UK mortgage approvals’ rise below forecast

Source : Business Times – 30 Jun 2009

UK home-loan approvals climbed less than economists forecast last month as the credit squeeze led to the smallest increase in net mortgage lending since records began in 1993.

Banks granted 43,414 loans in May, compared with 43,191 in April, the Bank of England said yesterday in London. Economists predicted 46,000, the median of 22 forecasts in a Bloomberg News survey shows. Net mortgage lending rose by £324 million (S$779 million), about a third of the pace in the previous month.

Residential property held its value for a second month in June after falling for more than a year, Hometrack Ltd said yesterday. Bank of England policymaker Kate Barker said last week the housing market is still ’some way away from normal’ and officials have cautioned that the lending squeeze threatens to delay Britain’s economic recovery.

‘These are disappointing numbers,’ said David Page, an economist at Investec Securities in London. ‘We’ve seen approvals basically stall and lending in absolute levels remains very low. This reminds us that prospects for improvement in the housing market rely on the financial sector.’

The pound fell as much as 0.2 per cent against the dollar after the report, before recovering its losses. The British currency traded at US$1.6499 as at 10.08am in London yesterday.

Gross mortgage lending fell to £10.6 billion in May, the least since 2000, from £10.9 billion in April, the Bank of England said.

The average cost of a home in England and Wales was £155,600 this month, Hometrack said. Prices stopped falling in May on the research group’s measure for the first time in 20 months. From a year earlier, values fell 8.7 per cent in June.

The central bank said in its Financial Stability Report on June 26 that banks have curbed mortgage lending to all but the safest borrowers.

That may hamper a recovery in the economy after it shrank 1.9 per cent in the first quarter, the most since 1979. More mortgage holders are likely to default as unemployment rises, the bank said.

Still, lower interest rates may relieve some of the pressure on homeowners, the UK central bank said last week. Policymakers this month kept the benchmark interest rate at a record low of 0.5 per cent.

Individuals, whose overall debts total £1.5 trillion, added to non-secured borrowings at a faster pace in May.

Net consumer credit rose by £300 million, compared with £200 million in April, as net lending on personal loans and overdrafts increased for the first time in five months.

UK property tycoon seeks refinancing

Source : Business Times - 7 Apr 2009

But Simon Halabi faces uphill battle as banks hoard capital, interest costs rise

Billionaire property investor Simon Halabi is seeking to refinance £1.4 billion (S$3.1 billion) of debt borrowed against nine London buildings at a time when few banks will lend to commercial real estate owners.

The debt, which was packaged into bonds, is the UK’s largest securitised real estate loan expiring in 2009, according to data compiled by Bloomberg. It’s competing for capital with £50 billion of loans backed by stores, offices and warehouses in Britain that need to be refinanced through 2010.

Mr Halabi’s loan is due in October, according to loan manager Hatfield Philips International Ltd. Only 12 banks are prepared to lend more than £25 million to investors in UK commercial real estate, according to estimates from broker Savills Plc.

The global credit crisis is forcing banks to cut lending after recording US$1.3 trillion in writedowns and losses.

‘It’s very likely the loan will default,’ said Alexander Zeidler, an analyst at Moody’s in London. ‘We don’t think too many institutions will be willing to lend the amount of money needed to refinance.’

In a Dec 17 report, Moody’s downgraded the rating on £678.5 million of class A notes backed by the buildings, that include JPMorgan Chase & Co’s main UK offices, to Aa2 and said that there was a ‘very high likelihood of default at loan maturity’ because of ‘limited lending activity’.

The loan is meeting its agreements, but is on a ‘watch-list’ due to its impending maturity, said Hatfield Philips in a report on Jan 30. The manager is arranging a ‘full valuation of the portfolio of properties and has contacted various valuers for competitive bids’, said Hatfield.

Mr Halabi declined to be interviewed. He is ‘working very closely’ with Hatfield Philips on a refinancing agreement, said Kamlesh Bathia, finance director at Mr Halabi’s investment firm, Buckingham Securities Holdings Plc.

The debt hangover from the UK’s five-year investment boom that ended in 2007 threatens to stifle any property recovery as banks hoard capital and landlords’ interest costs rise.

‘It’s going to be a huge problem,’ said Mark Jenkins, head of commercial real-estate lending at Nationwide Building Society in London. ‘Real estate is likely to be at the bottom of the queue for what little finance banks have. That will hold back the recovery process for some time.’

Companies controlled by Mr Halabi refinanced properties in 2006 including JPMorgan’s offices at 125 London Wall and 60 Victoria Embankment with Societe Generale. They raised £1.45 billion of debt against the office properties, about 79 per cent of their value at the time, below the 81.5 per cent limit set by lenders.

Mr Halabi’s assets include the Naval and Military Club on London’s Piccadilly; and Mentmore Towers, the former home of Baron Mayer de Rothschild in Buckinghamshire, England. He was one of the original backers of the planned London skyscraper called the Shard, before selling his stake last year.

The properties Mr Halabi is trying to refinance have combined space of 2.2 million square feet, according to Hatfield Philips.

Most of the buildings are in the City of London, where some of the largest banks and insurers have their headquarters, and the West End. They include the UK headquarters of insurance group Aviva Plc, the Aviva Tower.

Commercial property values in the UK fell the most on record in 2008 and have plummeted about 40 per cent since the market’s peak in mid-2007, according to CB Richard Ellis Group Inc.

Mr Halabi started as a director of real estate investment company Property Trust in the 1980s. The Syrian-born investor is worth about US$4 billion, according to Forbes magazine. He bought health chain Esporta for around £460 million in 2006, using £330 million of debt from Societe Generale, according to Eurohypo AG research.

Mr Halabi was among investors that banks lent money to during a property boom fuelled by the growth of securitisation.

