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Homebuilding in Britain has fallen to a 84-year low as falling house prices and dwindling numbers of buyers hit construction firms, a new report shows.

Some 135,000 private houses were started this year, down from 203,500 last year, figures from the Construction Products Association and Ernst & Young show.

It is the lowest number of housing starts during peace time since 1924, when housebuilders started work on 87,000 properties.

There are fears that housebuilding could grind to a virtual halt in the new year as more housebuilders stop work. Several large construction groups have postponed starting new projects as they try to drum up buyers for existing completed homes.

Article continues at Times Online

Labels: Construction, Housebuilders, uk housing

The Bank of England governor, Mervyn King, yesterday warned the government not to try to artificially support the mortgage market as that could further prolong the year-long credit crunch. He also held out little immediate prospect of interest rate cuts to boost the flagging economy.

Appearing before parliament's cross-party Treasury committee, King said the Bank did not have the resources to underpin lending across the entire financial system and thereby boost mortgage lending.

The Treasury has commissioned Sir James Crosby to report on steps that could be taken to encourage more mortgage lending which could help prevent house prices from tumbling further.

King said there were only two choices for the government - either to let the Bank's special liquidity scheme (SLS) help the financial system gradually return to health, or to fund the mortgage market through a state-run bank.

Article continues at Guardian Online.

Labels: Bank of England, Mervyn King, Mortgage rates, property prices, uk housing

Mortgage rates have fallen back to the level they were before the credit crisis sent the price of home loans soaring last year.

The average interest rate on a two-year fixed-rate mortgage - the most popular deal taken out by home owners - has dropped from a peak of 7.08 per cent at the beginning of July to 6.39 per cent, according to Moneyfacts.co.uk, the financial website.

Two-year rates have not been this low since July 2007, before Northern Rock was forced to borrow £26 billion from the Bank of England and the phrase "credit crunch" entered everyday use.

The figures confirm that while the economy and the housing market continue to slide downwards, the worst seems to be over in the mortgage market.

It follows two months of steady rate-cutting from the UK's leading banks.

Read more at Telegraph Online

Labels: Bank of England, credit crunch, Mortgage lending, Mortgage rates, property prices, uk housing, uk mortgage market

A UK recession could leave up to 1.3 million households in negative equity, analysts predicted yesterday. House prices will fall by 25-35 per cent from peak to trough, compared with just 12 per cent from 1990 to 1995, the Bernstein analysts said. In the "recession case" of a 35 per cent drop, 1.3 million households, or nearly 20 per cent of mortgages, would be in negative equity and banks would lose £38bn over several years, they added.

A slowdown that sees growth of 0.5 per cent next year would result in 400,000 households suffering negative equity. The effect of the far bigger than expected fall in house prices would be offset by lower loan-to-value ratios, less activity near the peak of the market, and higher repayment rates than in the last crash.

On Thursday, Halifax's parent HBOS reported property prices down 12.7 per cent in August from a year earlier. Bernstein said the UK housing market now had strong downward momentum, with mortgage approvals collapsing, estate agents unable to shift stock and industry sentiment gloomy. "With house prices down 12 per cent so far this year on the HBOS index, and significant further falls expected, the fear of negative equity is again stalking the land," the analysts wrote.

Read the full article at The Independent Online

Labels: global recession, Halifax, Housing market, HSBOS, property analysis, property prices, uk housing

Shares in housebuilders rose this morning ahead of the launch of a £1bn government plan to help homeowners. Gordon Brown is expected to unveil a package of measures today to revive the ailing housing market targeted at first-time buyers and vulnerable families.

Shares in Taylor Wimpey jumped 7.6%, up 4.25p at 60.25p in early trading. Barratt was up 5.5%, or 8.5p, at 164.5p while Persimmon climbed 3.9%, or 15p to 400.25p. Bovis Homes advanced 3.4%, or 15.5p, to 466.25p and Wolseley rose 7.5p to 468p, an increase of 1.6%, making it the second-biggest riser on the FTSE 100.

However, the FTSE 100 index was down 20.2 points at 5582.7 points, a fall of 0.36%. Energy groups and miners were among the big fallers. Shares in Tullow Oil fell 3.7%, or 29.5p, to 761.5p, the biggest faller on the FTSE 100, while Cairn Energy dropped 3.5%, or 97p, to £27.13.

Energy shares fell amid talk of profit-taking and as US crude dropped to $108.55 a barrel, its lowest level since mid-April, as worries receded over the impact of hurricane Gustav. "There's been a run up in the shares of late with strong earnings and now people are just cashing in," one trader told Reuters.

For more information visit Guardian Online

Labels: Barratt Developments, Bovis Homes, Gordon Brown, House market, Housebuilders, Persimmon, property development, property prices, property trends, Taylor Wimpey, uk housing, Wolseley

A leading group of property workers has called on the Government to kick start the housing market, as new figures showed that people selling their houses are being forced to cut almost 10 per cent off the asking price to secure a sale.

