015 alone, 73 per cent of our inventory sold to Malaysians was UK student property. Our top-selling student property project, London Spring Place (Phase 1) which was extremely popular among Malaysian investors, sold out last year.
“In fact, Cornerstone International Properties sold an impressive 80 student units for the developer of London Spring Place alone! We just launched Phase 2 early this month and the take up rate has been extremely positive.”
Cornerstone International Properties is the exclusive marketing agent for LSP in Malaysia. LSP units come furnished with a fully equipped gym, cinema room, communal study and games rooms, onsite laundry, and high-speed WiFi in every room.
The popularity of UK student property is largely attributed to its strong performance, the strongest performing asset class in the UK since 2011, surpassing all other property asset types, according to Knight Frank. The risks are low as there is an acute undersupply of purpose built student accommodation in the UK. Default in rent is rare as a result of parental guarantee, thus investors are assured of regular and timely rental returns.
Malaysians investing in UK student property are excused from capital gains tax in addition to relief from rental income tax.
The London Spring Place Phase 2 roadshow will be in Sabah and Sarawak from 10am – 7pm this Saturday and Sunday (March 19 & 20), at Le Meridian Hotel Kota Kinabalu, Sabah; Pullman Hotel in Kuching, Sarawak; and RH Hotel in Sibu, Sarawak. For details call 016-228 9150 or 016- 228 8691.


Read more: http://www.theborneopost.com/2016/03/18/uk-student-property-getting-popular-in-malaysia/#ixzz43iDL4ulZ

Wednesday 13 January 2016

Buy-to-let investors under attack in the UK




A woman walks past an estate agent in Chelsea, London February 7, 2013.   REUTERS/Stefan Wermuth

They have pocketed some of the most lucrative returns available to investors in recent decades and been a staple of newspapers' personal finance pages, but tougher times now lie ahead for Britain's army of small-time landlords. So-called buy-to-let investors -- who usually own at most a handful of properties -- have enjoyed 20 years of surging house price growth and rents, and annual returns of nearly 10 percent.

They accounted for almost one in four house purchases funded by a mortgage last year, a chunk of the market unseen in other big economies. Overall, there are nearly 2 million private landlords in Britain, owning almost 20 percent of homes.

Their power is politically sensitive in a country where house prices border on a national obsession, reflecting the fact most people have the vast bulk of their assets tied up in their home. Critics argue buy-to-let distorts the market and makes it even harder for ordinary people to get on the housing ladder.

Now the landlords face a double threat. Finance minister George Osborne is squeezing more tax from buy-to-let (BTL) investments, partly to help fund incentives for new homeowners, while the Bank of England is seeking powers to limit the size of BTL mortgages in order to reduce risky lending.

A few economists say the changes could even push the overall housing market down later this year. One landlord who fears he will have to sell is Chris Cooper. The 54 year-old airline steward must retire at 60, and started acquiring buy-to-let properties over 14 years ago in order to boost his pension. "I'm fuming, to be perfectly honest," he said in his own one-bedroom flat in Windsor, a historic town near London which is dominated by Queen Elizabeth's 1,000-room castle. "I will either have to raise rents by a ridiculous amount which tenants won't be able to afford, or sell my properties."
Cooper owns 15 properties in northern England and around London worth 2.4 million pounds ($3.5 million), financed by loans totalling 1.6 million pounds. Tenants pay him over 100,000 pounds in rent a year and, after running costs, interest and tax, Cooper makes 12,400 pounds. But Osborne's cut to the amount of mortgage interest that can be offset against tax, which Cooper plans to challenge in court, will reduce that to 1,000 pounds. When interest rates rise, which could happen this year, profits will be even thinner.

HEIRS OF THATCHER

Helping new buyers to enter the housing market is a stated priority of Prime Minister David Cameron, whose Conservative Party enjoyed electoral success in the 1980s under Margaret Thatcher by making it easier for renters to buy their own homes. Home ownership rates in Britain are now the lowest in 30 years at 65 percent, below the EU average of 70 percent. Many Britons blame property investors for making it harder for young people to buy, even if experts say a chronic lack of new home-building is really the main factor.

In a new headache for landlords like Cooper, the Bank of England said last month that buy-to-let borrowers could be more vulnerable to higher interest rates than normal borrowers. It wants powers to cap the size of BTL mortgages relative to a property's price and rental income, similar to those it already has over residential mortgages. On the other hand, the squeeze on small landlords could help ventures like Property Partner, which launched in 2014 to offer alternatives to traditional buy-to-let.