Royal Bank of Scotland Group Plc, HBOS Plc prior to its merger with Lloyds Banking Group Plc, and other banks amassed £207 billion of property loans by the end of June 2008, according to a De Montfort University survey.

In addition, there are 77.1 billion euros (S$156.3 billion) in securitised loans against UK commercial properties, according to Barclays Capital.

Most of the loans were for 75 per cent to 80 per cent of the value of the properties being bought, according to De Montfort. Since then, prices have slumped.

‘If you took a loan out two to three years ago, you’re likely to be under water,’ said Mr Jenkins. ‘The bank is stuck with having to extend further facilities to you no matter what, or appoint a receiver. In many cases, I suspect the banks will extend the facilities.’

Banks would prefer that expiring loans are repaid, according to William Newsom, head of valuation at Savills, who surveyed more than 100 lenders. There won’t be enough capital to do that, he said. ‘There are lenders out there with an appetite to lend, but only a fraction of what will be necessary over the next couple of years. We’re in uncharted territory.’

UK property firms need to raise US$20b

Source : Business Times - 15 Jan 2009

They need to restore their balance sheets at a time when financing is scarce

UK real estate companies may need to be rescued by shareholders this year to stay afloat.

The largest commercial property firms need to raise as much as US$20 billion this year to restore their balance sheets at a time when financing is scarce, according to estimates by Bernd Stahli, an analyst at Merrill Lynch & Co in London.

‘Real estate will be at the front of the queue for equity this year,’ said Ian Coull, chief executive officer of Segro plc, the largest investor in UK office parks. ‘There will be companies like us that want to put themselves in a strong position to benefit from the upturn when it comes.’

The five largest real estate investment trusts - Land Securities plc, British Land Co, Hammerson plc, Liberty International plc and Segro - have combined debt of £19 billion (S$41.6 billion), according to their latest reports. About £700 million of loans are due this year, research by Nomura International plc shows. The banks that granted those loans may now be reluctant to provide more credit.

That could spur another year of losses for real estate investment trust (Reit) investors. The FTSE 350 Real Estate Index of 18 stocks fell 46 per cent last year, the most since the index was created in 1986. The worst performer was Liberty, which declined 56 per cent.

The index has fallen by almost two-thirds since its peak in January 2007. During the industry’s last slump, shares of UK real estate companies fell by about 60 per cent, hitting a low in 1992. Stock prices more than doubled over the following year, even though the three biggest companies, including British Land and Hammerson, carried out rights issues.

This time, some companies may again have to issue new shares, or be forced to sell assets at a time when there are few buyers. Commercial values in the UK have slumped almost 36 per cent from their June 2007 peak, CB Richard Ellis Group Inc said last Friday. There may be another 15 per cent decline in 2009, according to King Sturge estimates.

The companies in the FTSE 350 real estate index need to raise a total of about £13.7 billion of equity, assuming that UK values fall 50 per cent from the market’s peak, said Merrill Lynch’s Mr Stahli. ‘This looks problematic as there is a very real possibility that this money is not there to begin with,’ he said.

British Land, Hammerson, Liberty, Brixton plc and Capital and Regional plc are among the companies that will be pushed close to breaching bank agreements by the end of the year because of depreciating assets, said Harm Meijer, an analyst at JPMorgan Chase & Co in London.

‘Companies could potentially mitigate these problems by obtaining amendments to debt-gearing covenants or by cutting dividends, but we don’t think these measures would be sufficient to address the problem fully,’ said Martin Allen, a London-based analyst at Morgan Stanley.

Half of the large real estate companies would need to take action to avoid breaching debt gearing covenants by December 2009 or March 2010, he said.

JPMorgan, Citigroup Inc and Morgan Stanley estimated that the largest companies in the FTSE 350 index may need about £2.5 billion to bolster their balance sheets.

Liberty, the UK’s biggest owner of shopping malls, is the leading candidate for a rights issue, according to Mike Prew, an analyst at Nomura International. The company does not have enough cash or undrawn debt to fulfil spending commitments and debt obligations this year, he said in a note to investors last Wednesday.

Liberty had debt of about £4 billion as at Sept 30, according to the company’s nine-month report. Liberty spokesman Michael Sandler declined to comment.

British Land, the largest office landlord in London, has ‘no immediate requirement’ to raise capital, said spokeswoman Laura De Vere. ‘But clearly, raising equity is an option that’s open to British Land, especially if matched with an opportunity.’

Credit ratings of European real estate companies could be cut because of shrinking asset values, Standard & Poor’s said in a report on Monday. Falling prices increase a company’s loan-to-value ratio, a key measure of credit.

Some companies are selling assets but not without price cuts. Land Securities, the largest Reit, last week raised £440 million to pay off debt by selling its property management arm at a 25 per cent discount to book value.

London and Stamford Property Ltd, which raised the second largest public offering by a European property company in 2007, made its first purchase last week, a City office building, One Fleet Place, for 45 per cent less than its peak value.

During the five-year boom that ended in 2007, UK commercial property companies saw asset values more than double and used debt to make purchases.

Typically, borrowing by large, publicly traded companies was equivalent to 50-60 per cent of assets. The ratio has since increased as real estate prices have fallen.

To secure a loan, companies usually agree to keep their debt-to-asset ratio below a certain level. Failure to do so limits their ability to borrow in the future.

Some UK companies have already offered investors stock to repay loans. DTZ Holdings plc, a London-based broker, announced a plan last month to raise as much as £55 million in a share sale while Mapeley Ltd, the property manager controlled by Fortress Investment Group LLC, asked shareholders for £45 million in return for convertible bonds.

‘A lot of investors will be against paying just to bail out a balance sheet,’ said Toby Courtauld, chief executive of Great Portland Estates plc. ‘Some may have no choice because it makes sense for their investment to keep it afloat, but the discounts they are going to demand will be enormous.’

