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The mortgage and property month - February

by Sarah Modlock

5 March 2005

Life's too short to watch every move the property world makes. Here's what happened during February.

Base rate

The Bank of England left the base rate of interest unchanged at 4.75%.

The mortgage market

The latest figures from the Council of Mortgage Lenders showed that gross mortgage lending declined in January to £17.9 billion, 16% down on the £21.3 billion in December and 18% lower than the £21.8 billion lent in January last year.

Some of this decline is seasonal, and entirely expected in any January. However, the size of the decrease also reflects the recent cooling in the housing market. The proportion of loans to first-time buyers rose slightly to 30%, up from 27% in January last year.

Income multiples continue to rise for first-time buyers and movers, although they remain lower than last autumn. First-time buyers borrowed an average 87% of the value of their property, against an average 68% for movers. Average fixed and capped rates fell slightly in January although average variable rates rose, but their relative popularity was virtually unchanged, with 58% of borrowers choosing a variable rate and 42% a fixed rate.

Commenting on the figures, CML Deputy Director General Peter Williams says: 'These figures show beyond doubt the recent slowdown in the housing market. But, as we have said before, the picture this year is likely to be lumpy rather than smooth, and it is impossible to gauge the future direction of the market from one month's figures. Confidence measures suggest that consumers began feeling more confident again in January, and this coincides with anecdotal evidence from estate agents suggesting a pick up in sales.'

Elsewhere, independent data collectors Moneyfacts have been polling the 90,000 monthly visitors to their website. The results show that four out of 10 consumers are planning to move house in 2005. Their thoughts on house price and base rate movements are fairly evenly split with about half of the consumers predicting they will go up. Almost nine out of 10 consumers know what their mortgage repayments are but three out of 10 do not know what interest rate they are paying. Despite the benefits of switching to a better deal, almost 50% of consumers switched mortgages over 3 years ago. However, this could be partly due to the fact that three out of 10 would incur a penalty if they did switch. Rather surprisingly, almost 50% of consumers would not or did not use an IFA when getting their mortgage and also do not think that the new mortgage regulation will benefit them. Variable rate mortgages still remain the most common type of mortgage with 50% having a variable rate product. The chances are that many of these will be at the lenders' standard variable rate.

The property market

The first month of 2005 saw UK house prices fall further, but at an increasingly slower pace, according to The Royal Institution of Chartered Surveyors (RICS)' monthly housing survey. Surveyors also reported a slight decrease in property stock for sale, marking the first drop in eight months.

However, January also showed the first increase in newly agreed sales for nine months, indicating that the low point may have been passed. According to RICS' economist, Milan Khatri: 'A break in interest rates since the last rise in August 2004 has provided a platform of stability which has given greater confidence to prospective buyers. However, further interest rate increases cannot be ruled out. This would keep market conditions restrained throughout 2005.'

Jeremy Leaf of RICs comments: 'Sellers remain unwilling to lower asking prices and, with buyers looking to secure a bargain, this has resulted in a rather slow recovery. The strength of the wider economy should support the housing market in the coming months, despite property becoming less affordable as a result of higher interest rates.'

Buy to let

Paragon Mortgages' February 2005 Buy-to-Let Index shows the New Year starting positively for landlords, as rents, yields and prices all follow the generally upward trend of the last 6 months.

Landlord rental incomes have risen by 1.6% over the month, rising from £10,297 in December 2004 to £10,459 in January 2005. Rental incomes are 16.4% higher than the £8,989 recorded in January 2004. This increase in rents translates into an increase in landlord yields, which at 6.76% are now at their highest level for 6 months. Average property values are now £154,672 as compared with £152,834 in December, an average increase of 1.2%. Over the last twelve months average property values have increased by 24.6%.

John Heron of Paragon Mortgages, says: 'Landlords have seen a positive start to this year, after a year in which they earned very good average returns on their residential investment portfolios. At the start of 2005, rental incomes are rising, helped by robust levels of tenant demand. This is in part attributable to a slower owner-occupier market and the ongoing impact of affordability constraints on first time buyers. This is now clearly feeding through into higher yields, which have followed a generally upward trend since last September.'

According to the first RICS Tenant Satisfaction Index, better communication by landlords and managing agents would radically improve the satisfaction levels of UK business tenants. The results show that tenants are generally unhappy with the property services they receive. Tenants identified a number of concerns including dispute resolution, contract detail and lease flexibility. But the single issue where improvement would lead to the biggest increase of satisfaction, is communication. On this issue tenants were asked about their landlords' or agents' availability, whether agents respond in a timely manner, whether they are able to communicate directly with agents, how proactive agents are in communicating and how often agents sought tenants' opinions about the services offered. Tenants were relatively content with the standard and location of premises and their value for money.

RICS chief executive Louis Armstrong, said: 'The index is an unambiguous wake-up call to the property industry from its customers. The message is clear. Landlords and managing agents who take these findings on board and treat tenants as valued customers, will benefit.'

And finally....

Despite the falling number of first time buyers over recent years, due to many people being priced out of the housing market, IFA Promotion reveals there is still a huge appetite to own property amongst young people. In fact 95% of teenagers plan to be homeowners one day, and the vast majority (80%) intend to get on the property ladder before they turn thirty, according to a survey commissioned by IFA Promotion, the organisation promoting the benefits of independent financial advice.

Half of the teenagers questioned believe they will buy their first property with a partner, compared to just a sixth who plan to buy on their own. But teenagers realise that becoming a home owner comes at a price, with nearly half saying they would be prepared to curb their fun-loving lifestyles to get a foot on the property ladder. A third of teenagers place owning a house above travelling the world; a fifth would prefer to become a home owner than get married or have children; and four out of ten find owning a property more attractive than retiring early with a fifth putting property as a higher priority than a pension.

New products

•  With 92% of the UK's main postal towns considered to be unaffordable for first time buyers (FTBs), Halifax is revamping its mortgage range for buyers new to the market. FTBs can choose from a low variable or fixed rate mortgage, with any one, two or all three 'extras' from the following: £250 cashback, refund of the cost of Halifax Valuation Report and/ or Conveyancing Fees paid. Rates start at 5.34% on three year tracker mortgages and 5.59% on five year fixed rate mortgages. All new Halifax mortgages offer interest calculated on a daily basis, overpayments, underpayments and payment holidays. Subject to Halifax mortgage terms and conditions, mortgages are available up to 97 per cent loan to value for FTBs, which means that the minimum deposit is just 3%.

•  Intelligent Finance will be repricing its standalone fixed and tracker mortgage product range with a reduction in arrangement fees on all the bank's standalone mortgage products.

•  Charcol has launched an exclusive lifetime tracker with a drop lock facility, enabling borrowers to drop into a fixed rate at any point during the term of their loan. In addition, the exclusive also offers borrowers the option to take an offset facility alongside their mortgage and has no early redemption penalties.

•  Skipton Building Society launched a new 2-Year Fixed Rate Mortgage with a reduced rate of 4.59%. This means borrowers could make initial monthly payments of £561 on a £100,000 repayment mortgage. In addition the Society is reducing the rates on both its 3-year and 5-year fixed rate mortgages to 5.09%.