• Round up of property funding news for August 2018

    The summer is typically a quiet time for property transactions and property funding news generally. Brexit never far from people’s minds with close attention being paid to interest rates and property transactions.

    Countrywide rescue agreed

    Countrywide has raised £140m from shareholders following approval for the purchase of new shares. The breakdown of how the money is to be spent is as follows:

    • £115m is to be used towards debt payments
    • £14m for general corporate purposes
    • £11m on fees and expenses

    Undoubtedly Countrywide have massive task ahead of them, but thanks to this cash injection they at least survive to fight on. Presumably in the hope that turnover will improve when the property market picks up again.

    Rightmove May fall out of FTSE 100

    A combination of slow sales and stronger competition from a variety of sources are taking their toll on some of the more well established property related businesses.

    Rightmove are the UK’s largest online estate agent and saw its share price drop over the summer. The quarterly adjustment of the FTSE 100 index takes place in the first week of September and may see Rightmove dumped out of the FTSE 100

    A hot summer but a cooling property market

    The July report from the Mortgage Advice Bureau showed next to no change in the average residential mortgage. Likewise for the loan to values or ages of buyers remain static.

    The National Association of Estate Agents report that the number of sales to first-time buyers rose to an eight month high in July. First time buyers are taking advantage of the slightly improved supply of available properties.

    As September moves us into autumn the supply of properties may improve further along with more people looking to complete purchases before Christmas, slightly denting the first time buyer advantage.

    Meanwhile the Bank of England reported a slight dip in the number of loans approved for purchases and remortgages in July.
    Nationwide’s monthly house price index shows that prices fell by 0.5% from July to August. Although this is the biggest monthly fall since 2012 Nationwide are still predicting that house prices will rise by something in the region of 1% over 2018.

    Talk of Brexit and a property crash

    A Reuters poll of 30 property experts has predicted that London house prices are going to continue to fall well inti 2019.
    This slight fall is likely to mature into a full blow “tumble” (if there is such a thing) in the event of a no-deal Brexit.
    Hometrack figures show that London price had fallen by 0.1% in the year to July 2018.

    Help to Buy future in question

    The Help to Buy scheme was established during the financial crisis to try to stimulate house purchases. The current scheme is due to end in 2021. Seems unlikely that the treasury would pass up the opportunity to shave a little off the overall commitment. The Sunday Telegraph reports that the scheme will be replaced by one focused more on lower paid borrowers. Government figures show that 6,717 purchases (about 4% of the total) were completed by people earning over £100,000 per year.

    Alternatively The Times has speculated that the scheme will continue, but in an altered form, possibly with a taper or income cap.
    The scheme has undergone various criteria changes since it started, but is generally thought to have a positive effect.

  • Maximum Loan to Value For Interest Only Mortgages Start to Tumble

    The Nationwide Building Society is among a growing number of lenders slashing its interest-only maximum loan to value for residential lending.  In March the mainstream lender reduced its maximum LTV for interest only loans from 75% to 50%.

    Martyn Dyson, head of mortgages at Nationwide, says:

    “A number of major lenders have recently restricted their criteria for interest-only mortgages and Nationwide needs to be able to manage application levels in a prudent and sustainable manner.

    Many industry commentators are predicting that this is further evidence that Interest Only products will be withdrawn completely from mainstream lending.

    Coventry Building Society Also Reduces Maximum Loan to Values

    Quickly after the Nationwide announcement the Coventry Building Society followed suit by cutting its maximum LTV for interest-only lending from 75% to 50%.

    The Coventry stated:

    “Following moves by a number of other lenders to restrict their criteria for interest-only lending the Coventry has also reduced the maximum LTV to 50% where any aspect of the loan is interest-only.

    And Then Skipton Building Society Followed Suit

    Skipton BS then announced that from march 27th they would be cutting their max LTV on Interest Only mortgages to 60%.  They say that for applications up to 80% LTV, a maximum of 60% LTV can be taken on interest-only but the remaining 20% must be taken on capital and interest basis.

    At the same time the Skipton also withdrew their 95% LTV products. Skipton states:

    “Since the start of this year we have seen quite an uptake of applications for 95 per cent LTV loans, so as a result what we have set aside for them has been over subscribed and we have decided to pull out of them for the time being.”

    Leeds Building Society Also Reduces Maximum LTV for Interest Only Loans

    Leeds Building Society has cut its maximum loan-to-value for interest-only lending from 75% to 50%.  The building society cut its maximum LTV for interest-only loans where the repayment strategy is the sale of the property from 70% to 50%.

    And Finally, Santander

    Santander has cut its maximum loan-to-value for interest-only lending from 75 per cent to 50 per cent and tightened its interest-only criteria.  They will no longer accept the sale of a second property or cash savings as repayment vehicles.

  • Do Interest Only Mortgages Make Commercial Sense?

    There is a long standing debate within the residential mortgage market around the viability of interest only mortgages. The Financial Services Authority (FSA) have made no secret of their distrust of lenders who rely on interest only lending. However, some consider that this is a consumer driven product and it is quite likely that most lenders would prefer to restrict interest only loans to a select minority.

    John Ward, writing for Mortgage Introducer, recently said

    Interest-only lending has its place but is an undeniably higher risk product for lenders and one that should rightly remain as a niche rather than mainstream product.

    The full article is on the mortgage introducer blog.

    If you consider that interest only loans more-or-less started out of the growth in alternative redemption vehicles, such as endowments and pension backed products. They were initially tightly controlled so that a borrower could only take on an interest only mortgage if they could evidence a credible repayment vehicle. In the 1980’s and 1990’s it was not uncommon for lenders to periodically review mortgage accounts to ensure that endowments were on track.