The Royal Institution of Chartered Surveyors (RICS), said that the Government’s attempts to drag the housing market out of the doldrums have been “limited”, and has made a number of suggestions to kick start activity.

The Government is tomorrow expected to announce a series of new measures to help struggling homeowners and first-time buyers.

Proposals are forecast to include improved support for people facing repossession and shared equity schemes for those trying to get on the property ladder.

Read more at Times Construction news

Labels: falling house prices, House market, House prices survey, Housing Minister, property prices, property trends, RCIS, uk housing

Crest Nicholson, the house-builder taken private last year by HBOS and Scottish tycoon Sir Tom Hunter, has conceded that it could breach its banking covenants if the housing market continues to deteriorate.

In Crest's first set of accounts since de-listing from the stock exchange, which it filed last week, the company warned that its financial structure was highly leveraged.

'Financial forecasts, which take account of current market conditions, do not show any breaches of financial covenants,' Crest said.

'However, if the 2008 housing market proves to be significantly weaker than we expect, there is a risk that financial covenants will be breached. Contingency plans are in place to mitigate this risk.'

Although there has been speculation about the group's financial health, it is the first time it has formally stated there is a chance this could happen. The accounts also show the house-builder made a pre-tax loss of £10.1m in the 12 months to 31 October 2007. 'Finance expenses', including interest on loans, totalled £72.5m over the period.

But trading had remained strong last year, the company stated. Underlying pre-tax profits were £102.8m, up from £100m in 2006, and total housing completions rose by 11 per cent to 2,225. The average sale price was just under £198,000, down fractionally from the average of £199,000 recorded in 2006.

Article continues at Guardian Property

Labels: Crest Nicholson, Housebuilders, Housing market, HSBOS, property development, Sir Tom Hunter, Taylor Wimpey, uk housing

Property bargains are increasing daily as sellers cut their asking prices in an attempt to make wary buyers commit in a slow summer market – but the mortgage drought and a loss of confidence among buyers means that few are taking advantage.

Sellers are asking £5,403 less for their homes than a month ago, with the typical price of a house down, on average, by 2.3 per cent at £229,816, according to a survey on Rightmove, the property search website.

In London, where the market has deteriorated sharply, asking prices have dropped by £21,096, or 5.3 per cent, to an average £379,162 in a month. Prices are down 3.8 per cent in the capital over the past year, compared with 4.8 per cent across the UK.

Despite such reductions, properties appear to be more difficult to sell, with Rightmove-registered agents reporting 78 unsold properties on their books, up from 77 last month. Miles Shipside, a director of Rightmove, said: “Buyers are currently benefiting from the best choice in years.”

Rightmove blames the mortgage drought for the state of the market, adding that transactions are in danger of dropping to levels last seen in 1959.

Despite fears that there could be a surge of properties put on the market as the slumping economy and soaring prices forced more borrowers into difficulties with their mortgages and pushed asking prices even lower, Rightmove says that there is no sign yet of a rush of homes for sale. New listings are 106,000, about 25 per cent lower than typically seen at this time of year. Mr Shipside said: “Those who do not have to sell are holding off.”

Read the full article at Times Online.

Labels: falling house prices, findaproperty, House market, property analysis, property prices, Rightmove, uk housing

In the past decade, home buyers have paid the government £32bn in stamp duty, with the annual amount rising dramatically as the housing market soared and increasing numbers of properties were caught by the tax.

According to the Halifax, just over a quarter of the privately-owned homes in the UK, more than 5.5m, were valued above £250,000 at the end of last year, the threshold at which stamp duty is levied at 3% of the property's value. In 2002, there were just 1.8m properties valued above £250,000.

A family buying the average-priced home in Greater London, currently £291,500, would pay the Treasury £8,745 in tax.

The government has enjoyed a large increase in revenue from stamp duty since Labour came to power in 1997. That year, the yield from residential properties was just £675m. Increases in the rate of tax combined with the impact of rising house prices meant the Treasury collected £6.4bn from stamp duty on homes last year. However, that figure will fall dramatically this year as the housing market has hit a wall and the number of transactions has plummeted to record lows.

Under the current regime, there are four stamp duty bands. Buyers of homes worth less than £125,000 pay nothing. Between £125,000 and £250,000, buyers pay 1% on the price of the home; between £250,000 and £500,000, buyers pay 3% of the price; and above £500,000, they pay 4%. There were 1m properties in the UK valued at more than £500,000 at the end of last year, a threefold increase in the past five years, according to the Halifax.

Consumer groups, mortgage lenders and house builders have lobbied for the lifting of the current thresholds to keep them in line with rising house prices, and those calls have become louder as the housing market has been paralysed by the credit crunch. First-time buyers are under particular pressure as the banks' lending criteria have become tougher and they are being forced to find much larger deposits.