"Buy-to-let as a cottage industry is dead," said chief executive Dan Gandesha. The start-up enables would-be landlords to buy, sell and trade fractions of BTL properties and take advantage of tax benefits available to big investors, as well as spreading their bets across a wider range of properties.

"I don't think the returns on that are quite as good, but those are the sort of options that would make my life easier," said Ramzi Hajaj, 26, a technology worker whose family gave him two London investment flats in 2013 which are now each worth about 500,000 pounds.

He may invest 700,000 pounds more, but is put off by a 3 percentage point increase in property sales tax on for buy-to-let purchases from April, in addition to other changes that will make it more onerous for landlords to get tax relief on the cost of maintenance and repairs.

LOWER RETURNS

Upfront returns on buy-to-let property have already fallen.
Property Partner estimates net rental yields in London are 2.5 percent now, compared with nearly 8 percent when buy-to-let got going in the late 1990s. But returns on other assets are lower too. Ten-year British government bonds yield around 1.8 percent now, down from 7 percent in 1997. Small investors are betting instead on more of the house price rises which allowed buy-to-let in England to show average annual returns of over 9 percent for the past 20 years.

However, low rental yields are putting off major investors such as Grainger, Britain's largest specialist residential landlord. Speaking at an industry conference last month, one of its managing directors, Derek Gorman, said new investment in London was hard. "It is very difficult to get into the London market at prices that are reasonable. So we are looking at the regions," he said. Shortages of construction workers and rising costs, the slow speed of planning approval and the difficulty of building higher-density housing in London also delayed construction. Lack of supply means most economists predict house prices will keep rising -- by 5 percent this year and 4 percent in 2017, according to a Reuters poll -- even if some such as Morgan Stanley see buy-to-let triggering a brief dip.

"My hunch is that demand will rise first before supply catches up," said Simon Rubinsohn, chief UK economist at the Royal Institution of Chartered Surveyors. "Living costs are going to get dearer."


http://www.theedgeproperty.com.my/content/buy-let-investors-under-attack-uk

Tuesday 19 November 2013

Only rich at risk from London’s bubble

Only rich at risk from London’s bubble

Oct 7, 2013 : UK housing bubble fears have been exacerbated by Help to Buy. But Ed Hammond, property correspondent, tells John Authers the bubble is built on equity, not debt, and that the average home price remains below pre-crisis levels


Be cautious, first-timers urged
November 17, 2013

With a threat of mortgage interest rate rises in the near future, home buyers are asked to tread carefully.

The cost of getting behind with loan repayments is about to become potentially much higher.

Read more: http://www.smh.com.au/money/borrowing/be-cautious-firsttimers-urged-20131116-2xnn8.html#ixzz2l4qnver1

Wednesday 19 September 2012

Gloom beats boom as house prices fall faster here than anywhere else


By Thomas Molloy
Wednesday September 19 2012


IRISH house prices continue to fall faster than anywhere else in the world, the IMF says in a new report. The Greeks are next, while Germans and Brazilians are seeing steep price gains.
The three countries with the steepest declines in the 12 months to March, when adjusted for inflation, are the three bailout countries of Ireland, Greece and Portugal.
Spain, which has already received a banks bailout, and which is widely expected to seek a formal bailout sometime next month, had the fourth worst decline.
At the other end of the spectrum, house prices in booming Brazil are up more than 15pc while those in Germany have gained more than 10pc. Other countries which have also had increases include the Ukraine and the Philippines.
While plunging house prices have caused well-documented problems here, rising prices are also leading to widespread angst in Germany and Brazil, where many people have been priced out of the market and rents are soaring -- creating challenges for policy makers and worries about inequality.
The IMF working paper finds that Irish prices are no longer misaligned, but are still more expensive than countries such as Germany when wages and other factors are taken into account.
Australia, which is enjoying a commodity-inspired bubble, has the most "misaligned" prices in the world, according to the study of 54 countries.
While many believe that our house price collapse was the worst in the world, the IMF study suggests that Estonia holds that distinction.
House prices fell further in Estonia, the Ukraine and Lithuania.
However, declines here have continued for longer than most other countries, which means that we may yet chalk up the worst bust in history.
The report says that house prices in the US have started to pick up a little recently, but globally prices are still on a down trend. While overall the trend is mixed, there is no sign of an uptick in the global index of house prices.
The findings suggest that long-run price dynamics are mostly driven by local factors such as income and population growth. The effect of more globally connected factors such as interest rates appears to be less strong.
Credit market conditions can have an impact in the short run and, ultimately, when the correction starts, affect both financial stability and the overall economy.
House price growth can be explained by several short-run factors, such as growth in incomes, asset prices, and population, and long-run-factors, such as the ratio of house prices to incomes.
The difference between actual house prices and those predicted on the basis of these fundamental factors gives another indication of whether prices may have more room to fall.
- Thomas Molloy
Irish Independent

