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House sales slump 53% across UK
The number of property sales in the UK has fallen by 53 per cent in the past year, according to HMRC.

In September, 59,000 homes were sold, down from 126,000 sales in the same month last year. That was also a 62 per cent fall from the recent peak in sales, of 154,000, seen in December 2006.

Lenders such as the Halifax and Nationwide have reported that prices are still falling fast and are down by about 12 per cent on their levels of a year ago.

Collapse in Mortgage Lending Intensifies
The collapse in mortgage lending continued last month as banks further tightened the screws on home loans and would-be buyers shied away from the plunging housing market, according to the latest CML figures.

The total amount of mortgage lending by banks and building societies last month fell to just £17.7 billion, the lowest monthly figure for more than three-and-a-half years.

The estimated figure for gross mortgage lending in September was down another ten per cent from August alone, and was 42 per cent down from a year before.

Although mortgage lending typically suffers a seasonal drop in August and September, when many people are on holiday, the £17.7 billion-worth of loans was also the lowest figure for any September since 2001.

Gross lending was estimated by the CML at £62 billion over the third quarter as a whole, down by 16 per cent from the second quarter, and by 37 per cent from the same period last year.

However, Michael Coogan, the CML's director-general, insisted that the mortgage market was “open for business”.

The CML estimated that annual gross lending in 2008 would be about £255 billion, compared with £363 billion in 2007, and that net lending, after stripping out loans paid off, would be about £40 billion, less than half the £108 billion figure achieved last year.

Government Housing Market Initiatives Fail
Housebuilders say small government initiatives make buyers delay purchasing. A CB Richard Ellis report found housebuilders thought the temporary rising of the stamp duty threshold to £175,000 would have little impact in the south east because few homes sell below that price. The concession is being used to drive down the prices of homes in the £175,000 to £200,000 bracket.

The research, based on monthly interviews with leading housebuilders, predicted new starts would plummet by 60 per cent in the run up to Christmas unless there was significant action from the government or Bank of England.

The report, done jointly with the South East England Development Agency, said small scale initiatives acted as an “alarm bell” to buyers who were concerned they might miss out on future savings and so delayed their purchase hoping for further initiatives.

Flats are most affected by the downturn, as they are favoured by first-time buyers. Housebuilders suggested that the government abolish Home Information Packs, raise the stamp duty threshold to £250,000 to reflect house prices in London and the south east, offer cheaper loans for first time buyers through the nationalised Northern Rock, link section 106 payments to market value, and abolish council tax on empty property.

Negative Equity ‘to Reach 2 Million’
Collapsing house prices are plunging 60,000 homeowners a month into negative equity, which means the country is on course for a worse crisis than the 1990s crash.
 
At current trends, two million households will enter negative equity by 2010, outstripping the 1.8 million affected at the bottom of the last housing slump.

This research from Standard & Poor’s, coincides with evidence that banks are aggressively seizing homes whose owners have slipped just a few hundred pounds behind on their mortgage payments.

Repossessions have soared to 19,000 in the first half of the year, up 40 per cent on the previous six months. That figure is expected to rise to 26,000 in the second half of 2008.

Standard & Poor’s has calculated that by the end of the month 335,000 homes will be worth less than their mortgages. The figure represents a rise of 260,000 in four months.

Northern Rock is said to be behind a wave of aggressive repossessions. In the nine months to the end of September it made more than 2,000 seizures.

Treasury Says Repossession Must be Last Resort
Banks will be forced to take a more lenient approach to repossessions, the government has warned.

Ministers say they want banks to seize back homes only as a ‘last resort’ and to try every available option before pushing people on to the street.

The pledge came as it emerged one riverside block of flats in London has had 82 of its 84 flats repossessed.

Two years ago, all the flats in the riverside block in Canary Wharf were snapped up by eager buyers but today all have been taken back by lenders.

Treasury Secretary Yvette Cooper said: “What we are looking at is something looking much more widely at all of the banks, because I think repossession needs to be a lot rarer.”

Of the 19,000 repossessions so far this year, 4,000 have been carried out by Northern Rock.

Northern Rock's policy has previously come under fire from debt charities which claim the bank is twice as likely to repossess than any other lender.

About 75 per cent of evictees had a 125 per cent Together mortgage.

SH Note: There’s been a lot of government noise demanding lenders take a more lenient approach but no action. It’s difficult to see what they can do given that it’s for the courts to decide.

Darling: We’ll Spend Our Way Out of Recession
Alistair Darling has announced he intends to increase borrowing to spend billions of pounds to help struggling home owners and to protect jobs.

“This a time when you have to support the economy,” he said. “You will see us switching our spending priorities to areas which make a difference.”

He spoke approvingly of plans to prop up the economy by embarking on big government-spending projects, an interventionist policy in the style of John Maynard Keynes, the 20th century economist. Mr Darling singled out housing, energy and small businesses as areas which would benefit from a “reprioritizing” of government spending plans.

“What I want to avoid is getting ourselves in a position governments have done in the past where you face an immediate problem and cut back on the things the country will need in the future,” he said.