The largest real estate companies are unlikely to carry out ‘rescue’ rights issues, according to Nomura’s Mr Prew. ‘It’s so dilutive.’ he said. ‘Why would you annoy all your existing shareholders?’

That may be unavoidable, said Patrick Sumner, head of property equities at Henderson Global Investors Ltd. ‘People would rather see their equity diluted than see it go to zero - it’s a pretty stark but obvious choice,’ he said.

RBS announces 6-month repo grace period

Source : Business Times - 2 Dec 2008

Mortgage lenders told that arrears policies must match FSA requirements

British lender Royal Bank of Scotland (RBS) yesterday said that it would not repossess the homes of mortgage customers who default until six months after they first fall into arrears.

RBS, owner of NatWest bank, said that the move was designed to give overstretched borrowers a chance to resolve their financial problems as falling house prices and a flagging economy put households under pressure.

‘We fully understand that one of the biggest worries facing homeowners in financial difficulty is the thought of losing their home, and this is especially true given the current economic climate,’ RBS managing director of retail banking Craig Donaldson said in a statement.

The UK’s biggest mortgage lenders have already committed to waiting three months before repossessing customers’ homes, under an agreement announced by British Finance Minister Alistair Darling last week.

Mortgage arrears and repossessions have risen sharply this year, reflecting the economic slowdown as well as a sharp rise in borrowing costs in the wake of the credit crunch.

The Council of Mortgage Lenders said that there were 168,000 households in arrears at end-September, up 8 per cent from end-June.

A total 11,300 homes were repossessed in the three months to Sept 30, an increase of 12 per cent on the previous quarter.

RBS’ move could force rival lenders to follow suit, potentially delaying the moment when the UK house price slump bottoms out, said Evolution Securities analyst Bruce Packard.

‘This announcement does put pressure on the other banks, notably Lloyds and HBOS, which together have £348 billion (S$810 billion) of mortgages. The announcement may also delay when the UK housing market reaches a ‘clearing price’,’ Mr Packard wrote in a note to clients.

RBS said that its six-month grace period would remain in place until ‘at least’ the end of 2009, and that it would also ensure that customers in arrears were given the opportunity to get independent advice.

RBS is 58 per cent owned by the British state after shareholders mostly shunned an equity fund raising underwritten by the government last month.

The UK government, which has spent a total of £37 billion of public money in bailing out RBS, Lloyds TSB and HBOS, has been urging banks to keep lending to consumers and businesses in a bid to bolster the flagging economy.

Last Friday, the Financial Services Authority (FSA) wrote to the heads of Britain’s leading mortgage lenders, asking them to make sure that their arrears polices are in line with FSA requirements, which stipulate that repossession should only be used as a last resort.

House prices in Britain have declined sharply during the credit crisis. In the latest data from the housing market, property consultancy Hometrack said yesterday that prices in England and Wales fell by 1.1 per cent in November to take them 8.1 per cent lower on a year ago.

British mortgage approvals fall

Source : Business Times - 2 Dec 2008

It is at the lowest level since the series began 10 years ago

British mortgage approvals fell in October to match their lowest level since the series began a decade ago, data showed yesterday, putting further pressure on policymakers to get banks lending again.

Mortgage lending was also much weaker than expected, and less than a sixteenth of its level a year ago.

The government has injected £37 billion (S$86.1 billion) of public funds into major banks and offered unprecedented guarantees for short-term bank debt. But these actions have so far done little to stimulate fresh lending as banks shore up their balance sheets in the face of an impending recession.

Mortgage approvals - a leading indicator of housing demand - fell from 33,000 in September to 32,000 in October, matching August’s reading which was the lowest since the series began in January 1999.

Mortgage lending totalled just £459 million, down from September’s £1.492 billion and more than £8 billion a year ago.

A global shortage of capital has forced many banks to clamp down on lending over the past year, squeezing the lifeblood out of the property market. House prices have already fallen around 15 per cent from their peak last year and show no sign of stopping.

Bank of England governor Mervyn King told legislators last week that getting banks lending again was the single most pressing challenge for the economy, which otherwise risked a sharp recession.

Finance Minister Alistair Darling has warned that the government will clamp down harder on banks if they refuse to honour pledges on maintaining lending in the downturn.

The Bank of England has cut interest rates by two percentage points since October to 3 per cent, and investors expect another cut of up to a percentage point this week.

Gilts rose after the data - which coincided with a survey showing Britain’s manufacturing sector contracted at a record pace last month - as markets increased bets on a hefty UK rate cut on Thursday.

‘Mortgage approvals are bottoming out at a very low level,’ said Brian Hilliard, chief UK economist at Societe Generale.

‘We are going to see very poor numbers for the next month or two.’

London home buyers hold out

Source : Business Times - 21 Oct 2008

Outlook dims despite steepest price fall in 16 years; borrowers face higher downpayments, mortgage rates

OLIVER Fisk and his girlfriend have been hunting for a one-bedroom apartment in London for four years and they’re further away than ever from getting onto the property ladder. ‘We’re definitely holding out for a bit longer, especially with the things that are going on with the banks,’ the 28-year-old information- technology specialist said. Mr Fisk has moved in with his girlfriend’s parents to save for the 21 per cent deposit that most lenders now insist on.

The steepest drop in London home prices in 16 years is deterring prospective buyers and worsening the rout in the property market. Higher mortgage rates mean the first-time buyer of a two-bedroom home is spending 12 per cent more per week than a year ago, said Richard Donnell, director of research at property data company Hometrack. And that doesn’t take into account higher downpayments.