Wednesday 5 September 2012

London luxury home market risks price crash

Tuesday, 04 September 2012

(Reuters) - Developers rushing to build top-quality London homes to cash in on strong overseas demand are in danger of being stung by a price crash as they flood the market, property consultancy EC Harris said.
Over 15,000 homes in developments worth more than £38 billion (RM187.81 billion) are due for completion in London's most expensive neighbourhoods in the next 10 years, a 70% jump on last year, an EC Harris report said Monday.
The total floor area covers almost 20 million sq ft — equivalent to the size of the London Olympic park — and includes properties in upmarket Mayfair, the City of London financial district and the south bank of the river Thames.
"Developers are racing to get first to site because they don't want to miss out on the boom that's happening," said Mark Farmer, head of residential at EC Harris. "There is a danger that if all these schemes happen that you'll have a massive oversupply."
Prices for luxury homes have surged in recent years after economic turmoil in Europe and political uprisings across North Africa drove investors to the relative safety of central London property.
Signs of a slowdown appeared after the UK government said in March it would clamp down on tax avoidance by overseas buyers of homes costing more than £2 million.
Prices for the best central London homes rose 1.8% in the three months to August, the weakest quarterly growth since November 2010, property consultant Knight Frank said Monday.
About 4,000 high-end homes are scheduled to be built in 2016 alone, an eight-fold increase on the average number built in London each year. The risk of over-building may be tempered by a tight supply in development finance, Farmer said.
Recent entrants to the market include offices and shops developer British Land, which said in July it would redevelop a block in Mayfair into luxury flats, and Malaysian developers SP Setia and Sime Darby, which plan to build over 3,000 homes at Battersea Power Station.
Such developers have been described as "late to the party" by some residential players.
A May report from Development Securities warned that London luxury home prices could halve if the eurozone broke up.
Other risks include further devaluation of the euro, which would make London property look more expensive, and changes to the UK planning system that make it easier to convert offices to homes and add to the pipeline, EC Harris said.
"The reality is that no one knows what the conditions will be in five or 10 years," he said.

Wednesday 29 February 2012

What is the real cost of 0.5pc Bank Rate?


What is the real cost of 0.5pc Bank Rate?
Three years on, savers are paying a heavy price to subsidise cheap borrowing.

MAN HOLDING A HANDFUL OF BANKNOTES
Lending to small businesses fell by 5.1pc in August, against an overall decline in corporate credit of 3.4pc Photo: Rex Features
Savers have lost more than £5,000 since the Bank of England reduced interest rates to a historic low of 0.5pc three years ago – but borrowers have cashed in.
While few savers will be celebrating the anniversary of this decision next week, mortgage borrowers will be toasting a windfall of almost £40,000, which is what the average householder has saved in interest charges over this period.
The unprecedented cut in interest rates was designed to protect an enfeebled economy from outright collapse, but the effect on families up and down the country has been enormous. Research for The Telegraph shows the extent to which families have gained or lost out. Pensioners are among those who have suffered the most; many depend on the income they receive from savings, so they have seen their standard of living fall – a decline made worse by high levels of inflation. Conversely, it is younger people, who typically have larger mortgages and other debts, that have benefited from lower borrowing costs.
Here we look in detail at how the Bank of England's extreme measures have affected our fortunes.

