There have been year-on-year increases in the amount of mortgage borrowing for the last 6 months consecutively, but the overall amount of activity has been low.
CML chief economist Bob Pannell welcomed the signs of improvement in the housing and mortgage markets, but warned against getting carried away, “given the very low levels of activity we are starting from and the protracted and difficult economic rebalancing that the UK and other countries have embarked upon.”
The upswing may also be, to some extent, the result of first-time buyers looking to get a foot on the property ladder before the end of the concession on stamp duty; the 1% stamp duty rate for first-time buyers moving into properties worth between £100,000 and £250,000 is due to be reintroduced on 24th March.
Moving forward, the CML predicts that, if inflation continues to fall, this will result in a boost to the housing market, with individuals and families regaining some of their financial freedom.
LSL Property Services have published the findings of their latest survey into rental prices in England and Wales. The data suggests that the cost of renting fell for 2 consecutive months in November and December, after rising constantly for 10 months before that.
The average monthly rent in December was £711 – a drop of 0.8% compared with the previous month. When compared with December 2010, however, average rents had increased by 4%.
LSL also found that the number of tenants falling behind with rent had gone up as a result of festive spending – 10.7% of all rent was paid late or not paid at all by the end of December, up from 9.3% in November.
Difficulties facing landlords have also been cited by Tim Hyatt, president of the Association of Residential Letting Agents (Arla). He said:
“It is more critical than ever to take references and conduct thorough research before signing a tenancy agreement,” adding “seeking advice from a professional, licensed letting agent is the best way to ensure tenants and landlords’ rights are protected.”
Matt Hutchinson, director at Spareroom.co.uk, said that talk of a peak in rental costs may be premature, instead describing the latest data as a “temporary blip.” He stressed that “demand is still significantly outstripping supply of new rental stock,” adding that “while December was a quieter month for the rental market, January and February are typically two of the busiest months.”
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Financial information services firm Markit has released its monthly Household Finance Index, which shows that British households are seeing their finances decline more rapidly now than when the recession was at its peak.
Markit surveys over 2,000 households each month, gathering data on things like spending, savings, debt, job security, availability of and requirement for credit, and perceptions of inflation.
The latest report indicates that the spending power of UK households has fallen for 3 consecutive months, and is now at its lowest ebb since the first survey was undertaken in February 2009. Between July and August this year, nearly 40% of households saw their finances deteriorate. Less than 6% said their financial situation had improved.
Just 9% of respondents said they had been able to increase their savings, and 34% said their savings had dropped. 22% said their levels of debt had risen, compared with 17% who reported a reduction in the amount of money they owed. 24% believe their property has dropped in value, whilst 7% think their house is worth more now. In this climate, 50% of people are less willing to make a major purchase now than in the past.
Tim Moore, senior economist at Markit, said: “With a global economic slowdown and an escalating eurozone debt crisis lapping on the shores, it was unsurprising to see households’ appetite for major purchases reverting to its lowest since the start of the year.” He added that take-home pay had dropped more sharply in August than in any of the previous 9 months, and said the increasing cost of living had compounded the fall in disposable incomes.
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New data published by LSL Property Services shows that rents in England and Wales rose for 6 consecutive months up to July, reaching a record average of £705 a month. The high cost of renting means that many people are finding it impossible to save money for a deposit on their own home in the future.
In the 12 months to July, London saw rents increase faster than anywhere else, with a 7.1% rise to £1,009 a month. There was also a 5.5% increase in the North East and a 4.8% increase in the Midlands. Wales was the only region where rents remained unchanged, with the average figure standing at £547.
In the current economic climate, many people can’t afford to buy a home, and this is inflating prices in the rental market. The situation for tenants seems unlikely to improve any time soon. Summer is traditionally the peak season for renters moving in, and this additional demand is pushing prices up even further.
As well as rents going up, the cost of living is rocketing, making it impossible for the majority of first time buyers to save money towards a deposit on a house. Young people are increasingly seeking financial help from their parents to help them get on the property ladder, and many require assistance just to afford the deposit on a rented property.
In this environment, many renters are opting for flatshares, which is often a cheaper alternative. Even in this sector, however, there are four tenants competing for every room, and, in the last month alone, rents have increased by 1.4%.
New data published by the Council of Mortgage Lenders (CML) indicates that the number of home repossessions has fallen by 1%, from 9,100 in the first quarter of the year to 9,000 in the second quarter. However, some people in the industry have warned of an “arrears timebomb”, with disaster set to strike when rates rise in 2012.
Compared with the second quarter of 2010, the latest repossession figure represents a 7% fall. At this stage in 2010, there had been 19,500 repossessions, compared with 18,100 so far this year. The number of mortgages in arrears of 1.5% to 2.5% has increased, however.
Paul Smee, director general at CML, said that the stabilisation of mortgage repayment problems could be attributed to “stable employment and low interest rates.” He added that he felt there was no need to revise current forecasts in light of the current uncertainty in the global financial markets.
The Citizens Advice Bureau has reported that it has dealt with over 100,000 cases where people are in mortgage or secured loan arrears, and says that it has prevented 5,000 people from losing their homes in the past year. Gillian Guy, chief executive at the CAB, said: “With the cost of living going up daily and incomes lagging badly behind, mortgage lenders and the government must focus on helping people stay in their homes. Repossession is a terrifying prospect and should always be the last resort.”
If you do fall behind with your mortgage payments, you should always treat them as the top priority before paying back any other debts. Otherwise, you risk losing your home. Always contact your lender if you are expecting to miss a payment, rather than waiting for them to start threatening you with legal action. They may be willing to reduce your monthly payments in some circumstances.
