Enormo.co.uk property blog

For nearly nine months the property rental prices have steadily fallen. The rental market has not collapsed but appears to have become more competitive than in previous months and years.

However, in May, the rental prices remained unchanged and after many months of price drops, this is a relief for the market and all who are involved in it.

Currently the average property rental price is stable at £819 per month, yet this is still around five per cent lower than it was in the same month a year ago.

TYPICAL MONTHLY RENTS:
Brighton: £1,058
Cardiff: £737
Newcastle: £756
Birmingham: £650
Nottinghamshire: £580
Sheffield: £542

Although the type of property means a difference in price, with flats coming out worth a lot less in rental income when compared to houses, but this has a lot to do with market demand.

Potential tenants have been in a position where they could haggle on the price of property, but now with the prices, levelling out there is no room to negotiate with and therefore prices will remain at the levels they are. 

A Findaproperty.com spokesperson said, “With such a dramatic increase in available properties over the past 12 months, the competition to secure and retain tenants is fierce,”

Andrew Smith, head of research at Findaproperty.com said, “The flat market seems to be lagging behind [houses] with increasing supply levels and asking rents that continue to fall,”

“There is still a long way to go until the recovery is in full swing,” said Mr Smith.

May 2009 was the first time that rents have not shown a month-on-month decline since as far back as August 2008.
Average asking rents remain unchanged at £819 pcm, but are still 5.5% lower than May 2008 when rents stood at £867 pcm.
The house and flat markets continue to polarise, with houses experiencing a fall in supply for the third consecutive month and a modest rise in rents, while flats continue to suffer from rising supply and falling rents.
In May 2009, the average time a property to rent was on the market was 65 days, 16 days longer than May 2008.

Property rentals in Scotland are actually bucking the trend, as they appear to have increased by nearly one per cent last month; this brings the average rent in Scotland up to £693 per month. This trend can be found in other areas too, but on average property rents have levelled off for now.

As if the property sector was not bad, enough it seems that some property owners may be taking advantage of the situation by renting out dangerous or sub standard properties to desperate tenants who have nowhere else to go.

According the Oxford City Council this is a real problem and they intend to get tough on property owners who flaunt the rules by renting out properties that are not up to the right standards.

To show that they are serious the executive board of the council has approved a scheme that could mean a charge of £300 for the issuing of notices to property owners that are related to hazards in rented accommodation.

Executive member for housing Ed Turner said: “It’s an important part of our work to tackle bad landlords –– the minority who let down their tenants, and the wider community.

“People will be warned, but if they ignore the council’s warnings, they must be prepared to face a legal notice and the financial penalty of £300, with the threat of prosecution if they continue to ignore us. I would encourage tenants concerned by the state of their property, and getting no joy from their landlord, to get in touch. The quality of privately rented housing in the city is a huge issue.”

Mr Turner added: “Right now some of the most vulnerable people are getting housed in unhealthy and dangerous properties.”

The idea behind this scheme is to make property owners realise their responsibilities and make safe any potential hazard before a notice is issued, in the past these notices were not charged for. However, it is hoped that the £300 charge will encourage the property owner to make things good before anything goes wrong. 

Housing officer Gail Siddall said: “The change will affect all landlords, but good landlords should respond and get the work sorted before a notice is served.”

During the past year, the council had to issue around thirty five notices to landlords, who had to improve their properties before they could be rented out, now with the charge in place not only will the landlord be losing rental income, they will also be out of pocket because of the charge.

Ian Wright, the city council’s public health manager, said, “While the tenants have a responsibility to maintain the property to a certain degree, it is up to the manager of an HMO to keep the common parts of the property clean and safe.”

Most of the issues that the council investigate come from tenants complaints, last year there were sixteen hundred complaints to the council.

There are many mixed messages around at the moment, but mainly there is the message that property prices are on the rise and on the other hand there are those announcements that say the price of property still has a bit further to drop.

This is a nightmare for first time buyers who are waiting for the right time to get onto the property ladder, but they cannot make up their minds as to when the right time is. However, with so many mixed messages it is virtually impossible to know when to commit.