Savers

The Bank started seriously cutting interest rates in response to the growing credit crisis in December 2007. In the three years before this, the rate paid to savers with instant access accounts averaged 3.15pc, according to Defaqto, the data analyst. But over the past three years the average rate has been just 0.94pc.
As a result a saver with £20,000 in one of these accounts would have seen the interest they receive reduced by 70pc. In pounds and pence this means the interest has fallen from £1,950 to just £570 before tax – so they now get £1,380 less. For a basic-rate taxpayer, this means his income cut from £1,560 to £456, a fall of £1,104.
It's a similar story for cash Isas. The average rate on an instant access Isa in normal times was 4.85pc, Defaqto said, compared with only 1.52pc over the past three years. Assuming that savers had amassed £50,000 from successive years' Isa allowances, their income would have fallen from £7,635 to £2,315 – a fall of £5,320.
However, those who have shopped around and moved their savings regularly could have avoided much of this income loss. Over the past three years the average "best-buy" instant access account has paid 3.06pc, Defaqto found. As a result, anyone who switched from an average account to a best buy when the Bank cut rates to 0.5pc – switching again where necessary – would have seen their income fall by just £108 from £1,950 to £1,892 a year.
The average rate on a best-buy instant access Isa has been 3.12pc since March 2009. So a saver who took £50,000 out of an average product at that point and ensured it was always in a best-buy Isa thereafter would have seen their income fall by £2,805 from £7,635 to £4,830.
If you have left your savings in an account paying next to nothing, it's not too late to take action – in fact, economists don't expect Bank Rate to rise until late next year at the earliest. The best rate on the market for instant access accounts is currently 3.1pc on Santander's eSaver Issue 4, Defaqto said. Better rates are available if you tie up your money – such as 3.55pc for one year (from Aldermore), 3.85pc for two years (Vanquis Bank) and 4.2pc for four years (from BM Savings). Rates on equivalent Isas are often slightly lower.
David Black of Defaqto said: "There's a wide variation in the interest rates available even for the same sort of account – the rates paid by easy access accounts range from as little as 0.01pc up to 3.1pc. This shows how important it is to shop around for the best deal. If you've had an account for a while, the chances are you can get a better deal elsewhere."

Borrowers

Where savers have lost, mortgage borrowers gained. In the three years to December 2007 the average lifetime tracker mortgage charged Bank Rate plus 0.7pc, according to SPF Private Clients, the mortgage broker, so the rate that you actually paid at that time was 6.2pc. But since Bank Rate fell to 0.5pc the interest rate paid has been just 1.2pc.
As a result, monthly repayments on the average £250,000 lifetime tracker mortgage have fallen from £1,292 in the "normal" years to £250 now (on an interest-only basis). Total payments over three years have fallen from £46,512 to £9,000, saving the average borrower £37,512.
Two-year fixed-rate deals were also popular before the credit crisis. Someone who took out one of these loans two years before Bank Rate fell to 0.5pc would typically have paid an interest rate of 5.18pc, SPF said, taking a loan from Nationwide as an example. Monthly repayments at that rate would have been £1,079 (again interest-only).
After the introductory period on these mortgages has expired, the rate typically reverts to the lender's standard variable rate (SVR). A borrower who took out Nationwide's two-year fix in March 2007 might have expected to pay 7.5pc when the two years were up, as that was the SVR at the time. Instead, the SVR after Bank Rate fell to 0.5pc in March 2009 was just 2.5pc. This borrower's monthly payments would have fallen from £1,563 to £521, saving them £37,512 over the past three years.
But many home owners chose instead to maintain their payments when interest rates fell. This has the effect of paying off an extra slice of capital every month, cutting the overall interest bill and allowing the mortgage to be paid off in full sooner.
The average tracker mortgage customer with a £250,000 loan would have saved £1,978 in interest over the past three years if they had maintained payments at the level of December 2007, while their mortgage term would have been cut by almost 10 years.
Many people have both savings and a mortgage, of course. As we have seen, their savings will often have paid very little interest over the past three years. A better use for the money can be to reduce the mortgage balance.
If a home owner with a £250,000 mortgage on a typical lifetime tracker charging 3.56pc had used their savings to make a £20,000 lump payment on their home loan in March 2009, they would have saved £2,886 in interest so far and would be in line to shave two years and nine months off their mortgage term, according to HSBC. The figure for a £50,000 payment is £6,262.
Mark Harris of SPF said: "While interest rates are at record lows, not all borrowers are taking advantage. If you are on your lender's SVR and it's 3pc or more, you might want to consider remortgaging. There are some very cheap fixed rates at less than 4pc for five years, or two-year trackers starting at less than 2pc for those with enough equity in their property."
Peter Dockar, the head of mortgages at HSBC, said: "By paying down their mortgage now, borrowers are able to reduce the impact of higher monthly repayments if interest rates rise. It will also build up equity in their properties, giving them access to better deals if they need to remortgage in future."

Saturday 4 February 2012

Family finances will not improve until 2020 in UK

Family finances will not improve until 2020

Low to middle income earners will not see their disposable income approach pre-recession levels until 2020 at best, a report from think-tank the Resolution Foundation has warned.