The Treasury is also understood to be “fast-tracking” construction projects – including schools, medical buildings, social housing and leisure centres – using money now that had been earmarked for future years.

He admitted government borrowing would have to rise sharply – turning his back on the possibility of spending cuts or tax rises – claiming that previous debt repayment over the past ten years has made such a course of action possible. “We can allow borrowing to rise,” he said.

Mr Darling will flesh out many of his proposals in the Pre-Budget Report, which is expected in the next two or three weeks.  

House Prices are Already “Fair Value”
The Daily Telegraph/Lombard Street Research Housing Affordability Index says that houses have become significantly less overvalued. However, households should not expect prices to bounce back as fast as they did in the past, the economic consultancy warned.

Diana Choyleva, director of Lombard Street Research, said prices were unlikely to fall much more than 20 per cent, and should stop falling by mid to late next year.

“We think that house prices could bottom out mid to late next year,” she said. “However, it’s going to be a prolonged adjustment – even after prices hit the trough they won't recover swiftly or decisively, they will languish at the bottom. It all hinges on how the government will use its quiet control of the banks.”

The affordability index, in which 100 points represents the average affordability level since the early 1960s and a lower figure means prices are more overvalued, improved from 88.9 points to 93 points. Since reaching a 16-year low affordability level of just under 83 points last year, at the peak of the housing boom, it has improved by around ten per cent.

Importantly, the index takes into account the cost of mortgages as well as households' disposable incomes, so it reflects the fact that families' costs have increased as a result of the credit crunch.

Ms Choyleva said: "The affordability indicator has improved. This is an entirely different situation to the early 1990s. It never hit the same high levels of unaffordability. Unemployment is unlikely to reach the rates it hit in the early 1990s. So there is less potential for forced sales than there was in the early 1990s."

Homeowners 'in Denial' Over Plummeting Values
A third of homeowners think the value of their property has not been affected by the recent housing market downturn.

Around 32 per cent of people said they thought their home was worth either the same or more than it was 12 months ago, according to property valuation site Zoopla.co.uk.

Going forward, homeowners continue to expect their property to buck the current trend in the housing market, with 38 per cent expecting their home to either hold its value or for it to increase.

This is despite the fact that only 19 per cent thinking house prices across the country will not fall during the coming 12 months. Just five per cent of people said they thought the value of their property would decrease significantly during the period, although 16 per cent think their neighbour's home will be worth a lot less in a year's time than it is now.

Demand for Rented Homes Soars 50 per cent
Rental demand has soared by 50 per cent over the past year. The number of new leases jumped 4.3 per cent in September alone, according to UK lettings agent, Your Move, which claims people are renting more as they shun home ownership.

Your Move managing director, David Newnes, said: “As banks stopper the bottle of mortgage finance, potential buyers have to stay in rented homes for longer than they have in the past.”

According to Knight Frank, rents in the UK are expected to grow by about two per cent this year – significantly slower than the 7.5 per cent growth in 2007 – because of the extent of new supply as more people consider renting property rather than sell into a falling market.

In London, where there has been the most dramatic increase in supply and quality in the rental market, rents have fallen over the past few months.

Knight Frank now reports a glut of homes for rent at certain price points and predicts that rents will fall this year in London by 2.3 per cent. Next year, it forecasts, rents in both London and the UK will increase again at between three and four per cent.

SH Note: Yes, renting has proved increasingly popular but that hasn’t had the effect of raising rents that all the buy-to-let companies insisted would happen.

Housebuilders Resort to Risky Incentives
Housebuilders are resorting to more expensive and riskier incentives to sell new homes.

Although most incentives come down to cash discounts for new buyers, Persimmon has a “live free for a year” offer where it pays its buyers’ bills, including council tax, mortgage and utilities.

Other incentives are far less straightforward and could end up accentuating builders’ exposure to the flagging housing market.

Chief among those is Barratt’s price guarantee, which offers to refund any shortfall in the value of a house if a buyer moves out within three years and cannot recoup the purchase price on resale.

Though capped at 15 per cent, the offer leaves Barratt liable to pay out potentially millions of pounds if buyers choose to cut their losses in a falling market. Along with others, Barratt also offers a “part-exchange” which has left it with more than 600 “second-hand” homes on its balance sheet, a number it says it will not exceed.

Bovis Homes, in a variation on the part-exchange theme, is even offering to buy the homes of those transacting with potential Bovis customers.

“We often consider purchasing properties further down the chain, just to get things moving and help simplify the purchase process,” it said.

Bondholders Still a Mystery to Taylor Wimpey
Taylor Wimpey is still in the process of identifying the holders of its publicly traded bonds as it seeks their approval to modify the conditions on its outsized debt.

Uncertainty over the intentions of the bondholders, who own about a quarter of the housebuilder’s £1.7 billion net debt, has caused shares in Taylor Wimpey to tumble in recent weeks.

The company is now worth about three per cent of its value in July 2007, and analysts say the value of the shares has been depressed by the possibility that some lenders will call in Taylor Wimpey’s debts if it breaches loan covenants early next year, as is now expected.