If the higher stamp duty thresholds of £250,000 and £500,000 had increased in line with house price inflation since July 1997 when they were introduced, they would now stand at £720,000 and £1.44m, the Halifax said.

Read more at Guardian Economics

Labels: Alistair Darling, Bank of England, credit crunch, Gordon Brown, Halifax, House Tax, Mortgage rates, negative equity crisis, property analysis, Stamp duty changes, uk housing

Britain is on course for a re-run of the negative equity crisis of the early 1990s, with one in seven UK homeowners facing the prospect of having a property worth less than their mortgage, the ratings agency Standard & Poor's said today.

The company predicted that house prices would tumble by a further 17% over the next year, prompting a rise from 70,000 to 1.7m households in negative equity - the same as at the depth of the housing-market meltdown of the early 1990s.

Andrew South, a credit analyst at S&P, said: "The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term".

House prices have been falling at their fastest rate on record in recent months, but the previous boom in property values means that only a fraction of Britain's home-owners - 0.6% - are currently in negative equity. The average UK mortgage is for 54% of the value of the home.

S&P warned, however, that for every further percentage point fall in house prices, a further 0.5%-1.5% of borrowers (between 60,000 and 180,000) could enter negative equity. Noting that the trough in the cycle would not be reached until 2009, S&P said: "At this point, we expect 1.7 million borrowers - around 14% - would be in negative equity."

The company said borrowers in the buy-to-let and sub-prime sectors were most at risk from negative equity. "A further 17% decline in house prices could put around 24% of noncomforming borrowers into negative equity, compared with only 13% of prime borrowers."

Read the full article at Guardian Property news

Labels: Mortgage rates, negative equity crisis, property prices, S and P, Standard and Poor, sub prime borrowing, uk housing, uk mortgage market

The housing market could define Gordon Brown's leadership more than any other area of policy. Tony Blair promised education would be his priority; Mr Brown's slogan was not quite "housing, housing, housing" (he preferred some clever-clever guff about "passions" and "priorities") but at the outset he promised 3m new homes by 2020, that environmentally friendly eco-towns would be built, and that the planning system would be streamlined so all this could happen. No doubt about it: he would be the housing prime minister.

All those hopes are now so much dust, thanks to the credit crunch. Housebuilders are either going bust or downing tools, while mortgage lenders are barely lending. Mortgage approvals are down 70% from this time a year ago, according to a report yesterday - which will surely be reflected in sliding house prices over the next few months.

This is bad news for the housing prime minister; but it is terrible for the economy, whose strength he has boasted about so much. That the home-owning British feel wealthier when their houses go up in value may be regrettable, but it is also true. The housing downturn can already be felt on the high street - as it worsens it will keep sending shockwaves through the UK's lopsided economy. A drop in house prices and a calmer mortgage market are vital, as even ministers agree; but a headlong fall in prices and a near-shutdown of the mortgage supply naturally worries policymakers.

The government's interim report on the mortgage industry, published yesterday, is part of Mr Brown's attempt to thaw out the housing market. No other party has tried to tackle the problems in the mortgage market head on. The Lib Dems' Vince Cable is the patron saint of financial re-regulation, but even his policies are a bit thin here. Yet on any list of pressing problems that politicians need to think about, the mortgage drought must rank very high.

Article continues at Guardian Comment is Free

Labels: Gordon Brown, Housing Minister, housing policies, property analysis, property prices, property trends, uk housing, uk mortgage market, US house prices, Vince Cable

Now that school is out and the sun is making an overdue appearance, a property buyer’s thoughts inevitably turn to holiday homes. And, whether because of rising air fares, carbon-footprint dilemmas or the strong euro, Britain is looking increasingly attractive. But where should you buy - and, given all the doom and gloom out there, is now the time to snap up a bargain?

The prices of large homes in traditional honeypots such as Salcombe, in south Devon, West Wittering, in West Sussex, and Southwold, in Suffolk, appear to be remaining steady despite these straitened times, because buyers don’t want to miss the chance to purchase property with direct sea access and the best views. “In these hot spots, houses don’t come up often, so they are holding their own,” says Michael Bedford, of Bedfords estate agency in Aldeburgh, Suffolk.

“People are increasingly looking to holiday in England – they say to themselves, ‘Petrol’s gone up 50p, so let’s buy a £500,000 house.’ ” Elsewhere, however, it is possible to pick up a bargain, as overstretched second-homers find their beachside pad is one luxury too many.

“At Garrington South West, we’ve seen an increase in supply in secondary holiday areas,” says Phil Spencer, the property-search expert and Sunday Times columnist. “While Salcombe is holding up well, more people are releasing property in cheaper locations nearby, such as Dart-mouth, that they perhaps shouldn’t have bought in the first place.”