Now it seems that there is no good news for buyers at the moment. As according to property agents Jones Lang LaSalle, the values of property could fall by a further fourteen per cent by the end of the year.

James Thomas, Head of Jones Lang LaSalle’s Residential Investment team, said: “It is important to remember that the recent green shoots of recovery are still very green. The UK economy is still in dire straits and it is unlikely that the full impact of declining employment has yet hit the housing market.

“The issue of unemployment is a significant down side for domestic buyers and the indicators point to unemployment continuing to grow.”

Although mortgage has grown during the last quarter by a massive twenty nine per cent on the previous month, the actual price of property has not moved very much. 

Tim Wright, head of residential said: “We are seeing the level of falls significantly come down and we are in five to seven per cent of the bottom now. We have people coming back into the market who have previously been prohibited by the prices. There’s a financial incentive for people to get out of renting and into buying. The cost is less to buy in this day of relatively low borrowing rates.

“We have also noticed the dollar and euro-based buyers coming back in.”

He added: “There are still a few risks out there and how far unemployment goes and what it does to consumer confidence is one of those.”

Property prices also vary from region to region so a national figure is not much use to everyone, local data is what’s needed for a buyer to make an informed decision on whether it is time to buy or not.

Naturally buyers want to buy a property at the lowest price possible, even though interest rates are at all time lows, it is clear that will not continue forever, so getting the property price right is essential for the buyer to maintain their payments later on in a year or so.

It is being advertised as one of the largest property auctions in the region for a long time, with £1 million worth of property going under the hammer, could this be a chance for some people to get back into the market or will it be strictly investors only, time will tell.

The sale comes from a the merger of two co-operative societies, the Manchester-based Co-operative Group’s merger that took place last year with the Lothian, Borders & Angus Co-operative Society.

This left the new group with fifteen properties that needed disposing of, these properties range from small apartments to three story houses. The properties would have been used by the society for employees, who were given what is known as life rent tenancies, these tenants will remain in the properties after the sale.

Sean Vigers, auctioneer and director at Edinburgh-based SVA Property Auctions said: “The most recent one we’ve had of this size in Edinburgh was about nine years ago, when we offered a range of properties for East of Scotland Water.

“Current market conditions will affect what we expect but there is a lot of interest in this sale because some of these have never been on the market – they’ve been owned by the Co-op since year dot.

“Most are well looked-after and in good condition. It’s not like a repossession sale. I expect that to mean some keen bidding.”

This is an unusual sale due to the amount of property belonging to one owner and the fact that some of the properties have sitting tenants in, although that could be good news for investors.

The sale will provide the Co-Operative Group with additional funds. A spokesperson for the group said: “These are properties surplus to requirements.”

Prices are expected to start as low as £100,000 for a house that has been split into flats; the low price reflects the fact that there are sitting tenants in place on life long arrangements.

Craig Watson, an associate director at property firm Jones Lang LaSalle, said: “The great thing about auctions for us and our clients is that they are transparent and are a quick way of concluding a transaction.

“Clients can get payment in immediately and that can be attractive. It is also an opportunity to reach out to people who have cash and are looking for an unusual opportunity that could turn out to be a bit of a bargain.”

This is an interesting sale and show that there are properties coming up for sale at auction that have not been subject to repossessions.

Every year the bosses of the UK building societies get together to pat themselves on the back and celebrate how much money they have made at the Building Societies Association’s annual conference, which is this held in Harrogate.

‘It’s a subdued conference this year,’ admitted Peter Campbell, chairman of Penrith, one of the country’s smallest societies, with assets totalling £85million.

‘No one wants to stick their head above the parapet right now, he added. ‘Further industry consolidation is inevitable, but if that makes the sector stronger it has to be a good thing.’

But with only fifty three building societies left, some of them must wonder how many will be turning up to next year’s conference. The battle lines are drawn and profits are low meaning that some of the more vulnerable building societies could find that they have become targets of the larger firms looking to create a larger business.

Ian Ross, 69, from Darlington said, ‘Building societies must focus on their core business,’ said Ian. ‘They should never have dabbled in riskier areas such as commercial property and property development.