The UK’s biggest housebuilder is seeking to avoid a breach – the consequences of which could wipe out any remaining shareholder value – by convincing lenders to relax the conditions around the debt.

About half of Taylor Wimpey’s debt is held by a consortium of banks that have so far been supportive of the stricken housebuilding sector, having recently granted a reprieve to Barratt Development, another developer laden with debt. A further £380 million is with similarly-minded private placement holders.

Investors’ worries are focused on the third layer of debt, consisting of two corporate bonds issued during the housing boom to finance £450 million of acquisitions and land purchases.

Those bonds are typically held by institutional investors whose strategy for recovering their money may be different from the supportive banks.

Neither the identity nor the intentions of those owning the bonds is as yet known, but the register is thought to include distressed-debt funds and other investors who may have purchased them for between a third and half their debt values.

The Association of British Insurers, which represents leading investors, has been consulted to identify the bondholders in an attempt to enter dialogue with as many bondholders as possible.

Discussions over debt were triggered in July when Taylor Wimpey failed to raise £500 million in capital from new and existing shareholders. The absence of an agreement was classed by its own auditors as a “material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.”

Taylor Wimpey, meanwhile, is trying to prove that it is capable of generating cash even in the current depressed housing market.

Though cash generation would not help it avoid a breach of its current covenants, which are based on conventional earnings metrics, a healthy cash flow would help convince debt holders that the builder is indeed in a position to service its debt in the medium-term.

Sources suggest Taylor Wimpey is gaining market share by aggressively discounting its homes, even selling them below break-even point.

Tracker Loan Providers Refuse to cut Rates Below a Minimum
Thousands of borrowers will miss out on cheaper mortgage bills because some of the biggest lenders prohibit interest rates on their tracker loans from falling below a minimum threshold.

HBOS will not cut tracker rates if the bank rate falls below three per cent. Nationwide Building Society, the second-biggest lender, will also refuse to pass on any decreases if the base rate sinks lower than 2.75 per cent.

Abbey has a three per cent cut-off point on some older trackers, while building societies including Yorkshire, Skipton, Norwich and Peterborough and Scarborough operate similar thresholds on all their tracker deals.

HSBC does not have a lower threshold on its deals, but includes a caveat in its terms and conditions allowing it to not pass on rate cuts if there is a “significant” change in the mortgage market. However, a spokesman said that it was “committed to upholding the agreement with our customers”.

In an additional blow for HBOS customers, the lender this week told borrowers it was changing its promise that its standard variable rate (SVR) would not be any higher than two per cent above base rate. From next month the lender is increasing this margin to three per cent.

Chris Cummings, director-general of the Association of Mortgage Intermediaries, said lenders should contact borrowers and brokers to remind them of the clauses. “Brokers are beholden to lenders to explain such hidden catches so they can explain them to clients. By and large, lenders have not done this. In the current climate, they should reissue this information.”

Candy’s Buy Kaupthing Property Stakes
The Candy brothers have acquired full control of two large luxury residential developments in the UK and US after funding partner Kaupthing defaulted on the terms of the ownership agreements.

The Icelandic bank had been the majority owner of a scheme in London, at the former Middlesex hospital near Oxford Street, and also a major equity partner in a development at 9900 Wilshire in Beverly Hills in the US.

Although £425 million was spent on the two sites originally, the Candy brothers are expected to have bought Kaupthing’s stakes at a lower price because of falling values for development land and the nature of the sale.

Nick Candy said the “market rate” had been paid by the CPC Group, the company owned by his brother Christian. The brothers normally use third-party funding to finance deals and had been sounding out new investors over the past few days. A new shareholder is expected to join the Beverly Hills scheme in the next month.

Kaupthing had owned a stake of about 40 per cent in the eight-acre Beverly Hills site, which was bought in April 2007 for £250 million. The deal last week came as a $365 million loan from Credit Suisse that backs the Beverly Hills purchase was up for repayment. Nick Candy said this had not yet been resolved, but expected to secure an extension.

The bank had also owned a 60 per cent stake in Noho Square in London, which was acquired for £175 million in 2006. The scheme was acquired using a loan from Kaupthing that ran till 2011. Nick Candy said CPC was talking to administrators and could look to acquire the debt at a reduced rate, then seek new bank finance to continue the scheme.

Recruitment Firms Accused of Price Fixing
The OFT has accused eight recruitment firms of price fixing over the supply of labour to construction firms. The OFT alleges that the firms, which include recruitment giants Hays Specialist Recruitment and CDI AndersElite, have been involved in breaching competition law by fixing target fee rates for the supply of candidates to certain construction companies and intermediaries. They’re also accused of organising a collective boycott of entering into contracts with a particular intermediary for the supply of candidates to construction companies in the UK, in order to restrict competition for the supply of skills.

The OFT alleges that the breach took place between late 2004 and the end of 2005 or early 2006, with the exact duration of each individual agency's involvement in the infringement varying between firms.

John Fingleton, chief executive of the OFT, said: “For a market to work well, companies should compete to supply services and set prices independently. If we find evidence of anti-competitive activity we will use the appropriate powers to punish the companies involved. If proven, the alleged practices in this case would amount to a serious breach of the law.”

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