Liam Bailey, head of residential research at Knight Frank, agrees: “Many of the prestige properties in top locations might not come on the market in two or three generations. Prices haven’t collapsed, as some predicted, but look to negotiate a bargain if you’re breaking into the market. Houses are likely to be cheaper than last year and cheaper than in two years’ time.”

When searching for your summer pad, make sure you aren’t buying it only for the roses around the door, Spencer advises. “Don’t buy a house just because it’s pretty. Summer holiday homes are all about ease. Make sure the house is within walking distance of shops and the beach, has access to parking and has a good view.”

Read the full article at Times Online

Labels: holiday homes, Knight Frank, property analysis, property prices, second homes, UK coastal property guide, uk housing

Housebuilders ploughed on with their growth plans at the top of the market and now they're paying the price, finds Mark Leftly.

Once again, Tony Pidgley, the Barnardo's boy turned multimillionaire residential builder, is set to make a killing out of a property downturn. While his peers at Barratt and Taylor Wimpey were getting ready to announce mass redundancies and desperately trying to shore up their balance sheets in the worst housing crisis since the early 1990s, the 60-year-old chief executive of Berkeley announced two weeks ago that the company would spend £350m on cheap land.

Berkeley board members had noted a 25 per cent fall in land prices, so decided to go buying in a move that in effect calls the bottom of the market. Pidgley made the same call in 1991, making him something of a legend in the close-knit world of housebuilding. "By and large the reaction from our shareholders has been first class," says Mr Pidgley, with the biggest of smiles. "The vast majority of them trust the management."

Investors in housebuilding's "big three" – Taylor Wimpey, Barratt Developments and Persimmon – have been far less trusting: their share prices have all lost more than 80 per cent of their value in the past year.

For Mr Pidgley, the game is simple: a decade of uninterrupted growth should have meant that builders had enough cash stashed away for the fall that was bound to occur in such a cyclical industry.

"The City pushes for more and more – turnover growth, profit growth – and it rewards managers if they achieve that," sighs a source. "But the industry is not scaleable; housebuilding needs discipline."

Mark Clare and Peter Redfern, the chief executives of Barratt and Taylor Wimpey respectively, believed that the industry was scaleable – that it was ripe for consolidation. Last year Barratt bought rival Wilson Bowden for £2.2bn, while Taylor Woodrow and Wimpey merged, creating two FTSE 100 forces.

Former directors at Barratt were not convinced by the strategy; the company hadn't made a big acquisition in two decades. Last week their doubts only grew stronger as the company, burdened by £1.7bn of debt, announced 1,000 people would go from its 6,700-strong workforce.

Leslie Kent, a director and analyst at broker FinnCap, says Barratt's decision to buy Wilson Bowden at the top of the market has caused its current plight. "It paid 22 quid for every 11 quid of assets," he points out.

The falling values of those assets and the decline in house sales meant Barratt was in serious danger of breaching its banking covenants. However, a trading statement this week is expected to confirm that Mr Clare has managed to find £400m of fresh debt to help finance repayment of the Wilson Bowden acquisition. He should also announce that he has negotiated a relaxation of Barratt's covenants.

Taylor Wimpey's problems run even deeper. On Monday the board confirmed speculation it had changed the terms of its credit facility – on the condition it raised equity. By Wednesday this capital raising was in chaos when a trading statement reported that negotiations with investors had not led to "a satisfactory transaction". If the situation is not resolved, or house prices don't rise dramatically, Taylor Wimpey will next year find itself in breach of "one or more" of its banking covenants, the statement added.

"The Taylor Wimpey stuff is really scary," says a property banker who is also a veteran of the 1990s crash.

Mr Kent at FinnCap adds that Taylor Wimpey's woes have been exacerbated by the way in which the merger was completed. Under accounting rules, one party had to be viewed as the acquirer and Taylor Woodrow was accorded that honour, with the result that Wimpey's land bank was valued at 2007 prices. As this was the peak of the market, that value have since fallen heavily, hurting the balance sheet.

"Builders that haven't made big acquisitions will find their land revaluations will not be in the same order of magnitude," says Mr Kent, before hinting that this won't necessarily protect their share prices. "The stock market takes no prisoners; all housebuilders are tarred with the same brush."

Article continues at The Independent

Labels: Barratt Developments, Berkeley Group, FinnCap, House market, Housebuilders, property analysis, property prices, Taylor Wimpey, Taylor Woodrow, Tony Pigley, uk housing

The UK Government must overhaul stamp duty land tax radically to create a fairer system for consumers, says RICS (Royal Institution of Chartered Surveyors). Proposing a system that would benefit 99 percent of home buyers, RICS called on the Government to find a way of implementing the policy, which will provide a boost to the economy and the faltering housing market.

RICS proposes the abolition of the existing slab tax system*, replacing it with a two tier marginal tax system. No one will pay stamp duty on the first £150,000 of a house price. Above this value a 2.5 percent marginal rate would be charged on every pound up to £250,000, with a 5 percent marginal rate applying to every pound thereafter.

