Chancellor Set to Boost Mortgage Lending – Latest Claims

The Chancellor Alistair Darling has made the decision to help banks and building societies secure more finance for new mortgages according to The Times.

The newspaper claims Darling is poised to order an extension of the Bank of England's emergency £50bn special liquidity scheme introduced this year to help to ease intense funding strains on banks triggered by the credit crisis.

The scheme allows banks to swap
mortgage-backed bonds issued before the end of 2007 for much more tradeable Treasury bills that can then be used to raise funds in the markets.

The newspaper reported that the Chancellor is also still considering whether to suspend Stamp Duty temporarily as another way of boosting the market.

SH Note: Irrespective of whether this is a good or bad move, what we all know is that Darling’s dithering has nothing but a downside to it, and still it continues.

What Darling doesn’t seem to have grasped is that refusing to confirm or deny anything doesn’t stop the media from filling pages with speculation. The net result is that sales, which were at running at one per estate agent per week, have now fallen to approximately zero.

Dramatic Cut Seen in Mortgage Lending

Building societies have so dramatically slashed their mortgage lending that repayments outstripped new loans by almost £700m in June, according to the latest data from the Building Societies Association.

According to data from the Bank of England, the net withdrawal of mortgage lending by building societies is unprecedented; not even in the darkest days of the last property recession did net lending become negative.

Adrian Coles, director-general of the BSA, said the net withdrawal of capital reflected extreme conservatism on the part of societies. “They are keen to make sure they are only lending to those who are able to repay their mortgage,” he said.

And Buy-to-Let Mortgages All But Disappear

The number of buy-to-let mortgages has plummeted by 93 per cent in the past year leaving tens of thousands of novice landlords struggling to find affordable deals.

Figures revealed to the Telegraph show there were 4,384 mortgages available to landlords 12 months ago compared with just 307 deals today.

Experts said the sharp fall in the number of
buy-to-let loans available will hit the estimated 110,000 novice landlords with only one buy-to-let mortgage because they do not have a portfolio of properties to help cushion the blow of a slowing market.

Landlords are also having to cope with higher interest rates on those mortgage deals that are still available.

Agents Sell Just One Property a Week

Estate agents are selling just one property a week, as figures show the worse drop in sales for 30 years. The Royal Institution of Chartered Surveyors said that sales had dropped to their lowest level since 1978.

At the beginning of the year, RICS said estate agents were selling 23.9 properties every three months compared with 32 properties per three months at the beginning of 2004. Today, the figure has dropped to 14.4 over the last three months or 1.1 properties a week.

Nigel Naish, a member of RICS based in Yorkshire, said: "Lack of demand, due to market funds
non-availability for the bottom end of the market, has caused the market to slow, almost to a stop."

The RICS housing market survey also indicated that house prices are likely to continue to fall. It said almost 84 per cent more chartered surveyors reported a fall than a rise in house prices, a decrease from 86.9 per cent in June.

Repossessions Soar by 48% Since January

Home repossessions soared by 48 per cent to 18,900 in the first six months of 2008. The Council of Mortgage Lenders showed that lenders took back 6,100 more houses in the first half of the year compared with 2007.

The numbers tally with FSA data released this week that revealed 9,152 repossessions in the first quarter, up from 6,471 last year. CML said it is maintaining its forecast of a total of 45,000 repossessions and 170,000 mortgages in arrears of more than three months by the end of 2008.

The number of repossessions in the first half represented 0.16 per cent of 11.74 million UK home loans. "The possession rate now is similar to that of the late 1990s, but remains less than half the rate experienced in the early 1990s," the CML said.

The total number of households with mortgage arrears of three months or more was 155,600 at the end of the first half, up from 120,800 in the same period last year.

Price Falls Erase Past Two Years of Growth

Record-breaking falls in house prices have now wiped more than £22,000 off the value of the average home, erasing the past two years of financial gains for homeowners.

Average house prices fell by another 1.7 per cent last month, equivalent to more than £3,000, according to the Halifax. This pushed the drop in house prices suffered since the market’s peak to 11 per cent, taking the annual fall into double digits for the first time since the end of the last recession in 1992. Prices have fallen 7.6 per cent since April alone.

