Local Housing Allowance: Another Good Idea Poorly Applied

Firstly, sorry for the delay between postings. I just had to put pen to paper on this:

The Local Housing Allowance was, in my opinion, one of the better pieces of housing legislation passed under the current government. Some -- in my opinion too many in my area -- landlords were being prejudicial and discriminatory against housing benefit claimants; tarring them all with the same brush.

Not that I am too harsh on the landlords for this: what they were doing is essentially the same as an insurance company using your credit history to judge the likelihood of you making a claim. None the less it was unfair to those looking for quality rented accommodation -- especially perfectly decent people like a member of my family and their family, who felt the brunt of this once too often.

The LHA was also supposed to allow people to top up their housing benefit to get better accommodation if they so chose. But -- like the Home Information Pack -- the LHA was a good idea poorly applied; giving the money straight to tenants was asking for trouble, and trouble it got as thousands of people simply failed to pass the money on.

The government well, the Department for Work and Pensions is currently in consultations as to how to combat the new problem. They are considering allowing tenants to choose to have the money paid straight to the landlord.

Immediately you could say that this will put tenants right back at square one, faced with the landlord seeing that the money was coming from the housing association. However, the kind of decent tenants, like the aforementioned member of my family would have no need to have the money paid straight to the landlord, because they would ensure their rent was being paid on time anyway.

So, I am definitely for that option, but again, applied in a better way, i.e. without the choice: any tenants found not to be passing the money on should have it taken and paid straight to the landlord, everyone else should be left alone.

Are Buy to Let Landlords Buying Property Again? Yes and No

I just read a great Citywire article titled, Buy to let: Who Do You Believe? The article was about the recent survey of residential landlords conducted by the Association of Residential Lettings Agents, or rather the conclusions drawn from the collected responses.

ARLA says that its findings mean buy to let landlords are buying again, while Citywire (courtesy of Lorna Bourke) says otherwise. Here is a balanced look at their arguments so you can decide for yourself what is going on with the buy to let market.

The ARLA survey found that the average number of properties owned by residential landlords had increased from 6.4 in March this year, to 7.5 in June, before falling back to 7.0 in September.

ARLA says: this indicates that residential landlords have been buying property this year

Citywire says: this is more likely a reflection on the number of novice 1 and 2 property owners who have been repossessed since the onset of the downturn.

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It is not that easy. Yes, the credit crunch and ensuing recession took a scythe to the numbers of speculative new buy-to-letters, who got caught with their pants down, having failed to do proper research and/or borrowed too much. That is for sure.

But many of those repossessed properties were bought by -- you guessed it -- buy-to-letters. The auctions were held up and down the UK to sell all those repossessed properties, and the consensus of opinion is that most of the properties were being bought by investors. The reports that I can find also suggest that novice investors were predominant early this year.

This was apparently while old while the old hands waited out the market, foreseeing the flood of rentals that would come as the buy to flippers failed at the flipping.

Another reason why novices outweighed the old hands is that the auctions were primarily filled with cash-buyers, as a lot of well-off mum and dad's took the opportunity to set their career endangered kids up as buy to letters, cest la folie.

See the following articles that back up my assertions on the trends of buy to let buying at auctions:

• Repossessed Homes Go Under the American Hammer
• UK Properties Snapped Up By Opportunistic Investors
• The Big Repossession Sell Off
• House Price Crash Forum on Repossession Auctions, primarily posted to buy investors

Excuse the REDC tone, but it is a collection of articles I bookmarked while researching an article on first time buyers buying at auction.

Citywire said that ARLAs other finding, on the increased experience of investors confirms their view; that it was the reduction of 1 and 2 property owners that accounted for the average number of properties owned going up, Citywire says:

Experience levels among property investors have certainly grown with the average landlord having run a portfolio for 9.2 years up from 7.8 six months ago,’ says ARLA.

Landlords cannot possibly have gained 1.4 years experience in six months. The rise in experience in the market are exactly what would happen if the new novice investors who bought city centre flats at the top of the market in 2007 bailed out.

