Newsletter |   Issue 54  |  29 June 2009
Compiled by Pierre Williams for Show House  

Homeowners Drop Asking Prices
Asking prices were dropped by an average of 0.4 per cent in June to £226,436 as sellers were forced to cut their prices to find buyers.

The monthly Rightmove house price report blamed lenders for boosting their profits by raising mortgage rates.

Rightmove director, Miles Shipside, said: "It's a mistake to confuse the upturn in enquiries and sales with a return to a more normal market. While conditions are much improved on the darkest days of last year, we are now starting to see some big distortions and wild swings due to the combined effects of recession and restricted mortgage availability. The best deals on property and mortgages are only open to the equity-rich.

"Perennially popular areas with good schooling are in, while flats in large blocks and terraces requiring major works are out, meaning new sellers are having to adjust prices accordingly."
The biggest change was in East Anglia, where asking prices were reduced by 6.6 per cent in June to £162,318, according to Rightmove.

But asking prices rose by 4.5 per cent in the North West, pushing average values to £170,562.
Shipside added: "Interest rates for fixed-rate mortgages are now increasing, in line with money-market expectations of higher medium-term interest rates. Property deals appear within the grasp of cash strapped first-time buyers, but every rise in fixed rates frustratingly nudges them a bit further out of reach.

"Lenders need to be wary not to choke off the recovery in affordability and activity by punishing the returning buyers with ever widening margins."

Nationwide Raises Mortgage Rates for the Second Time in a Fortnight
Nationwide is raising rates by an average 0.23 per cent on more than a third of its fixed-rate mortgages.

The move comes just a fortnight after the group raised rates by up to 0.86 per cent in response to higher wholesale funding costs.

The increases sparked off a round of rate rises among other lenders, with the Halifax, C&G, Abbey and Alliance & Leicester all increasing the cost of the deals they offered.

The changes were enough to push up the average cost of a two-year fixed-rate mortgage from 4.74 per cent at the beginning of last week to 4.92 per cent.

Darren Cook, of moneyfacts.co.uk, warned that the average rate looked set to continue rising to more than five or even six per cent during the coming weeks.

The increases have been driven by steep rises in "swap" rates, on which fixed-rate mortgage deals are based. Two-year swap rates have soared from 1.98 per cent in the middle of May to 2.34 per cent today, peaking at around 2.5 per cent on June 11.

Average margins on two-year fixed-rate mortgages are now three times higher than they were before the credit crunch struck at 2.58 per cent, compared with a historical average of around 0.8 per cent.

Rents Falling at Record Pace
The Royal Institution of Chartered Surveyors says 55 per cent more estate agents reported a fall in rents rather than a rise in the three months to April.

That’s the largest negative result since the RICS survey began in 1999 and reflects an oversupply on the market as homeowners look to let properties rather than sell them. Some agents claimed that rents have fallen by up to 30 per cent from their peak.

However, the report also indicates increasing optimism among surveyors, with a fall in the proportion forecasting further rental declines. A total of 25 per cent more agents are expecting values to decrease further, an improvement on the 41 per cent who saw rents dropping in the previous three months.

This is because of increasing signs the housing market is recovering and the sale of a property is easier and more viable.

RICS’ Jeremy Leaf, said: "Demand for rental property is still high but tenants have been able to take advantage of a flooded market to negotiate lower deals. Even so, the downward pressure on rents should ease in the coming months, providing some good news for landlords."

British Households in Employment 25% Better Off
The monthly income of the average household that has escaped job losses has risen by £200 in the past 12 months, according to Ernst & Young.

Most of that gain has come through falling mortgage payments but lower gas and electricity bills have also helped.

“Even though we’re still in recession, many UK householders who have not been hit by unemployment have experienced a dramatic upturn in their monthly budgets over the last year,” said Jason Gordon, retail director at Ernst & Young.

The survey suggested that the average household - again assuming it is unaffected by unemployment - has £1,075 of disposable income a month. That equates to 27 per cent of gross income compared with 22 per cent last year.

However, Ernst & Young doubted that the extra disposable income will automatically be translated into extra spending. Instead, it's likely to be used to pay off debts.

The survey also added that the fall in house prices may overall have left households less well off, despite the rise in disposable income.

