The National Housing and Planning Advice Unit (NHPAU) report sponsored
by this government estimate that houses will be worth 10 times average
earnings by 2026. This compares with 7 times average earnings in 2006.
The clear reason for this projection is the shortage of housing stock
and the expected number of new houses to be built in future years.
Stephen Nickell the chairman of NHPAU claims that even if 190.000 new
homes are built annually as predicted then ‘the housing crisis is
likely to deepen’.
To put this into prospective over 800.000 new homes were built in
Spain last year and there are dire warnings of a house price crash in
that country unless this figure is cut drastically in the immediate
future. There is a happy medium but planning authorities need to be
relieved of their personal fiefdoms. (defined as : something over
which one dominant person or group exercises control) !
Despite fears that The Bank of England would increase interest rates
this month rates were held at 5.5%. This decision may have been
influenced by the fact that a large percentage of fixed rate mortgages
are coming to the end of their life this year and home owners require
to re mortgage to avoid falling into the trap of paying up to 30%
higher monthly charges any time soon.
Interest rises over the last 2 years have led to increasing numbers of
re possessions and were at a three year high in 2006 at 17.000.
Although Gordon Brown gave The Bank of England complete power over
interest rates in 1997 there is no doubt that he will not want to see
re possessions increase any further. The steady increasing cost of
mortgages and the subsequent misery experienced by of thousands of owner
occupiers of the John Major years in the 1990’s was the single biggest
factor in the Tory party being ousted from power by the Labour party.
We are edging closer and closer to the time when Brown must decide to
call an election and one cannot imagine that he does not have ‘behind
the scenes’ power over The Bank of England’s monetary policy committee.
If he has not then his decision to hand over interest rate policy to
The Bank of England will come back to haunt him and he will follow Jim
Callaghan (the last unelected Prime Minister) to a very early exit
along with his Labour colleagues.
Kenneth Taylor
21 June 2007
(Kenneth Taylor is a non executive Director of Caduceus Investments Ltd the sponser of this web site. Caduceus is an investment company operating in the UK but based in Scotland).
Thursday, June 21, 2007
Monday, April 30, 2007
Interest Rates and the Property Market April 07
The question that most investors are asking right now is ‘how far will The Bank of England push up interest rates in 2007’.
The consensus a few weeks ago on rates was that the Bank would raise rates two more times this year by a quarter point - first to 5.5% in May then to 5.75% November..
However although annual inflation rose to 3.1% in March - Mervyn King, the chairman of the Bank of England monetary policy committee (which decides on monthly rate issues), stated that ‘there could be a sharp fallback in inflation over the next four to six months’ and indicated ‘that rates are now edging towards restrictive’.
If indeed inflation does fall back towards the end of this year we could start to see rates start to decline in 2008.
There has been quite a bit of speculation in the press that many smaller Buy-to-Let landlords have bought too late in the housing cycle and that they may start to get into financial difficulty as interest rates rise and house prices stagnate or fall.
This will only happen where landlords have bought at low yields, ignoring financial prudence, and are gambling on price rises to show a profit on their investment. As long as rents show a profit on interest rate costs buyers have no reason to sell and will not do so even in a falling housing market. They will take the long term view that demand will inevitably be more than supply in the UK where there is a long term shortage of affordable housing combined with a shortage of land and restrictive planning laws.
As house prices have risen lenders have offered more innovative schemes to entice
borrowers into the housing market. The most interesting change has been the lengthening of mortgage terms from the 25 years standard term to 35 and even 45 years. This new term supports the market as clearly monthly payments on an interest and repayment mortgage fall substantially as the length of the loan period is extended.
Low unemployment which the UK is currently experiencing and immigration from Eastern Europe also supports house prices. And Scotland is experiencing a flood of
Polish people in particular into the country as they perceive Scots as more friendly and welcoming than our English neighbours.
This immigration to the UK also helps hold down inflation. Everyone knows that tradesmen in the UK were charging more and more for their services a few years ago.. Indeed many householders had become frustrated at ‘not being able to get a plumber at any price’
In the natural scheme of things this would have led to more people training to become plumbers as they saw an opportunity to make money – But there would have been a lead time of several years before newly trained plumbers would be available.
However the influx of tradesmen from Eastern Europe has filed the gap overnight and prices have stabilised and wage inflation has been halted. In addition immigration has helped to hold down prices so that present wages stretch further.
All these immigrants need somewhere to live and thus help to support Buy-To-Let investors – particularly in Scotland.
Ken Taylor
30th April 2007
The consensus a few weeks ago on rates was that the Bank would raise rates two more times this year by a quarter point - first to 5.5% in May then to 5.75% November..
However although annual inflation rose to 3.1% in March - Mervyn King, the chairman of the Bank of England monetary policy committee (which decides on monthly rate issues), stated that ‘there could be a sharp fallback in inflation over the next four to six months’ and indicated ‘that rates are now edging towards restrictive’.
If indeed inflation does fall back towards the end of this year we could start to see rates start to decline in 2008.
There has been quite a bit of speculation in the press that many smaller Buy-to-Let landlords have bought too late in the housing cycle and that they may start to get into financial difficulty as interest rates rise and house prices stagnate or fall.
This will only happen where landlords have bought at low yields, ignoring financial prudence, and are gambling on price rises to show a profit on their investment. As long as rents show a profit on interest rate costs buyers have no reason to sell and will not do so even in a falling housing market. They will take the long term view that demand will inevitably be more than supply in the UK where there is a long term shortage of affordable housing combined with a shortage of land and restrictive planning laws.
As house prices have risen lenders have offered more innovative schemes to entice
borrowers into the housing market. The most interesting change has been the lengthening of mortgage terms from the 25 years standard term to 35 and even 45 years. This new term supports the market as clearly monthly payments on an interest and repayment mortgage fall substantially as the length of the loan period is extended.