Everyone purchasing a home under £1 million will pay less stamp duty, benefiting 99 percent of all prospective homeowners. Currently, a buyer looking to purchase a £270,000 property will pay £8,100 in stamp duty. Under the RICS proposal they will now pay only £3,500, a saving of £4,600 making the property market more accessible, especially for those first time buyers struggling to pull together the funds needed to get on the property ladder.

With transaction levels plummeting first time buyers have been hardest hit seeing their home ownership dreams evaporate. With long-term house price rises outstripping wage inflation, food and fuel bills rising, and tighter lending criteria being applied by mortgage companies, the residential property market is becoming more inaccessible.

RICS Director of External Affairs, Gillian Charlesworth said:

“After having mortgages pulled from beneath their feet from lenders facing the full brunt of the credit crunch, consumers are looking to the Government for help. HM Treasury needs to find a way to implement this policy or, if they can’t do this imminently, to introduce a stamp duty holiday that will get the market moving.”


Initially the RICS proposal will reduce Government revenue by up to 24 percent, but given the 40 percent rise in stamp duty revenue in recent years (up from £4.6 billion in 2005/06 to £6.45 billion in 2006/07) there is room for the Government to manoeuvre.

The RICS proposal for Stamp duty land tax

• Slab tax system reformed to a two tier marginal tax system that reduces barriers to vast majority of homebuyers moving onto or through the market
• No-one pays SDLT on first £150,000 of home purchase
• 2.5 percent marginal rate on the value of homes between £150,000 and £250,000
• 5 percent marginal rate on the value of homes over £250,000
• The thresholds for stamp duty rates should then be annually indexed, reflecting house price growth and inflation
• Everyone purchasing a home up to £1million would pay less stamp duty
• Purchasers of the most expensive homes would pay more stamp duty. However, the increases are relatively minimal – the SDLT bill on a £1.5m home would only be 8% higher in total (£5,000 extra).
• Government would initially lose up to 24 percent of revenue.

Read more at the RICS newsroom

Labels: House market, land tax, property analysis, RCIS, Stamp duty changes, uk housing

The former BBC economics editor Evan Davis said yesterday that journalists could have done more to warn the public about the credit crunch that triggered the current housing price crash and general financial turmoil.

Davis, now a presenter on BBC Radio 4's Today, said the media may have helped to drive up the market by over-reporting statistics on rising house prices in the runup to the credit crunch crisis.

"I do ask whether we did our best to warn people of impending problems during the upswing of the [economic] cycle," Davis said at the Radio Festival in Glasgow yesterday.

"My line is, 'My God, we tried', but when everything is going well people don't want to hear it. We suffered from giving warnings a bit too early in the whole cycle.

"If, like me, you were saying in 2002-03, 'Remember folks, house prices can go down as well as up', by 2005 that warning was beginning to lose a bit of credibility," he added.

"We did warn them but didn't warn sufficiently loudly or clearly, and might have warned a little too early."

Davis, who was interviewed by his BBC colleague Jeremy Vine in Glasgow, said the media may also have helped inflate the market by reporting on every new house price survey - even when several of them were coming out in the same week.

"There was a period when online - not just online and not just the BBC - when house price stories were very interesting," he added.

"If you report the same thing five times then it sounds like they are going up even more. We in the end drive these things up just as the media did in the dotcom boom."

Read more in Guardian Housing news

Labels: Evan Davis, House market, property analysis, property boom, property prices, uk housing

The scale of the problems facing the building industry was underlined yesterday when new figures showed British construction activity fell at its fastest rate in 11 years in June.

The Chartered Institute of Purchasing and Supply's construction PMI index fell for the fourth straight month to 38.8 from 43.9 in May - the weakest reading since the survey began in 1997. The housing sub-index was also the lowest ever, falling to 25.6 in June from 32.7. A score below 50 indicates a contraction.

"Housing bore the brunt of the credit crunch fallout, reflecting the steep decline in new housebuilding," said Roy Ayliffe of CIPS.

Housing minister Caroline Flint, who will publish a package of rescue measures this month, is trying to salvage the government's commitment to build 3m homes by 2020.

She said reforms would allow the Housing Corporation to pay 80% upfront to developers, rather than the current 50%, before work starts on housing projects. This would enable the corporation - a government agency overseeing social housing projects - to increase the pace of approvals and deliver much-needed affordable housing while supporting developers.

She said a national clearing house was being set up so housebuilders could approach the corporation with proposals to sell their unsold stock for affordable housing. The government has committed £200m for the purchase of unsold stock from housebuilders, which could then be used for social or affordable housing. The clearing house would give developers an indication of their chances of the social housing sector buying the unbuilt property.