The number of loans granted to first-time buyers fell an annual 55 per cent in August to 15,600, according to the Council of Mortgage Lenders, whose members provide about 98 per cent of all UK mortgages. That was the lowest since the CML began compiling the data in 2000. The typical loan to such purchasers fell to £106,754 (S$274,414), the lowest since May 2006.

Borrowers took loans that accounted for 84 per cent of the value of the property and 3.18 times their income, down from 90 per cent and 3.39, respectively, in August 2007.

The property slump has been exacerbated by the worst banking crisis since the Great Depression, which has caused demand from the 400,000 people who work for banks, insurers and other financial-services companies to collapse.

Residential property prices in London probably will fall about 14 per cent this year, with the biggest declines in homes costing about £1 million or more, Knight Frank LLP estimates. In 2009, houses and apartments will lose another 11 per cent of their value, according to Knight Frank, Europe’s biggest closely held property broker by revenue.

‘It is futile at the moment to try and forecast the scale of house-price declines,’ said Michael Coogan, director general of the Council of Mortgage Lenders, which has a membership of 158 banks, building societies, and other mortgage lenders, according to its website. ‘Some of our members are forecasting up to 25 per cent falls from peak to trough.’ The rising cost of financing caused UK home sales to fall to the lowest in at least three decades in the three months through September, the Royal Institution of Chartered Surveyors said on Oct 14. The biggest decline was in London, where brokers and surveyors sold an average of 8.3 homes in the quarter, compared with 11.5 for the whole country.

‘We’re just ducking and diving,’ said Guive Emami, a broker at Savills plc in East London. ‘I had a client, a lawyer on £50,000 a year and with an £80,000 deposit saved up, who struggled to find a mortgage.’ Mr Fisk, who was living in Clapham, looked at apartments across south-west and was prepared to spend as much as £150,000. He gave up the search at the end of last year and is in no rush to start house-hunting again. ‘Things are only going to get worse,’ Mr Fisk said.

Prices for apartments and houses across London fell 9.4 per cent in the third quarter from a year earlier, Nationwide Building Society said on Oct 2. That was the biggest decline since 1992. The largest drop was in the borough of Hammersmith and Fulham in west London, where prices fell 13 per cent.

In October, asking prices for homes in London fell 2 per cent from a year ago, according to a report by Rightmove plc. Rightmove is Britain’s most-used property website.

London was overtaken by Monaco as the world’s most expensive location for luxury homes in the second quarter as banks slash jobs and the prospect of lower bonuses discouraged buyers. Average prices for houses and apartments in London’s nine most expensive neighbourhoods fell for the first time in five years in August, an index compiled by Knight Frank showed.

Banks may cut 62,000 jobs in London by the end of 2009, reducing employment in the industry to the lowest level in more than a decade as the credit crisis worsens, the Centre for Economics and Business Research said in an Oct 13 report. Bonuses for this year will probably slump by 60 per cent to &pound3.6 billion, the CEBR estimates.

HSBC Holdings plc, Europe’s largest bank by market value, is cutting about 550 UK jobs and Zurich-based UBS AG said on Oct 1 it would eliminate 2,000 positions from the European investment banking unit.

Banking and financial services in London account for about a fifth of the city’s economy and employ 7 per cent of the workforce. London’s financial-services industry contributed more than 4 per cent to the UK’s £1.3 trillion economy, research firm Oxford Economics estimates.

‘The industry drives a lot of the general economic well-being of London,’ said John Forbes, head of UK real estate at PricewaterhouseCoopers LLP. ‘If business volumes are substantially down and firms are reducing headcount, that has a knock-on effect right across the board.’

Lenders now won’t issue a mortgage of more than 79 per cent of the value of the property, compared with 90 per cent a year ago, according to personal finance website Moneyfacts. The number of available mortgages has sunk to 3,123 from 15,599 at the peak of the market in July 2007.

The housing market needs to get worse to end the stalemate between sellers and buyers over price, said brokers covering south-west London, where values jumped fourfold since 1997 on demand from finance professionals priced out of Chelsea and Kensington.

‘People are going to start distress sales, but we’re not there yet,’ said Simon Albertini, managing director of Friend & Falcke, a broker with offices in Clapham, Barnes and Fulham.

Pressure is already mounting as owners rent out their homes while holding out for a better price, creating a glut that has begun to depress rents across London, according to a survey of brokers by the Royal Institution of Chartered Surveyors.

‘Maybe it takes four, five or six years for the market to bounce back,’ said George Franks, area director for Douglas & Gordon in Battersea. ‘Are the people who say they’re going to rent out their homes prepared to be a landlord for that long?’ Gregory Besterman, a broker in south-west London for 27 years who runs Fulham-based Sullivan Thomas, estimates the busy rental market shows there is ‘two years of pent-up demand’ from potential buyers.

‘As ever, London is first to fall and first to recover,’ said Jeff Doble, managing director of Dexters, a broker specialising in Putney, Chiswick and Richmond. ‘Demand for property in London’s suburbs is relentless and, regardless of the financial sector’s woes, by 2012 prices will have recovered lost ground.’ If the UK government’s £500 billion package, presented on Oct 8, fails to revive mortgage-lending in time, Oliver Fisk and his partner may find themselves back where they were a year ago.

‘It got to the point we thought we had to get on the ladder and buy a pokey flat for a ridiculous multiple so we can start thinking about starting a family,’ he said.

Sept gross mortgage lending in UK down 10%

Source : Business Times - 21 Oct 2008

Gross mortgage lending fell 10 per cent in September to the lowest level for any month since January 2005, hit by weak demand and the global financial crisis, Britain’s Council of Mortgage Lenders said yesterday.

Banks and building societies loaned £17.7 billion (S$45.5 billion) in September, down 42 per cent from the same month last year. It was the lowest gross lending figure for September since 2001, the council said.