‘Thankfully, no retail saver has lost any money as a result of recent society failures and mergers, but the sector’s shrinkage means less choice and fewer independent homes for our cash, so ultimately we are all losers.’

The problem for building societies as with the banks is that they have it far too easy over the past twenty years and like everyone many of them had become complacent, which has been s shock for members of the building societies who were expecting a reduced profit.

Nick Lock of the FSA’s retail firms division said, ‘We have seen unsustainable margins on prime lending and over-ambitious growth targets and a risk appetite that was too great,’

It has been a wake call for the members and management of these smaller building societies, all of sudden they may have become prey for their larger counter parts.

Ken Martin, a retired school technician from Adel, West Yorkshire, said, ‘It has been frightening for some members to attend their society’s AGM this year to hear it has made a loss,’

‘These are difficult and unprecedented times. Some societies will not be able to continue independently now. Further shrinkage in the sector is inevitable, but I hope the FSA does not leave us with just three large societies because it will mean reduced competition. That said, the key priority is that members’ money is safe and secure.’

However, although being taken over by a larger building society may not be the first choice for the member of the firms, it is far better than the alternatives.

Iain Cornish, chief executive at Yorkshire Building Society said, ‘Of course, there will be more consolidation but we should emerge a stronger sector,’ he said. ‘We can see encouraging signs in the property market.

‘It is early days but if that consumer confidence is sustained there is no reason why we shouldn’t see stability return to the sector and a resumption of profits growth.’

The news has been full of stories that MP’s have been twisting the rules on expenses and capital gains made through property sales, but the problem could have a long lasting effect on people who own second homes, as the tax principles of second homes goes under the magnifying glass.

It seems that the target group are workers who have relocated to a different area, newly married couples and part time property developers, they are all in the spotlight now following the claims made by MP’s on which property is their residence or second home.

Currently there is a fairly relaxed view from the HM Treasury on the allocation of second home status and how this affects capital gains tax. It is understood that over the next few months the rules are likely to be tightened up, this will be mean that many thousands of people could be liable to pay tax on their second homes.

“When Gordon Brown stands up and says he wants a fair and equal tax system, I can’t see how it can be allowed to carry on,” said Sharon Bedford, tax partner at accountants James Cowper

“During the recession of the early 80s, Norman Tebbit suggested the unemployed may want to ‘get on their bike’ and look for work, to encourage migration from depressed areas of the UK to more prosperous regions,” explained Bedford. “Those who did have to move to secure a job often faced another problem. The depressed housing markets in some areas of the country meant they could not sell their home for a considerable time and may have been faced with short term letting. It would have been a double whammy if this letting meant they also lost their tax free status, hence the ‘time to sell’ rules. The last three years of any period of ownership of a residence should qualify for tax free status.”

“These tax breaks are not exclusive to MPs and can be exploited by anyone who has a second home and the means to fund relatively short term property gains,” said Bedford.

“HM Revenue & Customs could get more aggressive in enquiring if you really live there, or announce a change in legislation overnight,” she said. “Amending the three year ‘time to sell’ rule would stop the tax breaks from the ‘flipping’ of second homes but would seriously disadvantage those who in the current downturn really do have to “get on their bike” and are unable to find a buyer for their home.”

These rules go back to the 1980’s, at the time of the last recession when many people had to find work in different areas, obviously they had to live somewhere and therefore some decided to buy another property.

Patricia Mock, private client services director at Deloitte said,  “I suspect it is on the cards – but it is hard to see how they could tighten it up without affecting the genuine person moving from one part of the country to another.”

“Once they get married, they have just one principal private residence exemption between them,” explained Mock. “But then they still get the other three years.”

The status of second homes is likely change, this will mean more headaches for people with second homes, especially in market where property prices are being pushed down.

With property prices at a low point and interest rates at all time lows, an outsider might think that first time buyers must be crazy not to jump onto the property ladder and hold on with both hands,

However, for a first time buyer these times are very frustrating, yes, the property market is right for buying into and with low interest rates; there may not be a better time to get out there and buy their first property.

Yet this is not happening because of the lending policies introduced by the lenders, no longer is it a matter of popping into the bank and walking out with a mortgage offer, banks are extremely cautious these days.