Again I think this is an oversimplified way of looking at it. Sure, the average experience of investors rising like that could indicate a decrease in the number of novices, but it could also indicate a rise in the number of experienced investors. How many buy-to-letters of old will have taken the opportunity to buy repossessed properties at such low prices and restart their land lording operations.

The rise in experience could also be because of the young breed of novice investor using their own marketing methods and not using letting agents.

Maybe one of those reasons explains the rise in experience or maybe a combination of several factors does, the simple fact is that you should not use the experience indicator to tell whether buy to letters are buying, and you shouldn't even try.

So, taking that out of the equation, the reason why the average number of properties owned by buy to let landlords increased is most likely because they were buying repossessed properties at auction. This is confirmed by the fact that the number has decreased more recently as the number of repossessed properties has been decreasing.

This does not mean buy to letters are buying again in the sense that ARLA meant it, but it does not mean that they categorically aren't either, as Citywire would have you believe, so the answer over who to believe is; neither of them.

Buy to Let Investment Back in Business? it was Never out of Business!

Buy to let is back in business according to the CEO of lettings portal Upad.co.uk. But in the UK, where property is put on such a pedestal, the truth is it never really went out of business.

James Davis founder of Upad has said that now the UK housing market is showing clear signs of bottoming, buy-to-let investors should seize the opportunity to pick up property at heavily discounted prices.

Davis also pointed out that although prices have fallen, first time buyers are still finding it difficult to obtain a decent mortgage -- especially if they don't have a substantial deposit, which many don't. This is leaving many people forced to continue renting. Many more forced renters include those who sold property during the boom to rent for a few months, and have been unable to find a suitable property, or unwilling to buy in a down market.

However, buy-to-let investors face a lot of difficulties in the market that has been left standing after the crunch; perhaps the biggest being lenders' unwillingness to consider the rental income from previous investments as a person's income.

That said: this is likely just another way to restrict lending at a time when banks are trying to repair their balance sheets. So, investors with immaculate credit history and a chunk of equity in their properties should still be able to secure the finance they need.

In all honesty though, buy to let never really went out of business in Britain. We Brits have always put heavy value in property as an investment.

Though there hasn't been a lot of spare cash about, and lending has been restricted, there have still been literally thousands of people at auctions buying distressed and repossessed property to let -- and not all experienced investors. In fact the reports said that it was mainly new investors, having borrowed from the bank of mum and dad to launch their career as a buy to let landlord.

This article in the Guardian shows the level of investors at the first REDC auction in the UK in April, and this article on Write About Property shows that in January most properties being sold in the UK were being sold to new investors. In fact, the slowing pool of distressed and repossessed property for sale as the market recovers, coupled with continually restricted lending, may actually slow buy to let investment.

UK House Prices, interest from overseas buyers Growing

The Government released its latest figures on UK house prices yesterday, and it was far from containing any surprises.

According to the index, which is compiled by the Department for Communities and Local Government based on mortgage approvals, UK house prices were an average 0.5% higher in August than July. However last August prices were still over 5% higher.
The tri-monthly measure, widely regarded as the less volatile and therefore more accurate recorded a rise of 2.7%, compared to a fall of 1.7% in the three months ending May.

However the tri-monthly measure also recorded growth in the three months ending June and the three months ending July, of 2.6% and 2.1% respectively. For the sake of completeness the monthly rises for June and July were 1.6% and 1.4% respectively.

According to the dealing manager of Moneycorp's private division David Kerns, "housing data is currently showing that UK housing is certainly past its worst," after 5 months of growth, he told Write About Property in an interview. This is just one of the factors that will eventually get behind a recovery in Sterling's value.

As it is at the moment, Sterling's weakness could be a factor in the current house prices rises, because it makes British property very appealing to overseas investors.

Overseas buyers have been very active in the UK market over the past few months, because adding the price drops to the falling price of Sterling has made prime properties up to 50% cheaper than at peak. However, because foreign buyers are tending to buy in cash, then they are not influencing the indices of Halifax,Nationwide or DCLG, all of which are based on mortgage data.

Looks Like I Was Wrong on Second Dip - Or Was I?

Some pretty important things have happened in the microcosmic world of UK house prices since my last post. Well, they aren't actually important in the traditional sense of the world but they are important to this blog's stream.