‘The mortgage market is open for business,’ CML director-general Michael Coogan said. ‘But weakening consumer demand and ongoing funding restraints will dampen monthly lending figures for the rest of this year and into the first quarter of 2009.’

The gross lending figure for 2008 is expected to be around £255 billion, compared to £363 billion last year, he added.

Britain’s economic growth ground to a halt in the second quarter, while inflation and unemployment are rising.

Asking prices for houses in England and Wales fell 4.9 per cent in October, according to separate figures released by property website Rightmove yesterday.

Frightened investors ‘pile into property’

By Rebecca O’Connor and Grainne Gilmore - 10 Oct 2008

Investors who have lost faith in the banking system are turning to property as a safe haven for their cash.

Estate agents have identified a growth in interest from cash buyers, who want something tangible for their money rather than depositing it with banks they no longer trust.

The trend is emerging in all corners of the property market, according to one nationwide agent, from high-end mews houses in Knightsbridge to dilapidated two-up two-downs in the East Midlands.

Lindsay Cuthill, head of the southwest London office of Savills estate agents, said: “Ten days ago a wealthy, well-known businessman seeking to buy a mews in Chelsea told me, ‘I feel my money is safer here than in the banks’.”

Robert Billson, head of Savills in Nottingham, said: “There are people with £50,000 who would rather buy a derelict house and board it up for a while than put their money in an Icelandic bank right now.”

Buyers with cash are in a stronger position to negotiate price reductions than those who need mortgages.

Liam Bailey, head of residential research at Knight Frank, another agent, said: “We are seeing a huge amount of interest from investors, partly because they believe that bricks and mortar are safer than banks and stocks and shares in the current climate.” Financial advisers highlighted the dangers of buying as an investment in a falling market, but acknowledged that there was “some logic” for long-term investors with cash to buy now, provided that they are able to secure a bargain.

Buyers are able to negotiate reductions of as much as 20 per cent on nervous sellers’ asking prices if they have the cash ready, agents said.

Mark Dampier, head of research at Hargreaves Lansdown, an independent financial adviser, said: “With property, you can feel it, touch it, see it and live in it – you know it cannot be taken, so there is some degree of logic to buying now as opposed to depositing in banks if you have the money, although it might all end in tears.”

Halifax yesterday announced that house prices had fallen by 13.4 per cent in the past year, the largest annual decline since the bank began compiling such figures in 1987. Prices fell for the eighth month in a row in September, it said, reducing the average value of a home by more than £2,000, to £172,000.

Meanwhile lenders continued to dent the confidence of homeowners with rate increases yesterday, despite the Bank of England’s half-a-point base rate cut on Wednesday.

Abbey has raised rates on its tracker deals for new borrowers. Britain’s second biggest lender increased rates by 0.5 of a percentage point, blaming the cost of wholesale borrowing.

Experts said, however, that the market downturn made the case for investment in residential property “more compelling”.

Mr Bailey said: “Now that capital prices are down 15 to 20 per cent on last year’s values, and even more for new-build property, the investment case is more compelling for residential property.

“Income yields have moved up to 8 per cent, which suddenly makes sense.

“Now that the investment case for residential property has been underpinned investors are comparing it to paper investments – money in the bank or equities – property suddenly seems a safer investment.

“This trend,” he said, “is being led by existing investors who have the experience to cope with the current market conditions.”

UK housing prices may decline further

Source : Business Times - 16 Oct 2008

Market to hit near bottom in late 2009: Knight Frank

UK house prices may fall another 15 per cent by the end of 2009 following a similar drop in the past year as values slide back to 2003 levels, Knight Frank LLP said.

The slump will leave five million properties, or 24 per cent of the private-housing market, with a lower value than the purchase price, the London-based real-estate broker said in an e-mailed statement yesterday. Average prices won’t recover to last year’s peak until 2015.

‘Our forecast suggests that we will be closing in on the bottom of the market during late 2009 or early 2010,’ Liam Bailey, head of residential research at Knight Frank, said in the statement. ‘We are now at least halfway through the process of price falls, with around 15 per cent of an estimated 30 per cent peak-to-trough decline already factored into prices.’ Prices are dropping as the UK economy grows at a slower rate and banks grapple with the fallout from the credit crisis. Lenders approved 32,000 loans for house purchases in August, the least since comparable data began nine years ago, the Bank of England said on Sept 29.

The revival in prices will be led by luxury properties in central London, where values may get back to last year’s peak by 2012, when the Olympics will be held in the UK capital. The recovery may take until 2019 in Northern Ireland, the broker said.

‘The winners in this market will be anyone with equity who can buy over the next six months,’ said Mr Bailey. ‘Those requiring significant finance will be unlikely to be quick enough on their feet. Vulture funds and cash-rich individuals will be the first to benefit.’ The value of newly-built apartments and houses has fallen 50 per cent or more in some regional cities, the broker said. ‘It looks as if price declines are already coming to a close here.’

The price falls will be particularly welcomed by people who had given up hope of ever being able to buy their own home, said Knight Frank.

The biggest drop in property in values this year and next will be in Northern Ireland and Wales followed by London, said Knight Frank. The smallest declines will be in the north of England and Scotland, it said.

Development land values may slump 15 per cent next year after plunging 33 per cent from their peak already, said Knight Frank.

Agricultural land prices may drop 10 per cent in 2009 after peaking this year.

Knight Frank is Europe’s biggest closely held property broker by revenue.

UK commercial property returns fall

Source : Business Times - 16 Oct 2008

Commercial property returns in the UK, Europe’s largest market for real-estate investment, fell in the 12 months to Sept 30 at the fastest rate in at least 21 years as price declines accelerated.

The annualised loss on investments in offices, shops and warehouses was 18 per cent, the biggest since Investment Property Databank Ltd started tracking the market in 1987, the London-based company said in an e-mailed statement on Tuesday. September’s 2.4 per cent loss was the worst monthly return this year.