    From a commercial perspective, interest only loans do not appear make a great deal of sense. It is questionable whether a lender borrowing money on the wholesale markets and not seeing any capital being repaid until the term of the loan is sustainable. Clearly many of the lenders in this market were relying on securitisation to release capital.

    So with the FSA expressing their misgivings about the commercial value of interest only mortgages it should come as no surprise that lenders like Accord and The Leeds are all tightening their criteria around interest only products. Perhaps they are using the FSA’s steerage as an excuse to distance themselves from a product they never really wanted to be involved with (in any volume). For example Santander stated that they will no longer pensions, the sale of a second property as repayment vehicles. This follows a cut in maximum loan-to-values to 50% (for interest only products).

    Whilst it is rarely safe to compare residential and commercial mortgages, it is interesting to note that up until 2005 there were few commercial lenders prepared to lend money on an interest only basis. And when the squeeze came interest only commercial mortgages were the first to go.

  • Buy to let lending increasing

  • Property prices up and down – a quick round up

    Over the last few weeks there has been the usual flurry of reports about the state of the property market in England. Here’s a quick round up of the land registry’s take compared with the Nationwide and Halifax reports.

    • Land registry index

      Apparently London was the only area to see property values increase last year, with an uplift of 2.8%. Whilst the North East has taken the biggest hit , with a 7.1 per cent decline was recorded to around £99,500.

      This has put a huge gap between the average North East home that has tumbled down through the £100,000 mark, and the average London property costing £345,298
      But even property in London, where house prices rose by 2.8 per cent, did not manage to keep pace with official consumer prices inflation of 4.2 per cent, or retail prices inflation of 4.8 per cent, seen in the year to December 2011.

      The signs of a property world of ‘haves’ and ‘have nots’ were highlighted by the boss of upmarket London estate agent Marsh & Parsons, Peter Rollings, in a anecdote that will bring little cheer to those cutting prices and still struggling to sell in locations from the wealthy capital.
      He said: ‘When the sale of a property in Fulham fell through during the festive period, it received 20 viewings and seven separate offers in the following ten days – before selling for £20,000 above its agreed asking price.’

    • More about the land registry figures here

    • The Nationwide

      House prices managed to remain fairly steady in January, despite challenging economic conditions and the UK economy contracting in the final three months of 2011, according to Nationwide figures.
      Its House Price Index for January found property values, when seasonally adjusted, fell by 0.2 per cent over the month, bringing the average house price down to £162,228, from December’s £163,822.

      Sluggish house prices and low mortgage rates mean that first-time buyers have seen the monthly cost of owning a home fall to the lowest level for nearly ten years, says Nationwide. But many are locked out by big deposit requirements and tight credit scoring.

      Despite January’s fall, house prices on an annual basis are still 0.6 per cent higher than January 2011 figures, when the average value of a property stood at £161,211.

      House prices also fell 0.2 per cent in December following two continuous months of growth. In November, prices were up 0.3 per cent in the month and in October, prices were up 0.4 per cent.
      Nationwide’s chief economist, Robert Gardner said

      ‘With the flow of properties coming onto the market still more of a trickle than a flood, house prices are likely to continue to remain sideways or only modestly lower in the months ahead.’

      More about the Nationwide story here

    • The Halifax

      The average price of a home rose by £844 in January, according to the latest Halifax House Price Index, as record low interest rates continued to support demand.

      Halifax reported a 0.6 per cent increase in prices, taking the average property value to £160,907 in January compared to £160,063 in December.

      The Halifax’s rolling three-month measure – used to give a more stable picture of house price trends – showed prices down 0.9 per cent since October.

      You can read the full article about the Halifax data here

    so, there you have it. Depending on where abouts in the country you are prices are either going up, down or sideway.

    What really matters is whether or not property is selling. Without some activity in the market all this will come to nothing (otherwise called stagnation!)

    What do you think?

  • Business Finance News – Good and Bad

    A quick round up of business finance news.

    A recent survey of 1,000 SME’s by HSBC Commercial bank has established that more than eight out of ten small business owners think that their businesses will grow over the next 12 months.

    Whilst raising business finance remains challenging around 14% of businesses that responded to the survey stated that they are starting to trade internationally to generate growth.  Just over half expect to increase their turnover.

    Just keeping up with the competition remained the primary goal of around 1 in 5.  Just 17 per cent are looking to grow their business by investing in new equipment, which is possibly not good news for lease finance lenders and brokers.

    Jacques-Emmanuel Blanchet, head of commercial banking UK at HSBC says

    ‘It is encouraging to see UK SMEs looking ahead to next year with optimism and a desire to grow their businesses, even to achieve market-leader status.’


    Meanwhile unemployment continues to rise and has hit a 17-year high of 8.4 per cent of the workforce.  Indications are that the number of jobseekers looking for employment will continue to rise; Charles Levy, senior economist at The Work Foundation says,

    ‘Workers are facing the toughest labour market since the start of the recession …
    ‘This picture will only improve if we return to strong quarter on quarter employment growth.’

    Somewhat contrary news comes from GfK NOP Consumer Confidence Index which states that consumer confidence in the UK rose in January.  Whilst this may see at odds with the general feeling in the market Nick Moon, managing director of GfK NOP Social Research says,

    ‘The Index is sometimes subject to non-economic influences, and the uplift may simply reflect a hangover from the Christmas feel-good factor.
    ‘If this is true, we should be on the lookout over the next few months for a possible bounce from the Olympics as well.’
    ‘Consumer confidence is still seriously depressed and we should treat this month’s modest improvement with caution. Should February show another rise then we may be seeing signs that the gloom is dispelling — until then we should treat January’s findings as good, but certainly not great, news,’

    What do you think about the immediate prospects for business finances in the next twelve months?