She also said a further £270m from existing budgets would allow the corporation to provide an extra 3,800 homes for social rent and 1,500 shared ownership homes over the next three years.

Flint hopes the measures will prepare the industry for an upturn in a year or two year's time, as well as enabling councils to use their resources to keep the housebuilding programme going. The government's advisers - the National Housing and Planning Advice Unit - warned at its annual conference that even if house prices fell by 5% to 10%, there would still be an affordability crisis.

The government's targets for housebuilding have been fiercely criticised by regional assemblies for their lack of realism. For example, 49,700 new homes a year are proposed for the south-east compared with 28,900 planned.

But Flint said: "There is an overwhelming case for building more housing and we must remain as ambitious as possible. But ... we have to acknowledge not only the difficulties faced by individuals and families, but by housebuilders too."

A spokesperson for Shelter said: "This package gives the building industry a much needed kick-start."

Read more at Guardian Business

Labels: Housebuilders, property analysis, property development, property prices, Residential property, uk housing

Barratt Developments has won the fiercely contested takeover battle for its smaller rival Wilson Bowden with a £2.2bn agreed bid that will create the UK's biggest homebuilder.

The deal, a record for the sector, will mean a windfall of about £700m in cash and shares for Wilson Bowden's chairman and co-founder David Wilson and his family, who together own about 37% of the company.

The auction process was sparked by Mr Wilson's announcement in July that he was reviewing his family's stake. The combined group will have a 12% market share, ahead of Persimmon, and the deal is likely to catapult it into the FTSE 100.

Barratt beat stiff competition from other bidders, including a consortium led by the Scottish billionaire Sir Tom Hunter, which is thought to have been backed by the private equity arm of HBOS. George Wimpey, another builder, also made it to the final stages of the auction.

Barratt will pay 950p in cash and 1.0647 new Barratt shares for each Wilson Bowden share, valuing Wilson Bowden shares at £22.45 each.

Mark Clare, who took over as Barratt's chief executive in October, described the acquisition as "outstanding". He said: "It creates a powerhouse for organic growth going forward. This company will lead the sector."

Evolution Securities analyst Simon Brown said: "This is a coup for Mark Clare ... who has an ambition to drive Barratt to the forefront of UK housing, and with this deal he will succeed."

Barratt has secured irrevocable acceptances from investors holding 37.7% of the shares - Mr Wilson and his family, and Wilson Bowden's directors - and any counter-offer would have to be 10% higher than Barratt's agreed bid. Wilson Bowden shares fell 38p to £22.75 on news of the agreed bid.

The acquisition gives Barratt the David Wilson luxury homes brand, with an average sale price of £203,000, and while Barratt mainly operates in the north and south of England, Wilson Bowden focuses on the Midlands. Barratt has pencilled in synergies of at least £45m from removing overlap between the two businesses and increased purchasing power, while it estimates integrating the two companies will lead to one-off costs of £35m.

Mr Clare said there will "inevitably" be some job losses, but he refused to give details. He praised Wilson Bowden's management but said Barratt had not decided yet who would stay on. The two companies employ a total of 7,500 people.

Original story from Guardian Business.

Labels: Barratt Developments, Geroge Wimpey, Housing market, property prices, uk housing, Wilson Bowden

The stream of bad news coming out of the housing market has grown into a torrent in recent weeks, with stories of falling house prices, withdrawn mortgage rates and warnings about payment shocks.

This week, even Prime Minister Gordon Brown felt he had to defend the state of the UK's housing market.

Halifax, the country's largest mortgage lender, announced that house prices fell by 2.5 per cent between February and March, which prompted the PM to concede that "there are difficulties in the housing market" but that a 2.5 per cent drop "is containable".

To help you separate fact from fiction, we reveal the truth behind the assumptions that could cost you money in a falling market.

All the best mortgage deals have vanished

Nationwide recently announced it was restricting its best rates to people with more than 20 per cent deposit but it is not true to say that there are no competitive deals available.

"For borrowers with either a large deposit or a good amount of equity in their home there are still competitive deals available," says Denise Harvey, a mortgage analyst with independent financial comparison service Moneyfacts

West Bromwich Building Society is currently offering 4.99 per cent fixed for two years, for loans up to 75 per cent of a property's value, although there is an arrangement fee of £1,999 to contend with. And Abbey is offering a one-year discounted variable rate of 5.24 per cent with a maximum loan to value of 75 per cent and a fee of £499.

And even for borrowers with less equity in their homes there are still some good deals available. For those with a 5 per cent deposit there are competitive deals available. The Cheshire Building Society is offering a three-year fixed rate of 5.49 per cent, with a fee of £899.

One thing that has changed, however, is the speed with which these rates are being withdrawn and to take advantage of the best rates borrowers have to be prepared to move quickly.

"If borrowers are looking to re-mortgage or move they should be in as good a position as possible. When they are in a position to submit an application they should have everything more or less 100 per cent perfect," says Harvey.