Rents and capital values dropped after banks granted fewer loans to investors as the subprime mortgages market collapsed. Demand for commercial real estate was also crimped by job cuts in the financial-services industry.

‘The signs of weakening occupier demand are now becoming clearly visible,’ Ian Cullen, co-founder of IPD, said in the statement.

Capital values dropped 2.9 per cent in September, led by stores. That was the 15th straight monthly decline and it brought the drop for this year to 14 per cent.

The total loss on commercial property returns for the year, after taking rental income into account, is more than 10 per cent, compared with a 22 per cent slump in the FTSE All-Share Index and a 3.9 per cent return on UK government bonds.

UK’s Brown to unveil housing market support plan

Source : Business Times - 2 Sep 2008

British Prime Minister Gordon Brown will unveil plans on Tuesday to boost the country’s slumping housing market as he launches a fight back after nearly a year trailing in the opinion polls.

With consumer confidence crumbling in the face of the credit crunch and rocketing energy bills, his ruling Labour Party is some 20 points behind the opposition Conservatives and on that showing would easily lose the next general election.

The government said the housing package would help vulnerable families struggling with mortgage payments avoid losing their homes and bring forward funding for new social housing from existing budgets.

The government and property developers also plan to offer five-year interest-free loans for some first-time buyers - both to help people move into affordable homes and support the house building industry.

A government source said those measures would cost about 1 billion pounds (US$1.8 billion). Full details will be announced by Mr Brown and Communities Secretary Hazel Blears on Tuesday morning.

Mr Brown’s planned relaunch comes after a summer which kicked off with speculation he could soon be ousted as Labour leader and ended with data showing the British economy failed to expand in the second quarter of 2008.

That was the first quarter the economy has not grown since a recession in the early 1990s, ending Mr Brown’s ability to boast of uninterrupted growth since Labour took office in 1997.

Data on Monday showed that the number of new home loans approved in July fell for the 12th consecutive month and the government may consider tinkering with an unpopular tax on home purchases, known as stamp duty.

The government may offer homebuyers the option of paying the tax at a later date or perhaps cut the rate of stamp duty for homes of a certain value, or for first-time buyers.

Mr Brown also plans later this week or next to look at ways to help households cope with the rising cost of fuel bills, perhaps by asking utility firms to pay money into a voluntary fund that could be used to make poor households more energy efficient.

The prime minister is hoping for an economic rebound to boost his popularity in time for the next election. But he must also resolve the dissent within his own party and questions over whether he is the right person to lead Labour.

While speculation of an imminent leadership challenge has waned, there will still be a lot of focus on the prime minister’s speech to his party’s annual conference later this month.

‘We’ve got our work cut out. The coming 12 months will be the most difficult 12 months the Labour Party has had in a generation,’ finance minister Alistair Darling said an interview published on Saturday.

‘We’ve got to rediscover the zeal which won three elections, and that is a huge problem for us at the moment. People are pissed off (angry) with us.’ — REUTERS

UK’s Brown to unveil housing market support plan

Source : Business Times - 2 Sep 2008

British Prime Minister Gordon Brown will unveil plans on Tuesday to boost the country’s slumping housing market as he launches a fight back after nearly a year trailing in the opinion polls.

With consumer confidence crumbling in the face of the credit crunch and rocketing energy bills, his ruling Labour Party is some 20 points behind the opposition Conservatives and on that showing would easily lose the next general election.

The government said the housing package would help vulnerable families struggling with mortgage payments avoid losing their homes and bring forward funding for new social housing from existing budgets.

The government and property developers also plan to offer five-year interest-free loans for some first-time buyers - both to help people move into affordable homes and support the house building industry.

A government source said those measures would cost about 1 billion pounds (US$1.8 billion). Full details will be announced by Mr Brown and Communities Secretary Hazel Blears on Tuesday morning.

Mr Brown’s planned relaunch comes after a summer which kicked off with speculation he could soon be ousted as Labour leader and ended with data showing the British economy failed to expand in the second quarter of 2008.

That was the first quarter the economy has not grown since a recession in the early 1990s, ending Mr Brown’s ability to boast of uninterrupted growth since Labour took office in 1997.

Data on Monday showed that the number of new home loans approved in July fell for the 12th consecutive month and the government may consider tinkering with an unpopular tax on home purchases, known as stamp duty.

The government may offer homebuyers the option of paying the tax at a later date or perhaps cut the rate of stamp duty for homes of a certain value, or for first-time buyers.

Mr Brown also plans later this week or next to look at ways to help households cope with the rising cost of fuel bills, perhaps by asking utility firms to pay money into a voluntary fund that could be used to make poor households more energy efficient.

The prime minister is hoping for an economic rebound to boost his popularity in time for the next election. But he must also resolve the dissent within his own party and questions over whether he is the right person to lead Labour.

While speculation of an imminent leadership challenge has waned, there will still be a lot of focus on the prime minister’s speech to his party’s annual conference later this month.

‘We’ve got our work cut out. The coming 12 months will be the most difficult 12 months the Labour Party has had in a generation,’ finance minister Alistair Darling said an interview published on Saturday.

‘We’ve got to rediscover the zeal which won three elections, and that is a huge problem for us at the moment. People are pissed off (angry) with us.’ — REUTERS

UK house prices see their steepest fall since 2001

Source : Business Times - 2 Sep 2008

End to property slump still some way off: research firm Hometrack

(LONDON) UK house prices fell by the most since at least 2001 in August as economic growth stagnated, and an end to the property slump is ’still some way off’, according to Hometrack Ltd.