Fortunately, Lloyds TSB have come out with a new style ninety five per cent mortgages, directed at first time buyers, sounds good at first but there is a slight catch. The borrower will have to come up twenty per cent of the property value, this will be kept in a saving account for three and half years or until the borrower has built up a ten per cent equity in the property.  

Stephen Noakes, Commercial Director of mortgages at Lloyds Banking Group, said: “Market conditions mean virtually no 95% loan-to-value mortgages are available at the moment, while the few that are come at a high price with stringent credit requirements.

“The legal charge on the parents’ savings account means we can offset the risk of lending at this level to offer a realistic and affordable option for first time buyers. It also gives parents a way of helping their children without actually having to write the cheque.”
 
Andrew Hagger of Moneynet.co.uk, the financial website, said: “Hats off to Lloyds for developing this product, let’s see if other lenders follow suit with similar offerings in the near future. Product innovation such as this deal will give a much needed shot in the arm to the housing market. An increase in first time buyer activity can only have a positive knock on effect on links further up the property chain.

David Hollingworth, of London & Country Mortgages, the broker, said: “This combination product could offer an ideal solution for all parties, as long as everyone knows exactly what their commitment is. The parent retains their savings in their name and the child gets a good rate at 95 per cent loan-to-value with a lower credit score requirement.”

The introduction of the Home Information Pack (HIP) has seen many industry professionals speaking out against it, yet it turns out that there some estate agents out there who may think that the introduction of the HIP may not be such a bad idea after all.

It seems that some HIP’s providers are paying estate agents commission to provide the service to their property sellers. This commission can be anything from £50 worth of M&S voucher or even cash payments varying from £50 to £150 per client.

Peter Ambrose, of HIP provider The Partnership, said, ‘I think it is absolutely disgusting. It is unethical making secret commission payments.

‘Estate agents are having a tough time and some HIP companies are introducing it to drive up business.’

The worst thing about these claims is that the commission is not paid by the company producing the HIP; this is charged to the client.

president of the Law Society, Paul Marsh, said: ‘We always made it very clear when we were speaking to (former Housing Minister) Yvette Cooper and the ministers at the time when HIPs were introduced, that they were introducing a business which was going to be worth half a billion pounds a year and that business needed to be properly regulated.

‘We believe the Government should put in place effective regulation to make sure there is transparency throughout the system so the public know what they’re paying for, who’s getting what, and that they are getting value for money.’

What makes this worse is that by law a seller has to have a HIP in place, they cannot even market a property without paying for it in advance, therefore the companies producing the HIP and the estate agents receiving the payments have the seller over barrel.

Peter Bolton-King, chief executive of The National Association of Estate Agents (NAEA), said: ‘We can take somebody in front of a disciplinary panel. If they’re found guilty then we fine them up to £1,000 per breach. If it’s very serious, we chuck them out.’

It is hard to see where this practice started, HIP’s providers say that estate agents are asking for commission, while on the other hand estate agents claim that they are offered a commission to put business to the HIP’s provider.

The director general of the Association of Home Information Pack Providers (AHIPP), Mike Ockenden, said: ‘The implication that the retailer’s price can never be higher than the cost of the goods supplied is to misunderstand the nature of commerce.’

‘In collecting the agent’s mark-up as part of the retail price of the HIP, the HIP provider is not in the same position as a solicitor who pays a referral fee in return for receiving work.

‘The fundamental difference here is that the HIP provider acts as an agent for the estate agent in the preparation of the HIP.’

Whatever the case, these are secret payments being made in a industry that is already suffering from the property crisis and it is the property seller who is left to pick up the bill, which cannot be right.

The South of France has been one of those popular destinations for the wealthy who crave the Mediterranean sun and relaxed French lifestyle.

The region has gradually seen an influx of wealthy individuals who have pushed the value of properties up to the heady heights of anything up to £130 million or over, these prices make sure that the region stayed exclusive.    

Alexander V. G. Kraft, Chairman and CEO of Sotheby’s International Realty said, “The prices are coming more in line with the rest of the market. Trophy properties will be more in line with ‘normal luxury properties’ – about 20 to 30 million,”

“For trophy properties it used to be a question of how much someone was willing to pay. They would come quietly onto the market – they would be marketed under the table. This system really has totally collapsed. Buyers willing to pay anything like those sums just don’t exist,” he said.