Two indices have come out for a start, both Halifax and Financial Times both said that UK house prices had risen in September; Halifax by 1.6% on the month, and FT by 0.6%. This creates the impression that the Land Registry fall in August was a blip, that UK house prices are continuing to rise and that this will be shown by the Land Registry index again in September.

It is easy for me to argue with the Halifax index; they have commercial interests, benefit from positive sentiment and their index is based on mortgage approvals, not sale prices. I can't however argue with the FT index; it is compiled by the impartial Acadametrics, and based on sales registered at the Land Registry, which are collected and compiled almost in real time.

However, still nothing has changed; transactions are still shockingly low and it is only the fact that supply is lower keeping up prices. Whether it is next month or next year, there will be a second dip in UK house prices - mark my words.

UK House Prices: The Second Dip Begins

Well, the second dip that UK housing market bears (pessimists, people who believe we are in a bear market amid a downturn), including the writers on this blog, have been warning about is here.

The month of August left the bulls (those who believe we are in a bull market, heading upwards, optimists) with nothing to cling to; both the indicators that had turned positive and stirred optimism turned back negative in August.

The Land Registy index -- the most trusted index of house prices in England and Wales -- said that the average UK house price fell by 0.1% in August. Not much of a fall, but coupled with a fall in mortgage approvals in the same month it is a clear sign that the dead cat has stopped bouncing as far as I'm concerned.

The Bank of England revealed that mortgage approvals fell from 52,404 in July, to 52,317 in August. Again, not much of a fall but the BOE itself acknowledged that the current level of mortgage approvals is "well below a level consistent with rising house prices".

To be fair, when prices first started rising after months of falls I said it was an anomaly, a one-off inexplicable rise because of the shortage of data available, so I suppose I should say that this could be a one-off fall in the same vain.

However, when I said that about the rises it was because the other data didn't support house price rises, so now, because the data still indicates a market where prices are falling, and because prices never stopped falling in most of the country, I believe that this fall represents the first of many.

Government Figures on UK House Prices for July Interesting in Places

Well, the government (Department for Communities and local Government) released its figures on UK house prices for July yesterday, and unsurprisingly they show price rises across the board, except for on the annual measure, for which the rate of decline continued to slow.

What was surprising however, was the fact that the DCLG index now has the rate of annual decline at slower than the Halifax, though it is still faster than that of Nationwide.

According to the DCLG index for July, UK house prices rose 1.4% on the month (Halifax 1.1%, Nationwide 1.3%).

The DCLG's tri-monthly measure turned positive for the first time, with a growth of 2.1% in the three months ending July, compared to a fall of 2.8% in the previous quarter. Both Halifax and Nationwide recorded tri-monthly growth in the three months ending July (see links above). The tri-monthly measure is widely recognised as the more accurate indicator of short term trends because it is less volatile.

Now, annual measurements: in July 2009 UK house prices were 8.3% lower than in July 2008 according to the DCLG, 12.1% lower according to the Halifax and 6.2% lower according to the Nationwide.

Of course the Nationwide and Halifax have now both released their figures for August, and both showed prices continuing to rise on the monthly and tri-monthly basis, and the annual rate of decline continuing to slow. Interestingly the Halifax figures still show the annual decline at faster than the DCLG, at 10.1%, though they show a £112 increase for 2009 so far. According to Nationwide house prices were down just over 2% on an annual basis in August.

Outlook on UK House Prices Depends on Who You Listen To

There are many conflicting reports on the future of UK house prices at the moment.

This week Halifax issued their August figures showing a 1% monthly rise, and Knight Frank put the UK property market in position 13 in its quarterly league table, with prices having risen 1.1% in the second quarter. According to Knight Frank global house prices (including the UK) have started to stabilise, and there are to be very few price falls from here on out.

Yet in the same week estate agency Jones Lang La Salle inc issued a research report on how UK house prices are likely to fall 7% next year, as rising unemployment, combines with curbed lending and a struggling economy to reverse the "unsustainable and unjustified" gains of this year.

What's the truth here? Well, I'm afraid I am with Jones Lang La Salle.

