End of Year Review 2007
Review 2007
This year the housing market has been subject to intense speculation and negative predictions in the media. What effect this has had on the actual market is difficult to gauge but, undoubtedly, buyers have been more cautious.
Many commentators predict that there will be a significantly reduced number of transactions during 2008 as a result of fewer properties being placed on the market. However, with the strong demand in the south east, values and sale prices are likely to hold.
Good properties in favourable locations are continuing to generate interest and we are lucky to have a predominance of beautiful period property and individual homes in attractive villages and market towns. In the last three months of 2007, we have agreed sales on more properties than for the same period in 2006.
During 2007, the National Association of Estate Agents has continued to call for a mandatory regulated system to be implemented by the government whereby all within the industry are suitably qualified and work to established standards. Whilst all agents must comply with the Property Mis-Descriptions Act and, from 15th December, all will be regulated by the Office of Fair Trading, there is still no legal requirement for an agent to be affiliated with a scheme which offers regulation and a redress scheme.
All companies involved in the property market will have to raise the bar to enable them to move their businesses forward in what is likely to be a more complex market. Customers' requirements continue to change, bringing significant technological challenges.
Residential Property Market
Effect of Home Information Packs and Interest Inflation
by William Wells, Residential Director
America seems such a long way away, but the world felt very small in the autumn, when the impact of sub-prime lending in the USA resulted in the Northern Rock crisis and sent share prices in banks and property companies tumbling.
The introduction of the Home Information Packs (HIP) represented the greatest change to the property market for some years. Since 1st June all homes with four or more bedrooms were obliged to have a Home Information Pack before it could be sold. In September, this was extended to three bedroom properties and, from the 14th December, it also includes two bedroom properties. What effect has this had? The majority of property related professions such as estate agents, solicitors and building societies have been against the HIP, but would welcome a process that achieved what the government set out to achieve when the idea of a HIP was first introduced some four years ago. Namely, to shorten the time between agreeing a sale and exchanging contracts and to reduce the number of abortive sales.
There are some benefits to all parties; the HIP can help identify any problems earlier in the house buying process and also it does tend to ensure that sellers are more committed to moving as a result of them having to make some payment before placing their property on the market. So, to some extent, the HIP has aided the speed and success rate of the process.
The top end of the property market, certainly above £1m, has held up well, but the market for flats or similar investment properties has been hit hard. There is insufficient information to judge at the moment, but prices could be down by as much as 7-10% from the height of the market. This is due in part to oversupply of this type of property, particularly in Bishop's Stortford where several new town centre developments have been released this year, but also as a result of increased caution amongst investors.
On a positive note, interest rates have already dropped slightly and there is a belief that there will be further reductions in the New Year. In this case, we would predict stable prices for the year ahead. Generally, for people who have been in the property market for some time, it is the differential between selling and buying prices that is important.
This area continues to be extremely popular with buyers wishing to move out of London. However, our research suggests that most people who buy in this area move no more than half an hour, and the majority no more than ten minutes, from their existing house and, therefore, the strength of the local market should not be underestimated.
Changes to the Area
In our area of operation, there is continued intense pressure for residential development. The demand for new stock and increasing demand for homes generally within the South East is such that there is likely to be a continued shortage even once government housing targets have been met.
Demographically, the population within the country is destined to grow for a multitude of reasons. In the south east of England where the demand is greatest, this also puts intolerable pressure on local services, particularly related to health and transport. School catchment areas are diminishing as the towns and villages grow.
For example, the Saffron Walden County High School with its highly regarded education results and successful Sixth Form, is reaching 2000 students and an ever increasing demand for property within the catchment from families with school age children puts tremendous outward pressure on the outlying villages previously covered by the school.
Uttlesford District Council UDC, with its present population in the order of 70,000, are to respond to the Government Key Housing targets which means building 9,672 homes in the district by 2024. A number of these houses have already been built, but another 4,200 homes are required. UDC are presently consulting with residents regarding four options. They have made no secret of the preferred option which involves creating a new settlement North East of Elsenham with 3,000 homes, plus a further 750 dwellings spread amongst the larger towns and 250 more within the villages.
All future developments must incorporate a significant number of affordable housing. In UDC the policy is 40% of development but this is still insufficient to meet the demands or the public and the targets of the government.
There has been no significant change to the Government's White Paper policy on Stansted Airport and BAA remains in its words ‘absolutely committed to delivering the urgently needed runway capacity in line with this policy' according to a recent report by a BAA spokesperson. They expect to be in a position to submit a planning application early in the new year and anticipate completion of the new runway in around 2015 with a third runway at Heathrow following in 2020.
A concern to all is how development will affect the environment and what further measures can be taken to reduce individual carbon emissions. We can all take simple steps to make our homes more environmentally friendly, advice on this is freely available from local councils and bodies such as the Energy Savings Trust, but as a community we need to consider how we can put pressure on local councillors to achieve improved traffic flow both within our towns and villages and on major routes around the area.
Changes to Mortgage Lending
Matt Baker and Mike Cooke,
Mullucks Wells Financial Services
The UK housing market has come under intense scrutiny from the media over the past few months. While newspaper headlines predict a return to the dark days of the early 1990s, weekend supplements advise on how to sell your property in a buyers market and television programmes warn of the danger of rising repossession levels next year. This journalistic scaremongering has unfortunately greatly contributed to the feeling of unease about the next few months ahead for the property market.
The Highs...
There is no doubt that home owners have benefited significantly over the last two years creating a substantial pot of equity in their properties. Recent research by Prudential, suggest that pensioners alone have seen the value of their homes rise by £151.22 million a day between May 2006 and June 2007, with London and the South East seeing the greatest rise.