Falling value: A couple browsing at the window of an estate agent in Didcot, Oxfordshire. The average cost of a residential property in England and Wales slipped 5.3 per cent from a year earlier to £167,000

The average cost of a residential property in England and Wales slipped 5.3 per cent from a year earlier to £167,000 (S$428,700), the London-based research company said in a statement yesterday. That’s the biggest annual drop since the index started seven years ago.

Prices fell 0.9 per cent from July.

‘A recovery in the housing slump, even back to zero monthly growth, is still some way off,’ said Richard Donnell, director of research at Hometrack.

‘It is confidence over the outlook for job prospects and the wider economy that is fundamental to any sustained turnaround in market conditions.’

Nationwide Building Society and HBOS plc reports show that the UK has entered its steepest property market slump since the early 1990s.

The Bank of England kept the benchmark rate unchanged in August as it weighed the fastest inflation in a decade against the threat of a recession.

The Royal Institution of Chartered Surveyors yesterday called for the government to take measures to revive the market for bonds backed by home loans in order to spur mortgage lending. The government should allow investors to swap the securities for Treasury bills with the Bank of England, RICS said in a statement.

Property values fell in each of the nine regions in Hometrack’s survey. In London, they dropped 1.1 per cent from July. The average time for a home to stay on the market rose to 11.3 weeks from 11 weeks, and the amount of the asking price achieved in sales fell to 90.7 per cent from 90.9 per cent.

‘When the market turns, it can take as long as 24 to 36 months for prices to reach realistic levels,’ Mr Donnell said. ‘We are now well into this process.’

House prices in Britain declined 10.5 per cent from a year earlier last month, the most since 1990, Nationwide said on Aug 20. HBOS said on Aug 7 that prices declined the most since 1983.

The flagging property market adds to signs that the UK may be entering its first economic contraction since 1992 after growth stagnated in the second quarter.

For manufacturers, orders fell to the lowest in three years, and companies expect a further deterioration, a separate report published yesterday by the EEF engineering lobby group showed.

Inflation accelerated to 4.4 per cent in July, more than twice the central bank’s target, making the Bank of England reluctant to cut interest rates to shore up the economy.

Societe General SA and Bank of America Corp predict that the central bank will start lowering interest rates by the end of this year.

The next interest rate decision is on Thursday. All 61 economists in a Bloomberg News survey expect no change this month. — Bloomberg

UK mortgage approvals fall to lowest since 1999

Source : Business Times - 2 Sep 2008

UK mortgage approvals fell for a 12th month to the lowest since at least 1999 in July as financial institutions curbed lending and the property slump deepened.

Banks granted 33,000 loans for house purchase, compared with 35,000 in June and the fewest since comparable data began nine years ago, the Bank of England (BOE) said in London yesterday. Economists predicted 35,000, according to the median of 27 estimates in a Bloomberg News survey.

Home-loan approvals are at less than a third of the level a year ago as Britain teeters on the brink of a recession. BOE policy makers will probably keep the key interest rate at 5 per cent this week as they battle the fastest inflation in more than a decade while Prime Minister Gordon Brown announces a package of measures to shore up the economy.

‘The data are still showing a very gloomy picture,’ said Matthew Sharratt, an economist at Bank of America Corp in London. ‘There’s no signs of a bottoming out in the housing market.’

The value of home loans rose to £3.23 billion (S$8.3 billion) in July from £3.14 billion in June. The figure is down from £9.35 billion in July 2007.

Hometrack Ltd said yesterday the average cost of a residential property in England and Wales slipped 5.3 per cent from a year earlier in August. A recovery in prices is ’still some way off’, said Richard Donnell, director of research.

The slump has led to a collapse in support for Mr Brown since he took over from Tony Blair 15 months ago and reduced the popularity of the ruling Labour Party to the lowest since it took office. Labour trailed behind the opposition Conservative Party, led by David Cameron, by 20 percentage points in recent opinion polls.

Mr Brown will hand UK local government authorities money to buy homes, a person familiar with the plan said last week, as part of a package to prevent the economy entering its first recession since 1991. Chancellor of the Exchequer Alistair Darling said in a Guardian newspaper interview on Aug 30 that the UK is facing ‘arguably the worst’ economic crisis for the last 60 years.

Financial institutions are still reluctant to lend to one another almost a year after housing market turmoil in the US led to a freeze in interbank lending. Bank losses from the collapse of the US sub-prime mortgage market now exceed US$500 billion.

UK gross domestic product stagnated in the second quarter, ending the nation’s longest stretch of economic expansion in more than a century.

Risks of a deeper slump in growth and in house prices prompted policy maker David Blanchflower to call for a lower in benchmark borrowing costs.

He said on Aug 28 that his prediction of a 30 per cent drop in house prices may now be ‘a fairly optimistic number’, and that ‘we need to see a substantial fall and probably quite quickly’, in rates.

A majority of the nine-member rate-setting panel probably won’t heed his call at their Sept 5 decision as inflation accelerates. Record commodity prices helped push the consumer price index to 4.4 per cent in July, more than double the 2 per cent target.

UK inflation expectations for the year ahead are also feeding risks of further price gains. Consumers’ forecasts rose to 4.4 per cent in August, Citigroup Inc said on Aug 29, citing a poll by YouGov plc.

All 61 economists in a Bloomberg News survey expect the bank to leave the key rate at 5 per cent for a fifth month. - Bloomberg

Home seizures by UK lenders hit 12-year high

Source : Business Times - 25 Aug 2008

Repossession orders in H1 jump 48% as price slide continues

HOME repossessions have surged to a 12-year high in the UK, as lenders take a tough line on debt-ridden owners. And the outlook for the rest of the year looks bleak, as house prices continue to fall.

Figures released by the Council of Mortgage Lenders (CML) show the number of home owners subject to repossession orders in the first half of the year was up 48 per cent to 18,900.

As property economist Kelvin Davidson of consultancy Capital Economics said: ‘There’s no denying the figures will rise further. We are talking pretty big falls in property prices.’