But for example, the most expensive property in the world is located in Cap Ferrat, this villa attracted the attention of a Russian billionaire who liked it so much that he offered a half a billion euro’s for it last year.

Unfortunately, for one reason or another, the sale fell through, leaving the owners with the knowledge that if the property went onto the market now, they would be lucky to get 30 million euro’s for it.

“The Anglo-Saxon clientele has simply disappeared – there isn’t a single English buyer left,” said a spokesperson at the Magrey and Sons estate agent in Cannes.

The Russian’s are responsible for the rise in property values, the simple fact being that if they wanted something they got it, price was no object and as a result, the values of these exclusive properties increased to levels way beyond a sustainable level.   

Paul Humphreys, head of the France team at Knight Frank in London, said: “Cap Ferrat is one of the world’s most significant and best-known locations and there is demand for that.

“It’s a decision from the heart – you are buying a lifestyle not necessarily a financial investment.”

Another example of Cap Ferrat property gloom, is an owner from the UK recently sold a property for £53 million, when the property went on the market it was valued at £134 million, these are serious loses.

Peter Ilovsky, director of the Burger Sotheby’s International Realty in Saint Jean Cap Ferrat, said, “Owning a property in Cap Ferrat is like having a Picasso – it’s certainly better than placing the money in a Swiss bank, as some have been on the verge of collapse,”

The South of France is not finished; it is the crazy property values that are over. Once stability returns to the world, the buyers will return and will be pleased to see more realistic property values.

It is being estimated that there could be over two hundred thousand families throughout the UK whose homes are at risk, because they owe thousands of pounds in the mortgage arrears.

As this news was not shocking enough it turns out that repossessions over the past year have risen by more than fifty per cent, in fact during the first quarter of the year nearly thirteen thousand homes where repossessed whereas during the same period on the previous year it was eight and half thousand homes.

Nick Hopkinson, of Property Portfolio Rescue said: “The data confirms we are in for a deeper, longer recession than previously predicted.

“Repossessions are up 50 per cent but more worrying is the 62 per cent leap in home owners who are in serious arrears, despite the cost of mortgages plummeting to record low levels.

“While insolvencies, unemployment and arrears continue to rise, repossessions will follow.”

Currently there are over two hundred and five thousand homes with arrears that are more than two and half per cent of the mortgage balance, this is up by over sixty per cent on the year.

Mike Perry, director at Clarity Credit Management, said, “The fact that repossessions haven’t risen as much as forecast clearly shows lenders are doing a good job at keeping people in their homes,” he said.

“But more can be done to help manage arrears. Getting face to face with borrowers at the ­earliest possible stage is crucial in the arrears process.

“The arrears situation is only going to get worse this year – complacent debt management will mean that bad losses spiral.”

These figures are not what the government would want to see, considering that they created a plan that was supposed to protect people who are in the situation where repossession is a real threat to the family home.

Shadow Housing Minister Grant Shapps said: “Gordon Brown has left us badly prepared for this recession which is taking its toll as repossessions rise. The Government’s headline-grabbing schemes are failing hard-working families.

“3,000 families have asked for help under the £235million Mortgage Rescue Scheme and yet just one has received assistance.”

The mortgage protection scheme introduced by the government initially appeared to have some good points, however there is little to report on exactly how many people the scheme has actually helped.

Housing charity Shelter Chief executive Sam Younger said: “These figures paint a very depressing picture of thousands of home owners across the country struggling to keep up with their mortgage repayments, with many more losing the roof over their head.

“Some lenders are clearly still not doing everything they can to keep people in their homes.”

Director General Michael Coogan said: “It’s quite clear that the number of arrears cases is rising far more markedly than the number of repossessions.

“However, our forecast of 75,000 repossessions during 2009 now looks pessimistic, and we expect to revise the figure downwards in our next housing report.”

The thing about repossession is that it is not good for the homeowner or the mortgage lender either, as both parties lose out whereas with a bit of thought and consideration both parties would be better off in the long term.