Perhaps unsurprisingly, the year witnessed an increase in popularity in the equity release plans. Commenting on the popularity of equity release this year, Ali Crossley, Business Director of Retirement Income from Prudential Said: "Retirement is becoming more expensive but homeowners have seen the value of their properties rise dramatically in recent years, so more retired homeowners released approximately £300 million between May and July this year through equity release plans.
Therefore, at the start of the year the UK Property market was in rude health. According to the Royal Institution of Chartered Surveyors (RICS), house prices were roughly 10% higher than in January 2006 and had risen 3.1% in the preceding 3 months. The economic forecasters predicted the first half of the year to be more buoyant than the second, as affordability constraints began to bind. The Nationwide predicted that the market would remain fairly stable, rising by between 5-8% over the year, but Capital Economics, an independent economic consultancy that also measures the UK Property market was more hawkish and predicted the increase in the interest rates would hit the UK consumer hard and that there was likely to be a nominal increase of only 3.5% for the year.
The Lows...
No sooner had we welcomed in the new year than the Bank of England increased interest rates, with two further rises in May and July, in an attempt to keep inflation within targets. This, together with the crisis unfolding in the States, led to lenders becoming unwilling to lend to each other and a tightening of their lending policy, all of which resulted in a marked slowdown and a more nervous back end of 2007.
It appears that lenders have reduced their product offering substantially since the ‘Credit Crunch' began, notably the sub prime sector has found the largest withdrawals.
The 2008 forecasts...
With the interest rate reduction in December and more expected early in the new year the forecasters are predicting a flat year. The Nationwide Building Society believes there will be a large regional variance with an overall zero percent growth and a flat return in London and the south east, partly due to job insecurity and bonus uncertainty for city workers.
The Capital Economics have predicted a 3% fall in house prices. The positive signs are that there is still a continuing shortage of property and, to that end, the Council of Mortgage Lenders estimates a 1% rise as the continuing shortage of property will help underpin values.
It is our opinion that there will be a long hangover from the Christmas and New Year festivities within the housing market. It is likely that the Bank of England will continue to cut interest rates and hopefully this should be enough to keep the property market ticking along. The market can not continue to rise at double digit inflation and a period of reflection for a few years may be in most people's best interests.
Rate reductions will help to consolidate the market and we will also see further consolidation with lenders being more cautious about who they lend to.
It is not necessarily the case that this ‘pause for breath' in the market will be a bad thing and the slowdown will be a far cry from the conditions of the early 90s. From the long term perspective, a year of flat house prices will contribute more to future stability of the market than a year of ten per cent inflation and ever worsening affordability.Mullucks Financial Services offer a completely independent financial advice service. Mullucks Financial Services is a trading style of Enable Advisors Limited.
Residential Lettings
By Tim Trembath, Chairman
2007 drew to a close with the market very busy in all sectors. Demand has been sustained throughout the year particularly for the larger family home where rental values have increased by up to 10%.
The demand in this sector of the market will remain strong in part due to the presence of some very large employers in the region and in part due to more families taking a temporary step off the housing ladder and putting themselves in a strong buying position.
On a more cautious note the substantial number of one and two bedroom flats under construction and completed over the last twelve months will affect achievable rental figures. We do not anticipate any rise in this sector during 2008.
On 6th April 2007 legislation came into effect regarding deposits taken for Assured Shorthold Tenancies. As members of the Association of Residential Letting Agent we joined the scheme run by the Tenancy Dispute Service Ltd. Under this, all our deposits are held in a special client account and at the end of the tenancy, if there is an unresolved dispute, the case is referred to an Independent Case Examiner. There are strict timetables for the settlement of the case by the I.C.E. This reduces the considerable time and stress taken over disputes and the need to go to the court with all the added expense. The scheme is in its infancy but we have already seen the benefit to our clients of referring disputes to a professional arbiter for a speedy decision.
In our area, the proximity of the Airport, the easy access to the M11 and main line railway station ensures continued demand and as the residential sales market has slowed, the supply and demand in the rental sector has increased. We fully expect this trend to continue in 2008.
The Commercial Market
By Richard Roberts, Commercial Director
The year of 2007 will be remembered for being a year of two halves. The first half, right up to the summer holidays continued where 2006 left off, with rising tenant demand, fuelled by a lack of accommodation supply, forcing rents up.
Pre-lets were agreed on 6,180 sq ft at Skyway House, Takeley and on 3,840 sq foot at Stansted Courtyard, both at record rents and the new development next to the station in Stansted Mountfitchet, The Exchange, was fully sold or let by the beginning of the summer.
Retail accommodation remained in short supply, with shops in Saffron Walden and Bishop's Stortford being let quickly with rents for prime space in each town topping £60 and £100 per square foot per annum, respectively.
The industrial market also faired well with all available space in Great Dunmow being let and with schemes in and around Bishop's Stortford being let at £8.50 and rent review being settled at £7.50 per sq ft.
However, with the summer came the fall out from the US toxic lending and the UK credit squeeze. By the second week in October, the effect was having huge repercussions on the commercial market.
As a consequence, the professional division of Mullucks Wells has seen a rapid increase in rent review work with landlords seeking to make the most of the market peak and tenants, in turn, looking to contest every increase in rent.
As examples, during the early summer, and as a result of an arbitration, the rent for Pizza Express in Bishop's Stortford increased by over 60%. A rate appeal on a prominent high street shop in Saffron Walden saw a reduction in business rates of 40%.
Our prediction for 2008 is as follows (rent per square foot per annum for prime space)
|
Bishop's Stortford |
Saffron Walden |
Great Dunmow |
|
|
Retail |
£100+ static |
£60 static |
£30 increasing |
|
Industrial |
£8.50 static |
£6 static |
£5-6 static |
|
Offices |
£22.50 fall |
£14 fall |
£12.50 static |