Don't buy now

For first-time buyers struggling to get on the housing ladder falling house prices are very welcome. However, unless prices start to fall at a consistently fast rate the decision to wait could be a false economy, warns Melanie Bien, of mortgage broker Savills Private Finance.

She says that unless you are living with parents, the amount that a prospective buyer pays out in rent, particularly in parts of the South-east, can offset any decrease in the purchase price of a house.

Someone paying £800-a-month rent, for example, would pay an extra £4,000 by delaying a purchase for five months.

"While you would have been paying a mortgage if you had bought instead of renting, you will still want to make sure you end up in front once the difference is deducted from the potential fall in property values," adds Bien. "First-time buyers would be better off making their decision based on affordability and finding a suitable property."

Andy Pratt, chief operating officer of mortgage broker Alexander Hall, says prospective buyers should talk to a mortgage broker and work out how their rent compares with the cost of buying. Buyers should also consider that buying a home is a long-term commitment and not a short-term speculation on house prices.

"Unless you believe house prices are going to correct by 20 per cent or more, it is a long-term investment and people should be out there looking. It is a buyers' market and there are some bargains to be picked up," says Pratt.

No deposit – no mortgage

Mortgage lenders have been keen to move out of higher risk areas of lending and, as many first time buyers are now finding, high loan to value mortgages are one of the areas they are avoiding.

First to go were those deals offering more than 100 per cent of a property's value, as a combination of a mortgage and personal loan, and the last two weeks have seen an increasing number of lenders move to withdraw loans offering up to 100 per cent of a property's value.

"In essence, all the 100 per cents have disappeared and there are fewer lenders offering 95 per cent. So there are some mortgages available but their criteria for 90 per cent or higher are far tighter than they were before," says Pratt.

To get around this, he suggests speaking to family to try to raise the deposit. "Be prepared to consider parents and family for deposits or look at finding some other funding, such as savings they have made for a rainy day, and use as much as they can for a deposit," Pratt adds.

Buy-to-let landlords are fleeing the market

Many commentators have predicted a deluge of buy-to-let property coming back on the market as landlords try to exit the market, encouraged by a combination of low rental yield, falling house prices and a change to the capital gains tax (CGT) rules – which means many owners of second homes will pay only 18 per cent instead of 40 per cent CGT on the profits of a sale.

Alexander Hall's Pratt says long term professional landlords are in the market for the long term and are not put off by market jitters. But part-time landlords, with only one or two properties, will be looking at the exit.

"The dynamics have fundamentally changed. A large proportion of those will consider selling and looking at other investments," says Pratt.

However, while the tax changes will encourage some "profit taking", demand for rental property is still high and the majority of landlords are in it for the long haul, adds Bien "Most landlords see property as a viable alternative to a pension, as a way of saving for retirement, so regard it as a long-term investment," she says.

Is there going to be a house price crash?

Prices are certainly coming down. The 2.5 per cent drop reported by the Halifax is the biggest single drop in house prices since the price crash of 1992.

But this is not an exact picture, as prices are still 1 per cent higher than they were last year and there are big regional variations. Prices in Greater London are up by a further 1.6 per cent this month, and in the East Midlands they are up by 2.2 per cent. But this is offset by some big falls, with prices in Wales and the West Midlands down almost 5 per cent.

Martin Ellis, chief economist at Halifax, says that a house price crash is unlikely. The crash of the early 1990s had a different economic profile with rapidly rising inflation and big increases in interest rates and unemployment.

"That's a long way from where we are at the moment," Mr Ellis says. "Yes, we're expecting to see the economy slow over the course of 2008, and that's likely to see some upward movement in unemployment but we don't expect this to be dramatic." His prediction is for "low, single-digit" house price falls this year.

But others estimates are not so optimistic. The International Monetary Fund suggests in a report published this week that the UK housing market will follow the US example, but on a two-year time lag. This would be very bad news for UK homeowners as the US house prices fell by more than 11 per cent in 2007.

For more info visit the original story here.

Labels: Alexander Hall, Halifax, House market, IMF, Mortgage lending, Mortgage rates, Nationwide, property prices, uk housing

The stock market value of British housebuilders has plunged by £11.34 billion in just 12 months and is set to fall further after two investment banks warned today the housing market downturn will descend to levels last seen in the early 1990s.

Barratt Developments emerged as the sector's hardest hit company for the second day, after its share slumped by 26 per cent.

Barratt, which is now worth just £300 million but has debts of £1.7 billion after its acquistion of Wilson Bowden last year, is expected to seek emergency funding, possibly through a debt-for-equity swap.

Barratt is now worth less than a tenth of its peak stock market value.
Taylor Wimpey, the UK's third largest builder by volume and the result of the combination of Taylor Woodrow and George Wimpey, also plummeted by 20 per cent.