I have said it before and I'll say it again: without normalised lending we can't have the kind of transaction volumes that we need to help house prices find a true and solid bottom, and without a better employment outlook it is unlikely there will be sufficient numbers of people even looking for mortgages to do so.

As my regular readers will know: I believe the market will bottom in mid-2011 when the international economic recovery is well under way allowing the banks to de-restrict lending somewhat.

The difference perhaps between the vastly varied outlooks is that Knight Frank is a UK based estate agency, and La Salle is a US based agency.

Positive News on Housing Market Continues, I'm Still Not Budging

So, UK house prices have bottomed. I know it's sudden but we can't argue with a panel of 30 economists from banks and investment consultancies now can we?

That's right, yesterday Reuters revealed the results of surveying one such panel, and the consensus was that the UK housing market has bottomed, that house prices will end this year not much lower than they started it, before rising .5% next year and 2.5% the following year.

And then today, the Halifax finally revealed its figures on UK house prices for August, showing a 0.8% rise, the second monthly rise in a row. The quarterly growth, regarded as the more accurate short-term indicator now stands at 1.7%.
There is a lot of positivity in the housing market at the moment, but there are also a lot of people who are saying that this is the calm before the storm, that a second fall is inevitable.

I unfortunately am in the latter camp. Rising unemployment and restrictions in the mortgage market will keep a lid on transaction volumes for the foreseeable future, and without increased transactions it will always be the supply shortages falsely propping up prices.

Of course the low interest rate and unemployment are like a guillotine above us, if interest rates go up, it could leave more people unable to pay their mortgages as does unemployment, and more repossession properties flooding onto the market would almost certainly tip the supply balance and send prices back into freefall.

In short: I think it is far too early to think we have seen the last of this house price correction. But it doesn't matter, I read an article yesterday that pointed out the obvious: house prices are falling across the property spectrum, so whether trading up or downsizing, by the time you save on the next property what you lose on the current one (or there abouts) you're in roughly the same boat.

Predicting the Future of the UK Housing Market

I just read a great article on the Zungalow blog. Liam Bailey a prolific commentator on the UK housing market gave his prediction on exactly when the market will bottom.

According to Bailey, of all the obstacles to a housing market recovery, namely: economic recession and unemployment, restrictive mortgage lending, and unrealistic vendors, a recovery in the global economy holds the key to a UK housing market recovery.

Bailey said that: once the banks start making money from the increased consumer spending, deposits, profitable stock markets and investment in a global recovery, this will in turn lead to derestricted mortgage lending, and that in turn will generate enough buyer activity for sellers to realise that their price the key to their sale.

It makes a lot of sense if you think about it. Bailey said that the global recovery should be well under way, with UK unemployment falling again by Q3 of 2010, and that this will filter through to increased lending and demand for housing by Q2 of 2011. Thus, Bailey says the UK housing market will bottom between Q2 and Q3 of 2011, and house prices will grow briskly in the coming years.

I think it is all a little too simple. I mean I know it is just a forecast and Bailey is as entitled to his opinion as anyone, and to be honest my own prediction wouldn't be too far away from that if you put me on the spot.

The trouble is, with the world's economies all so inter-linked and dependent on each other, there are far too many variables involved for anyone to predict the path of this recession and housing market crash with any certainty. Hats off to Bailey for being brave enough to put it out there I suppose.

Nationwide UK House Price Index for August Hardly Surprising: More Rises = Bad News for Housing Market

The Nationwide building society, one of the UK's largest mortgage lenders has released its August data on UK house prices -- strange that they released it before the end of the month, usually its a few days after but there we go.

The Nationwide figures for August are largely unsurprising; UK house prices are up 1.6% on the month -- the fourth consecutive monthly increase -- up 3.3% on a tri-monthly basis, and now down just 2.7% on an annual basis.

What is surprising as you may have already seen Richard McKay point out on the Zungalow blog or his comments on Write About Property, is that the Nationwide report put the rising prices down to low interest rates.

As Richard said, yes low interest rates will almost certainly have been partially responsible for the minor increases we have seen in transaction levels this year. But said increased transactions would not have been enough to trigger the price increases of the last few months, were it not for the drastically low supply levels we are currently seeing in the UK housing market.