Additionally, you should ensure you are receiving any benefits or tax credits to which you are entitled. The Government also operates a Mortgage Rescue scheme, through which you be able to sell your home but continue living there and paying rent. You can get more information on this from your local council.
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A study carried out earlier this year claims that the average adult in their twenties plans to postpone many of the key stages I their lives, such as marriage, having children and purchasing properties.
The study revealed that the average couple back in 1985 would have spent £35,000 on property. This equates to four times the average annual salary. Today, a couple would be looking to spend £163,000 for the same property. This is eight times the national average for a twenty-something’s salary, which eliminates a huge number of people from getting a foot on the property ladder.
First Direct conducted a poll back in February of this year and of the 3,000 participants, 75% agreed that young people are, “the most financially pressured in history”. 20% either had or believed they had to postpone wedding plans, whilst 25% thought they would have to postpone having children due to lack of funds. Sadly, 1/3 of participants claimed that they were considering not having children at all because they would never be able to afford to raise a child.
In comparison, most of the parents of those questioned, never had to delay any key stage of their lives. The most significant barrier keeping many young people from planning for their futures is the difficulty of buying property. A typical parent of 45 would have married and had their first child at 26 and would have been on the property ladder by 27. Today, it is expected that the average age for a first time buyer would be more like 37, for people not supported financially by their parents.
For many people, the chances of getting a foot on the property ladder any time soon appear to be slim to none. However, there is a glimmer of hope for first time buyers, as ‘Rent to Buy’ schemes emerge. One building society in particular that has launched just such a scheme is the Saffron Building Society, which operates in the South of the country.
This particular scheme allows people to borrow if they can show that they have a record of paying rent, on time, for as little as 12 months. For Saffron Building Society, this would, in many cases, be proof enough that the borrower ids capable of making monthly mortgage repayments. In addition, the borrower would have to be able to place just a 5% deposit on the mortgage.
The arrangement would mean that someone who paid rent of £1,000 per month and was able to put down the 5% deposit would be able to buy property worth up to £155,000.
Many would-be first time buyers are unable to proceed with the purchase of property due to poor credit history. Although the borrower will still be subjected to credit checks, this scheme adopts a much more manual approach rather than the usual, automated system where you’ll be declined if there are any blemishes on your credit history.
Broker, John Charcol, has been quoted as saying:
“The common sense way affordability is calculated for this mortgage will be a breath of fresh air to any first-time buyer who has suffered from the ‘computer says no’ approach adopted by too many of the major lenders.”
Many households are paying rents equal to or more than they would pay on monthly mortgage repayments. Credit history and large deposits are the main factors keeping many people from making their way on to the property ladder. Schemes such as this make the property market far more accessible to first time buyers and will be welcomed with open arms by many people looking for alternatives to paying ‘dead rent’.
Moneyfacts have released new data showing that interest rates on new mortgages are currently at their lowest level for 23 years. This has been put down to the greater ease with which lenders can raise funds through the financial markets at a time when there is no imminent prospect of the Bank of England raising its base rate above 0.5%.
The average two-year fixed rate mortgage is now 4.32% interest, with three-year fixed deals averaging 4.92% and five-year fixed deals at 5.92%. The average interest rate for a two-year tracker is currently 3.37%.
The benefits of lower rates may be limited for many consumers, as low rates are often coupled with high arrangement fees, and the majority of deals still require borrowers to pay a minimum 20% deposit.
Michelle Slade at Moneyfacts said “Lenders appear to be applying cuts equally across all loan-to-value (LTV) tiers, which is good news for first-time buyers, as previously cuts were only being applied to the lower LTV bands.”
Until recently, experts were predicting that the base rate would increase as soon as September, but the poor performance of the economy, and the decision by a new member of the Bank of England’s rate-setting committee to vote against changing the rate, means rates are unlikely to rise until well into 2012.
Inevitably, interest rates will rise at some stage. Anyone opting for a variable rate mortgage therefore needs to think carefully about whether they will be able to afford this when the monthly repayments increase.
Indeed, Richard Banks (chief executive of UK Asset Resolution) has warned that Britain will face a ‘tsunami’ of house repossessions when interest rates do eventually go up. UKAR is responsible for running the nationalised mortgages of Bradford & Bingley and parts of Northern Rock.
At the moment, only half of Britain’s young couples can afford to get on the property ladder. 15 years from now, it will be less than 30%. That’s the assessment of the Joseph Rowntree Foundation – a leading social policy research and development charity. Their report (Tackling housing market volatility in the UK) argues that the housing market in its current state heightens inequality, and that urgent action is needed put the breaks on the “damaging rollercoaster” of boom and bust.
Specifically, the report recommends an increase in the supply of both private and council housing, as well as the introduction of credit controls, which might include temporary restrictions on the amount individuals can borrow, to mitigate future booms. Council tax reforms are also proposed – council tax should be a fixed percentage of a property’s value, according to the report.
If first-time buyers from privileged backgrounds continue to rely on parents to subsidise their entry into the property market, this will contribute to a widening of the gap between rich and poor, and 70% of an entire generation will be “locked out” of the “property owning democracy”.
In 2007, home ownership levels began increasing, but this trend has been reversed by a combination of inflated house prices and poor availability of credit for first-time buyers. At the same time, housing supply is currently at its lowest level since 1923. In order to address this, planning controls could be eased and public land could be released on a “build now, pay later” basis. The JRF has also pointed out that, in order to build new homes, small builders and developers need to be able to borrow money more easily.
There are profound social benefits to be reaped from a less volatile housing market, according the report, but with a Government committed to a radical programme of cuts, it seems unlikely that the JRF’s recommendations will be taken on board by those responsible for housing policy.