A broken union jack piggy bank
Family finances won't improve until 2020 Photo: PA
The Squeezed Britain study said households in this bracket, which typically bring in just over £20,000 in take-home pay a year, are also facing a 22-year wait to save up enough cash to buy their first home.
The report exposed the "daily struggle" of these families, which account for 5.8 million households and nearly one third of working age homes in Britain. It suggested that incomes for this group will decline before flattening out around 2016-17.
If this is followed by strong growth, it will take until 2020 for low to middle income households to return to the levels of disposable income they had before the recession, but if growth is stagnant real incomes could be 8% lower than in 2007.
Under both scenarios, the gap between low and middle income earners and those on higher incomes will widen, the report warned.
The study also charted the "disappearing" property ladder for these households, who typically took four years to save for a first-time buyer deposit in 1991.
By 2001 this group took eight years to raise a deposit and by 2011 this wait had more than doubled to 22 years, with those aged under 35 facing being stuck in rented accommodation, perhaps forever.
Researchers put the sharp rise down to house price rises as well as bigger deposits as a percentage of house prices needing to be raised, while wages remain flat.
They based their calculations on a deposit of around 20% currently being needed to purchase a first-time buyer house, typically costing just over £124,500.
Low and middle income earners saving around 5% of their annual wages, amounting to just over £1,000 a year in savings before interest, would take 22 years to raise a deposit of just under £25,000.


http://www.telegraph.co.uk/finance/personalfinance/consumertips/9032130/Family-finances-will-not-improve-until-2020.html

Friday 9 December 2011

UK housing sales surge but house prices remain ‘25pc too expensive’


The number of homes sold surged up by 4.5pc last month, helped by frozen interest rates and the "loosest mortgage lending conditions seen since the Lehman Brothers collapse" but Britain’s biggest building society warns that house prices remain 25pc more expensive than the historic norm.
First time buyers and buy-to-let landlords found it easier to obtain mortgages as loans for home purchases reached their highest number since December 2009 in November, according to the latest mortgage monitor from e.surv chartered surveyors.
Richard Sexton, director of e.surv, claimed the firm had completed more than 1m mortgage valuations over the last five years to compile its data. He said: “The market is thus far showing resilience in the face of the eurozone crisis. For the last few months, the banks have been focusing their lending on buy-to-let investors, but this is the first time they appear to have increased lending to first time buyers.
“This has resulted in the loosest mortgage lending conditions seen since the Lehman Brothers collapse. More first time buyers are rolling up their sleeves and piecing together the bigger deposits required to access high loan-to-value mortgages. No doubt they are sick of paying astronomically high rents.”
Estate agents LSL Property Services, owners of Your Move and Reeds Rains, claimed that sales surged by 4.5pc last month as frozen mortgage costs and house prices made property more affordable. Director David Newnes, said: “Static house prices don’t mean property values are standing still. Zero price growth means that in real terms property is becoming more affordable. With inflation running at 5pc, the real cost of property is getting smaller, which is good news for buyers.
“According to the Council of Mortgage Lenders, mortgage lending increased 9.8pc in the year to October and has risen for the last three consecutive months for the first time since the summer of 2007, which has contributed to the 4.5pc rise in transactions seen last month, as purchasing becomes a more affordable.”
Similarly, Paul Broadhead, of the Building Societies Association, said: “Mutual lenders saw the biggest increase in gross lending since January 2010 with £2.3 billion of mortgage lending last month, 20pc up on the same time last year. More than one in five mortgages is to a first time buyer.
“Lending responsibly has never been more important as the market remains challenging with household incomes ever more squeezed. Mutual lenders are actively trying to help consumers both by conventional means and through new options like the Government’s shared ownership and equity loan schemes.”
But Robert Gardner, chief economist at Nationwide Building Society, put seasonal good cheer in a sober long term perspective. He said: “House prices have remained surprisingly resilient over the past 12 months but housing still appears relatively expensive on a number of metrics. House prices are currently around five times average incomes, compared to the long-run average which is nearer four.
So house prices remain 25pc higher than their long-term price/earnings average. That looks unsustainable until you consider the imbalance between supply and demand. Fewer than 108,000 new homes were built in England over the last year, while an estimated 240,000 new households were created.
As a result, if mortgage costs remain low and lending criteria continue to ease, house prices could remain expensive. But bears or pessimists should beware expecting a correction any time soon. To paraphrase John Maynard Keynes, the housing market might remain irrational for longer than sceptics can bear to remain in rented accommodation.