On a historical basis, as far back as 1993, if transaction volumes are this low, house prices are falling. The fact that they are rising is actually bad news for the housing market's future and here's why:

A: Vendors are still predominantly unrealistic about what their home will sell for. House prices rising is stopping this from being rectified, and the correction will not end until the gap between what the majority of vendors are willing to sell for, and what buyers are willing to pay closes. In short prices rising now, when vendors are still unrealistic is simply perpetuating the crash.

B: Homes still aren't affordable to the average first time buyer. The long-term average is house prices under 4 times the average salary. They are currently between 5 and 7 depending on who you listen to. Major crashes like this in house prices usually cause prices to go well below the long-term average, and it is unlikely that this crash will be any different. So again, house prices rising while homes are not affordable is perpetuating the crisis, and making another correction necessary.

Mouseprice.com Gets the Grand Prize for Stating the Obvious on UK House Prices

I have just read an article and felt I must put pen to paper to award it with the grand prize for stating the obvious.

The article in first-rung now surrounded a report by mouseprice.com stating that UK house prices may yet be affected by unemployment.

Firstly it said that unemployment will be the economic indicator that takes longest to turn around. That is not the bone of contention, because though it is obvious to me that businesses have wound themselves into a ball, with their knees under their chin to protect themselves from the recession, and it will take them quite a while before they feel confident enough to come back out to normal, let along consider expanding to the point where new staff become necessary. This is not obvious to everyone.

The bone of contention is the fact that is said unemployment could yet affect house prices. The fact is that unemployment has and is already affecting house prices. Transactions are still at record lows, and unemployment is at least in part to blame for that. Does everyone not know that it is only the fact that supply is at all time lows (and of the UK properties for sale most being unrealistically priced) that has halted the freefall of house prices.

So of course unemployment could still have a further impact on house prices, and it almost certainly will be one of the factors driving prices down if supply increases.

75% of Homeowners think UK House Price Falls Over in 2009 - But Are They?

75% of homeowners do not think house prices will fall any further in 2009 according to a survey ran by Rightmove. Miles Shipside said that this optimism is down to "a general feeling" that the housing market has bottomed.

I think it is more down to the type of website that Rightmove is. Yes, Rightmove has a massive share of the UK property sales market, and most properties sold throughout the UK, will be advertised on Rightmove.

But we must not forget that Rightmove it is a property sales site, so the people who have taken the Rightmove survey are the people who have decided to sell their house, and therefore the people who have a certain degree of faith in the housing market and house prices. I think that is what has been reflected in the results of the survey.

Another factor I can't ignore is the fact that Rightmove does not allow private sellers to advertise their properties on the site, it is 100% estate agent. So you have to consider that any survey conducted by Rightmove may be influenced by estate agents who wish to create a positive market.

UK Housing Market Stares into the Abyss

Mortgages for house purchases were 23% higher in June than in May, the Council for Mortgage Lenders has revealed. This comes after all the major indices have shown several monthly price increases this year, bringing the annual fall to 12.1% with around a 1% fall in prices so far this year.

Currently, the upward pressure on house prices is caused by a slight increase in activity -- as low interest rates, and positive economic data bring a bit of confidence back into the market -- combined with a drastic shortage of saleable (realistically priced) housing stock.

Because the mortgage market is still on its knees and unemployment rising, activity is unlikely to reach the levels we see during a balanced housing market, and so we are left vulnerable to supply increasing quicker than activity and sending prices back into freefall.

None the less the positive news is enough to make some people believe that house prices will grow over 2009, that is to say house prices will be higher in January 2009 than they were in January 2008, and some people (including the Centre for Economics and Business Research) believe this will be the bottom of the market.

This is a logical thesis, during a correction like this one the rate of annual decline accelerates by the month, before beginning to slow as activity increases. When annually prices start to grow again then this is usually the bottom of the market.
However, there is nothing normal about this correction, because it has been triggered by the almost complete collapse of the developed world's banking system.

Mark my words, there will be a second fall in UK house prices, how long prices grow for, and whether there is a growth overall in 2009 merely determines how severe the second correction will be.