The losses compounded heavy share price falls yesterday, which wiped £400 million of the market value of the builders. Since last June, the housebuilding sector, then worth £15 billion, has seen its shares plunge by 76 per cent.

Shares in Persimmon, the last remaining housebuilder in the FTSE 100, were also down 9 per cent in early trading to 353p, their lowest point for five years. Persimmon faces ejection from the FTSE later today.

Berkeley Group shares also slid 9 per cent to 666p after Goldman Sachs reduced its recommendation on the UK housebuilder to "sell" from "neutral" and dramatically slashed its target price from 819.9p to 582.3p.

Analysts at Merrill Lynch said: "The early 1990s housing market has increasing relevance as a comparator."

They added: "There is growing evidence of consumers how behaving in a manner similar to that seen in the early 1990s, in that concerns over job security and falling house prices are leading to a reluctance to make a house purchase."

Merrill Lynch downgraded six housebuilders in the sector - cutting Barratt Developments, Bellway, Berkeley, Galliford Try and Redrow from "neutral" to "underperform", while Persimmon was moved to "neutral" from "buy", traders said.

There are fears that many housebuilders will be forced to make dramatic writedowns. In the early 1990s, housebuilders wrote down 30 per cent of their value - about £1.3 billion - and many of them needed more than one writedown before their net asset value stabilised.

The sector has been squeezed by banks tightening up on mortgage lending following the credit crunch, hitting the housing market. Many builders have put projects on hold, as willing buyers have dried up, and are laying off staff, while concerns are mounting in the City that many will have to ask shareholders for cash to strengthen their finances.

Housebuilders have also become a target for “short-sellers” who hope to profit from falling share prices. According toresearch from Data Explorers, which monitors short positions in the market, more than 23 per cent of Bovis shares are on loan with “short” investors, followed by 19 per cent for Persimmon and almost 18 per cent for Redrow.

Latest figures from the Royal Institution of Chartered Surveyors, out yesterday, said agents sold an average of just 17.4 properties each during the three months to the end of May, the lowest figure since it began collecting data in 1978.

Merrill Lynch has turned its focus on unemployment levels saying that they will be critical to determining consumer confidence and housing transaction levels, as was the case in the early 1990s recession. The broker suspects that rising unemployment will put additional pressure on housing transaction volumes.

It believes that there will be 10 per cent fewer house sales than last year and that prices will fall by 10 per cent.

"We believe we have gone beyond the tipping point and are now clearly seeing a UK housing market being squeezed on opposing fronts - by a lack both of willing lenders, as well as willing purchasers," the bank wrote.

It suggests that housebuilders are entering a prolonged period of underperformance, with a downturn likely to persist over the next three years.

"We are inclined to believe that if 1988-89 corresponds to 2007-08, than 1990-91 would correspond to 2009-10," Merrill Lynch said.

After the early 1990s recession, house prices did not start to recover until 1994.

Original Story from Times Business Online.

Labels: Barratt Developments, Berkeley Group, House market, Housebuilders, Merill Lynch, Persimmon, property development, RCIS, Redrow, Taylor Wimpey, uk housing, Wilson Bowden

The rising costs of transport and raw materials and a shortage of tradesmen is pushing up the costs of home improvements, according to new figures by RICS’ Building Cost Information Service (BCIS).

BCIS’ updated Property Makeover Price Guide gives homeowners an accurate guide to what they should expect to pay for home improvements. It has found the average cost of improvement work has risen by 20% over the past two years for a number of reasons.

No longer can homeowners pick and choose from the glut of quality EU tradesmen as the number of central and eastern European nationals returning to their native countries is on the rise. With half of the estimated one million British based Poles having already left the UK,competition for labour is pushing up costs.

The upward trend in oil prices is continuing to fuel the rising cost of transport, with forecasters predicting oil to rise to $200 US (£100) per barrel in the next few years, some experts are predicting this to have more impact on economies than the credit crunch crisis.

Global demand for raw materials remains at an all time high, with emerging giants like China and India showing no signs of a slowdown, commodity prices will remain high for years to come. This is no more evident than in the various trades where the cost of materials have pushed up the overall costs. Roofing costs have risen by 26%, plumbing and electric work by 22% and painting has risen by 17%, all outstripping inflation over the past two years.

BCIS Executive Director, Joe Martin, said: “The downturn in housing is forcing some homeowners to become more creative in meeting their needs. Many are choosing to stay put and renovate or extend in order to upgrade their property. This can be a wise strategy as home improvements add value to a property, and people will be well placed to take advantage of this uplift in value when the market shrugs off the current slump.

"Given that the cost of home improvements rose by 20% over the past two years compared with only eight percent in average wage growth, many homeowners are opting to act now rather than paying more further down the track."

Relevant Links:
www.bcis.co.uk

Labels: BCIS, building costs, home improvement, House market, Housing market, uk housing