Low unemployment which the UK is currently experiencing and immigration from Eastern Europe also supports house prices. And Scotland is experiencing a flood of
Polish people in particular into the country as they perceive Scots as more friendly and welcoming than our English neighbours.
This immigration to the UK also helps hold down inflation. Everyone knows that tradesmen in the UK were charging more and more for their services a few years ago.. Indeed many householders had become frustrated at ‘not being able to get a plumber at any price’
In the natural scheme of things this would have led to more people training to become plumbers as they saw an opportunity to make money – But there would have been a lead time of several years before newly trained plumbers would be available.
However the influx of tradesmen from Eastern Europe has filed the gap overnight and prices have stabilised and wage inflation has been halted. In addition immigration has helped to hold down prices so that present wages stretch further.
All these immigrants need somewhere to live and thus help to support Buy-To-Let investors – particularly in Scotland.
Ken Taylor
30th April 2007
Monday, March 12, 2007
Coming Problems in the Buy to Let Market?
As a new non executive director joining Caduceus’s board my job is to find property portfolios that meet the company’s criteria. All new property purchased must have a good rental level and have some potential for capital growth over the long term.
Mark and I have been meeting vendors and agents in Fife, Dundee and Glasgow recently and have also been having discussions with corporate lawyers.
We have made offers for two separate portfolios within the last month
Involving 36 flats and are in discussions to buy two further portfolios. The first of these involves 57 flats and the second between 200 – 400 apartments.
There have been many articles on the ‘Buy to Let’ business in the quality daily news papers recently. In fact The Times and The Telegraph have published reports on a weekly basis over the last two to three months
Figures from the Council of Mortgage Lenders CML confirm that property remains hugely popular as an investment class despite sky-high property prices and rising interest rates. The CML states that 440.000 buy-to-let mortgages with a total value of more than £38bn were taken out last year and increase of 57% from 2005.
Landlord Mortgages,- buy to let broker -, states that rental yields hit a five year low in 2006 – averaging 5.74%. Some yields are as low as 2% and London yields are about 4%.
Landlords therefore in many cases are gambling on capital growth as clearly such low yielding investments are running at a loss when BTL mortgage rates are factored in to a Profit & Loss account. One well known London agent – Mark Dampier of Hargreaves Lansdown- is quoted as saying : “ The yield situation now looks completely nuts. If you are getting a yield of just 4% you have no safety net and if you have a mortgage you are actually losing money’ Property prices do go down as well as up.”
However Nigel Terrington CEO of Paragon Group – the largest lender to professional BTL landlords points out ‘that rising immigration, growing household numbers, the expanding student population, and the increasing tendency of young people to defer their first home purchase, all mean there is a need for greater flexibility in our housing stock, and the private rented sector is ideally suited to that need’.
The most important aspects of the Rental business in these increasingly competitive times as The Bank of England raises key interest rates. are for Landlords to ensure their properties are let out full time and that they are continuing to achieve yields above their agreed lending rates. Fairly obvious stuff but many landlords are relying heavily on capital gains to achieve a profit and are in grave danger of losing out on their investments should the market stagnate or values fall.
There are many new landlords who have never experienced a falling market such as the collapse that occurred in the early 90’s and in the mid 1970’s. Once a slide kicks in there is a herd mentality that drives prices lower and lower. You can witness this effect in the USA right now.
Ken Taylor.
12th March 2007
An abbreviated version of this was published at www.diary.twotalk.net
Mark and I have been meeting vendors and agents in Fife, Dundee and Glasgow recently and have also been having discussions with corporate lawyers.
We have made offers for two separate portfolios within the last month
Involving 36 flats and are in discussions to buy two further portfolios. The first of these involves 57 flats and the second between 200 – 400 apartments.
There have been many articles on the ‘Buy to Let’ business in the quality daily news papers recently. In fact The Times and The Telegraph have published reports on a weekly basis over the last two to three months
Figures from the Council of Mortgage Lenders CML confirm that property remains hugely popular as an investment class despite sky-high property prices and rising interest rates. The CML states that 440.000 buy-to-let mortgages with a total value of more than £38bn were taken out last year and increase of 57% from 2005.
Landlord Mortgages,- buy to let broker -, states that rental yields hit a five year low in 2006 – averaging 5.74%. Some yields are as low as 2% and London yields are about 4%.
Landlords therefore in many cases are gambling on capital growth as clearly such low yielding investments are running at a loss when BTL mortgage rates are factored in to a Profit & Loss account. One well known London agent – Mark Dampier of Hargreaves Lansdown- is quoted as saying : “ The yield situation now looks completely nuts. If you are getting a yield of just 4% you have no safety net and if you have a mortgage you are actually losing money’ Property prices do go down as well as up.”
However Nigel Terrington CEO of Paragon Group – the largest lender to professional BTL landlords points out ‘that rising immigration, growing household numbers, the expanding student population, and the increasing tendency of young people to defer their first home purchase, all mean there is a need for greater flexibility in our housing stock, and the private rented sector is ideally suited to that need’.
The most important aspects of the Rental business in these increasingly competitive times as The Bank of England raises key interest rates. are for Landlords to ensure their properties are let out full time and that they are continuing to achieve yields above their agreed lending rates. Fairly obvious stuff but many landlords are relying heavily on capital gains to achieve a profit and are in grave danger of losing out on their investments should the market stagnate or values fall.
There are many new landlords who have never experienced a falling market such as the collapse that occurred in the early 90’s and in the mid 1970’s. Once a slide kicks in there is a herd mentality that drives prices lower and lower. You can witness this effect in the USA right now.
Ken Taylor.
12th March 2007
An abbreviated version of this was published at www.diary.twotalk.net
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