The news has triggered criticism in some corners of a harsh stance taken by lenders, and comes amid a warning that repossessions for full-year 2008 are likely to hit 45,000, up from 26,200 last year.

CML has said the figures are no surprise but stresses the 45,000 statistic is small relative to the 11.74 million mortgages in the UK worth more than £1.2 trillion (S$3.1 trillion). However, it noted that a dramatic reduction in credit availability is taking a toll on borrowers, as it tends to rule out remortgaging.

At the same time, credit ratings agency Standard & Poor’s estimates that one in six home owners in Britain will be in negative equity by the end of 2009 if house prices continue to fall.

Mr Davidson said the figures have been largely anticipated, but the rate of acceleration seems to be much faster than expected. ‘I guess in terms of risk, everything has moved much faster than what people thought,’ he said.

Lenders have been aggressive in seeking recourse against errant home owners, with Ministry of Justice figures showing the courts made 28,658 repossession orders in England and Wales in the second quarter of 2008, an increase of 24 per cent from the same period last year.

Housing charity Shelter has accused lenders of using the courts as the first rather than last resort.

The charity’s chief executive Adam Sampson has dubbed the rise in repossessions ’simply staggering’.

‘The real horror is that struggling home owners today have less protection than in the 1990s, but most people don’t even realise it,’ he said.

The charity has seen an increase in the number of people fearful of losing their homes. ‘They are being punished by rising household bills, escalating fuel charges and food prices that are going through the roof,’ Mr Davidson said.

He urged lenders to be more flexible. ‘They must play their part and ensure they look at all options before rushing to court. They must use repossession as the last rather than first option. The government needs to show it really is on people’s side when they face the threat of repossession.’

According to the UK Financial Services Authority, lenders have largely complied with standards for treating customers in arrears. It has, however, voiced concern that some specialist lenders are more prone to resort to court action.

Mortgage lending, meanwhile, continues to remain subdued in Britain. According to CML, gross mortgage lending totalled £24.8 billion in July, a 27 per cent drop from the same month last year.

UK mortgage loans fall to 9-year low in May

Source : Business Times - 1 Jul 2008

UK mortgage approvals fell to the lowest in at least nine years in May, a sign that the housing slump is deepening.

Mr King: Expecting extremely weak activity in the housing market

Banks granted 42,000 loans for house purchase, compared with 58,000 in April, the Bank of England said in London yesterday. The result was the lowest since the bank’s series began in 1999. Economists predicted a reading of 51,000, according to the median of 26 estimates in a Bloomberg News survey. House prices fell the most in seven years last month, Hometrack Inc said yesterday.

The UK’s worst property downturn since the early 1990s is threatening to tip the economy into a recession. While Bank of England governor Mervyn King says there will be ‘extremely weak activity’ in the housing market, the fastest inflation in a decade is standing in the way of lower interest rates.

‘For approvals to fall by so much in one month having already collapsed over the last year underlines the ferocity of the housing market slowdown,’ said Alan Clarke, an economist at BNP Paribas SA in London. The report ’suggests the pace of house price declines will continue or even accelerate and the risks to economic growth have also risen’.

The dearth of credit and slowing economic growth pushed property values down one percent last month from May, the most since records by market researcher Hometrack began.

Trevor Williams, an economist at Lloyds TSB Bank plc, said yesterday’s ‘huge drop’ in mortgage approvals shows first-time buyers have ‘been abandoning the market almost completely’. Home loans in May were about one third of last year’s peak.

UK banks are reining in lending following the collapse of the US sub-prime mortgage market, which so far has cost financial institutions worldwide US$400 billion in losses and writedowns.

Shares of property-related companies such as Taylor Wimpey plc and Bradford & Bingley plc have lost more than two thirds of their value this year. Taylor Wimpey, the UK’s largest homebuilder, said yesterday it is in talks with investors to raise money as it writes down the value of land amid a ’sustained weak’ housing market.

HBOS plc, the country’s largest mortgage lender, and Bradford & Bingley are also turning to investors to replenish their balance sheets.

‘There’s no end in sight,’ said David Tinsley, an economist at the National Australia Bank in London, who formerly worked for the UK central bank. ‘With inflation remaining elevated, we’re unlikely to see rate cuts. But even if we did, it probably wouldn’t help much.’

Mr King said on May 14 that the country may experience the ‘odd quarter or two’ of contraction. The bank predicted that the annual rate of economic expansion will drop to around one per cent early next year, the lowest since 1992.

Consumer confidence fell 5 points to minus-34 last month, the least since 1990, GfK NOP Ltd said in a separate report. UK services output growth held at the weakest pace since 2002 in the three months through April as business services and finance contracted, the statistics office said yesterday.

At the same time, households are still adding to a record £pounds;1.4 trillion (S$3.79 trillion) in debt. Net consumer credit rose £pounds;1.4 billion in May, the most in three months, and credit card lending increased £pounds;0.6 billion, the Bank of England said yesterday.

In April, the Bank of England lowered the benchmark interest rate for a third time since last December to 5 per cent.

Commercial banks aren’t passing that on to homeowners. The cost of a home loan fixed for two years with a 25 per cent deposit rose to 6.27 per cent in May, the highest since 2000, central bank data shows.

Faster inflation may make the central bank reluctant to lower rates further. Consumer prices jumped 3.3 per cent in May from a year earlier, the most in more than a decade, and Mr King said last week that the rate may exceed 4 per cent later this year.

The bank aims to keep the inflation rate at 2 per cent.

‘The bank’s clearly concerned about inflation in the near term,’ said George Buckley, an economist at Deutsche Bank AG in London. ‘But those concerns should give way to growth worries and next year people will talk about when the bank starts cutting rates.’ - Bloomberg