More Grim News on Prices

The price of an average home is now £177,351, just a couple of hundred pounds less than in July 2006, but £22,249 lower than in August last year when prices peaked at £199,600.
Economists now say that property could lose as much as a fifth of its value before the market begins to recover, a poll by Reuters showed. This would cut the average house price to £160,000. But some economists have an even gloomier outlook, forecasting that prices will tumble by 30 per cent from the market’s peak, taking the average house price to £140,000.

Or Is It?

Although house prices fell for the fifth consecutive month in July, according to the latest FT House Price Index, they remained marginally higher than they were the year before. This is in stark contrast to other indices.

Excluding London, where prices have proved more resistant to the downturn, UK house prices fell 0.6 per cent on a monthly basis. Nationwide, they fell 0.3 per cent and are only 0.3 per cent higher than they were in July 2007.

The contrast between the FT House Price Index and those of Halifax and Nationwide, in part, reflects the fact that each measures somewhat different things. The FT Index, which tracks actual transactions adjusted to reflect the mix of housing nationwide, is producing similar monthly movements in house prices to the index produced for the Land Registry.

Slide in home deals shows sign of easing

House prices have further to fall but there are some tentative signs that the precipitous slide in housing transactions is starting to level out, a report by the RICS suggests.

Its monthly survey shows market conditions are still slackening, with surveyors reporting a further drop in new instructions and new buyer numbers, and dwindling numbers of completed sales.

SH Note: Just what these “tentative signs” of recovery are, the report fails to mention. In the absence of hard evidence this looks like wishful thinking.

Inflation Surge Reduces Prospects for Rate Cut

Hopes of a swift cut in interest rates have been seriously bashed as figures show inflation running at a 16-year high.

The rise in the Consumer Prices Index has broken through the four per cent barrier – twice the government's target – marking its highest level since May 1992.

The Bank’s Monetary Policy Committee is supposed to set the interest rate to keep the CPI rising at two per cent a year. In the year to June, the CPI was rising at 3.8 per cent.

“We are looking for the CPI to have risen to 4.1 per cent in the year to July. It could reach five per cent in the year to August,” said George Buckley, chief UK economist at Deutsche Bank.

SH Note: Not that investors believe the Bank of England will have any choice but to cut rates in the near future – hence the rapid decline of Sterling.

Crest Cash Plan

HBOS must inject about £100m of fresh cash into Crest Nicholson in the coming weeks to prevent the housebuilder from breaching banking covenants.

If HBOS, which owns 50 per cent of Crest Nicholson, decides that it is unwilling to support the builder, its investment could be wiped out and the lending banks could step in and take control.

HBOS is also understood to be contemplating bringing in a partner to provide the funding. Hedge funds and private-equity groups are thought to be interested. HBOS has hired debt specialists at Deloitte to assist with the negotiations.

Crest was bought in 2007 at the height of the boom by Uberior Investments, the private-equity arm of HBOS, and West Coast Capital, the private-equity vehicle of the Scottish retail tycoon Sir Tom Hunter. As part of the Crest Nicholson buyout, Bank of Scotland provided a debt package of £1.1 billion to refinance the company’s existing debt and to act as working capital. In June, the company revealed that profits for 2007 fell from £80.1m to £69.7m, which it attributed to costs associated with the HBOS acquisition.

HBOS has a £4.2 billion exposure to the housebulding sector with stakes in six companies, including McCarthy & Stone, which is also renegotiating its £800m bank debt with its lenders.

SH Note: The latest indications are that the Crest deal has been successfully negotiated.

Redrow Also Looks for Debt Restructuring

Redrow has appointed debt-restructuring advisers at KPMG to help negotiate a new bank facility with its lending banks. The company has so far complied with all its banking covenants this year, but experts believe that a future breach of covenants is a possibility if its debt is not restructured. Redrow’s market value has fallen by 65 per cent in the past year to £277m, partly due to concerns over its £225m debt.

English Courtyard Developments goes into Administration

Retirement housing specialist English Courtyard has become the latest victim of the credit crunch and fallen into administration.

According to documents filed at Companies House, the Berkshire company employed 21 staff in the year ended 7 April 2006, and made a pre-tax profit of £2m on turnover of £13m. According to administrator BDO Stoy Hayward, there have been three redundancies so far.

BDO is trying to find another contractor to complete the four English Courtyard schemes that are currently under construction.

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