SH Note: Given that mortgage fixed rates are racing up again, as are utility bills, we can’t expect this situation to last much longer. This story is as silly as its headline suggests

Reits Have Flopped
The government’s hopes of getting investors to boost commercial property investment through Reits has flopped, according to a report from the House of Lords.

The Lords' Select Committee on Economic Affairs also said the government had to take a share of the responsibility for this, and could not put it down to the recent property slump.

In its report, the committee said: "Reits were introduced after careful planning and amidst high hopes. But they have not lived up to expectations, since there are no residential Reits, nor any new ones not converted from property companies. It is difficult to conclude that this is wholly due to economic circumstances and not also to structural defects."

Brixton/Segro Merger?
Segro, the commercial property group, has reached an agreement on a possible recommended merger with rival Brixton The offer of 1.75 Segro shares for each Brixton share could be accompanied by £250 million fundraising. Brixton said there was no certainty that a firm offer would be made by Segro. It continues to look at options to avoid breaching balance sheet covenants, having secured a breathing space through July.

“Here’s £25,000 to Take Your Mortgage Elsewhere”
Some lenders are offering to write off up to £25,000 off their customers’ mortgages if they take their business elsewhere.

Desperate to reduce the size of their loan book, some are offering to pay off up to 20 per cent of some customers' outstanding mortgages which in some cases could reduce the mortgage by £25,000.

These offers are being targeted at borrowers now in negative equity. Specialist lenders such as GMAC, Advantage (part of Morgan Stanley) and Edeus are all offering such deals to "selected" customers, while Mortgage Express, the specialist lending arm of the now defunct Bradford & Bingley, is offering to waive redemption penalties if customers move their mortgage elsewhere.
The trouble is that those in negative equity normally have little prospect of remortgaging. If so, many will find themselves stuck with their existing lender at an uncompetitive rate.

Although the lenders offering these deals are not household names, they do control a sizeable slice of the mortgage market. GMAC, for example, was a top ten lender in 2007. These lenders all specialised in providing mortgage deals to the subprime, near-prime, self-employed and buy-to-let markets.

Only borrowers who have kept mortgage payments up to date and have a good credit record are likely to be offered such deals. Those in arrears, with a poor credit history or a "subprime" profile are unlikely to be accepted by other lenders, regardless of whether they are in negative equity or not.

Separately, it has emerged that many borrowers in negative equity are now being offered preferential mortgage deals from the high street banks largely controlled by the government.
Lloyds-owned Halifax, which is 40 per cent backed by taxpayers, and NatWest, part of the Royal Bank of Scotland (RBS) group, which is 70 per cent owned by the taxpayer, are providing mortgages that are about 1.5 percentage points cheaper than their normal range to customers whose outstanding loans are more than their property value.

However, these rates are offered only to existing customers in negative equity.

SH Note: So they’ll knock 20 per cent off those who want to take their mortgages elsewhere but can’t. That’s useful!

Commercial Property Giants Differ on Boardroom Pay
British Land and Land Securities are taking a different approach on top executives’ pay.

Excluding the remuneration of its outgoing chief executive, Stephen Hester, during the 12-month period to March 31, British Land increased pay to its board by 11 per cent to £3 million.

Mr Grigg, who joined as chief executive on January 12, will get a total £357,574 for 11 weeks' work after overseeing the company's £740 million rights issue, which was designed to bolster its balance sheet.

In its annual report, released yesterday, British Land also said it would increase the salary of the finance director Graham Roberts by 20 per cent in the new financial year in order to bring it in-line with the industry median.

The changes have been made despite British Land making a £3.9 billion pre-tax annual loss. The value of the company's portfolio fell 28 per cent and its share price 53 per cent over the period.

In contrast, Land Securities' remuneration committee cancelled bonuses for executives, with the exception of £130,000 to Ian Ellis for the sale of outsourcing arm Trillium.

In its annual report, Land Securities said it deemed salary increases and bonuses would not be "appropriate" because of the "current market circumstances and its impact on the performance of the company". The company made a £4.8 billion loss last year and its share price fell 68 per cent. During the year, Land Securities also scrapped plans to demerge.

Overall, executive pay fell 59 per cent from £7.8 million, significantly higher than British Land in the previous year, to £3.2 million. Francis Salway, the chief executive, will collect £662,000, compared to £2 million.

SH Note: Not bad considering housebuilders are doing a roaring trade by comparison!

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