Todays budget has failed to provide the housing Market with the cardiac massage it so desperately needs.
Reinvesting £1bn of the £2.5bn stamp duty taken from house sales last year alone is like a fly on a windscreen. House prices are falling at rates you almost need an altimeter to read and Alistair Darlings’ solution is to put out a pocket handkerchief to catch us in!
Elements of this budget will help when viewed in conjunction with other efforts already announced but those who had hoped that the Government appreciated the significance of home ownership, it’s ability to provide funding for small businesses or the increased deposit that first time buyers now require from the bank of mum & dad will have been hugely disappointed.
In a performance worthy of a Bird & Fortune sketch, the Chancellor has illustrated how impotent the Government is in the face of the economic downturn. The failure to recognise the housing Market as the boiler house of the wider consumer economy comes as no surprise to the hundreds of thousands of homeowners now stuck with property that isn’t selling and with little knowledge of what they are worth.
Home ownership, so long the aspiration encouraged by the state has become a mirage to many of the next generation who are typically being asked to gamble first with their finances for their own further education and then with their home.
HMS (home mortgage support scheme) announced ahead of the budget appears to be yet another attempt by central Government to paper over the cracks in the housing Market. .
It has arrived five months after it was first mooted during which time nearly 30,000 people have had their home repossessed.
To qualify, you must first re-mortgage and get an interest only mortgage which the HMS MAY then help with up to 70% of the cost of – for up to two years.
It looks like the modern equivalent of rearranging deck chairs on the Titanic! Frantic calls to CLG yesterday has at least clarified that equity in your home won’t count as a apart of the £16k maximum savings you can have to qualify but with 75,000 homes expected to be repossessed this year, those under financial pressure had been expecting something different from the slogan “every little helps”!
It seems to me that the Government are prepared to throw billions at banks, car makers and their own perks but homeowners in the UK will have to wait until a general election before they get a chance to elect someone who might want to take homeowners seriously.
Letting agents fees could double.
For the past six months a squabble between the Office of Fair Trading and London agents Foxtons has been bubbling away. The detail turns out to be quite complicated but the implications for landlords could be significant. The case comes to the High Court at the end of the month and the lettings industry is holding it’s breath.
The basic argument is that the OFT thinks that consumers (landlords) have been unfairly treated by letting agents who have charged a fee for a tenant who decides to continue to rent a property after the first period or tenancy has finished. Letting agents typically charge 11% of the first years rent in return for a number of services – finding the tenant, collecting rent, arranging inventories, liaising with both landlord and tenant and holding a deposit. Foxtons charged their clients a fee for each subsequent year – even if they hadn’t been doing much in the way of ongoing work or if a new tenant hadn’t moved in.
The OFT were also concerned that agents were claiming a fee from the landlord if the tenant decided to buy the property after having lived in the property. Agents argued that they had introduced a buyer and were therefore entitled to a fee even if it was something of a ‘captive audience’ as some clients had suggested.
On the face of it this is another example of an estate agency own goal. Already the subject of an OFT enquiry into the housing market and the butt of Tv and newspaper exposés, the last thing that the agency market needed was a claim that they were grabbing money for doing nothing.
In fact, as most landlords know, agents time and effort is mostly loaded at the front of a tenancy and if their time and effort are fairly costed then a fee of 11% of the rent each year isn’t usually begrudged. What the landlord wants is a long term tenant who will look after their property, pay the rent on time and cause as little inconvenience as possible. If the High Court decides that fees can only be charged on the first period of a tenancy then there will be two main results;-
Lettings agents will have to raise their fees to over 20% of the rent. This will make a significant difference to most landlords and a huge change to all buy-to-let landlords who have budgeted on half that amount. The other possibility is that tenancies that are usually for 12 months will become two or three year terms. Both these could be a major inconvenience to the rental market and a significant change to the costs of letting a property.
One final consequence could be that if the OFT wins and the practice of charging is found to be unlawful an action might be brought against an agent by a landlord looking for the return of fees paid over the past six years. If enough were to do this we could see a significant number of agents going to the wall!
Whilst Foxtons are the firm in the dock, this is an issue for all letting agents. Foxtons are not members of ARLA (the Association of Residential Letting Agents) and are often fingered as ‘the unacceptable face of estate agency’. However, tens of thousands of Londoners are happy to use their services each year, pay above the average for their services and no complaint to the Ombudsman for Estate Agents has been upheld.
Watch this space!
At first glance, Figures out today from the Council of Mortgage Lenders on February lending look slightly encouraging as will the numbers out tomorrow from RiCS but since these most of the numbers are expressed as percentages, two sales in February would genuinely be a 100% increase on one hypothetical sale in January! There may be reasons for cautious optimism as there often is in Spring but any improvement is relative.
The Council of Mortgage Lenders figures confirm that over the last 12 months, lending for house purchases in February was down 47% and the value of remortgage loans down 25% on the month before and a whopping 60% on Feb 2008! What’s more relevant for house prices is that according to the CML first time buyers were having to find 25% deposits with an income multiple of just 2.95. Just two years ago in April 2007 when a little known bank called Northern Rock was lending one in every four mortgages their average loan-to-value was reported to be over 90%.
At that time, borrowers were having to find about £10k. Today, with average house prices a little over £150,000 borrowers are having to find closer to £38,000 out of taxed income. Many will take four to five years to save this meaning that most will be out of the market until after the 2012 Olympics.
Land Registry figures for February 2007 recorded over 86k sales in England and Wales. February 2008 saw 61,500. So far, just 8,900 sales were recorded in February this year. Whilst this figure is bound to rise before being formally confirmed in May, sales may not exceed 22,000. For those like estate agents and mortgage brokers who depend upon turnover, the market is like a Downing Street email – unbelievable!
Estate agents report increased activity over Easter. No great surprise that with the daffodils out, the main selling weekend of the year saw frustrated house buyers going into the few remaining agents offices hoping to find something they could actually afford. After all, it costs nothing to look. It remains to be seen whether these voyeurs will translate into sales. Unless they do, then whilst volumes of sales and mortgages can really only go one way, house prices can still fall.
Asking prices are already down over 10% year-on-year with sales often being agreed at about 15% below this. You may not have much sympathy for agents and lenders as they go bust but if prices continue to fall then the impact on everyone could still be severe!
Like the mayor of Amity in the 1976 Oscar winning film Jaws, estate agent pin up and boss of Marsh & Parsons Peter Rollings is desperate to persuade us that the skies are blue, the beaches are clean and that a quick dip before lunch would be a great idea.
Sadly, the UK housing Market is about as safe to take part in at present as the warm waters off the fictional island and the chances of being rescued by Roy Schneider just about as thin!
On BBC news today Rollings has called the bottom of the Market and like the Nationwide earlier this morning, is suggesting that the market has turned. Is it a coincidence that both work for those who have a vested interest in seeing more ‘bathers’ and what redress will those who act on this encouragement have?
The CML reports that mortgage approvals were close to historic lows last month and transaction numbers from HMRC and the Land Register echo this. Down by over 50%. But most people don’t care if houses are selling or not – although agents do, but they DO mind if house prices are falling and they are sinking like a stone at present.
Until lending levels ease and the terms upon which loans are offered are relaxed there is little likelihood of this crisis passing. Like the sea, the housing market is still being savaged by the biggest downturn in living memory and as Chief Brody famously remarked, to deal with this one “we’re going to need to get ourselves a bigger boat!”.