Blanchard Consultancy – the independent construction consultant

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

UK farmland prices surged at the fastest pace in the RICS’ rural market survey’s history during the first half of 2008 but lifestyle buyers retreated as the credit crunch deepened.

The farmland market jumped forward, with the average price rising by 24 percent (the fastest pace in the survey’s history) from £10,439 to £12,965 in the first half of 2008 and by 47 percent year on year. Arable land rose by 32 percent to £14,453 from £10,439 and pasture land rose by 16 percent to £11477 from £9929. Sharp increases in commodity prices continue to encourage farm investors to expand production or enter the market as purchasers.

The net balance of Chartered Surveyors reporting an increase in demand for residential farmland fell for the first time since 2005 from 50 percent to -3 percent while demand for non-residential farmland remained buoyant at 65 percent. The net balance of surveyors expecting price rises in residential farmland fell from 30 percent to -25 percent. There is an expectation that lifestyle buyers will continue to retreat while the challenging financial climate persists.

Read more at the RCIS newsroom

Labels: credit crunch, House market, RCIS, rural property, uk farmland prices, uk land prices

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

House prices collapsed last month at their fastest rate since the Thirties; only 42,000 mortgage deals were agreed in the most recent figures - the lowest since records began; and housebuilders are laying off thousands of workers.

In this calamitous housing market, it is rare to find a building boss who has any good news, but Chris Chapman, chief executive of Cloud Nine, is one. Based in Redruth in Cornwall, the company has so many inquiries he is considering expansion - just about the only housebuilder to be doing so.

Cloud Nine's booming order book may have something to do with the heating costs of the homes it builds. One of its two-bedroom houses has a fuel bill of just £26 a year and annual running costs of £346. Cloud Nine is now producing some of the most advanced eco-homes in the world, at affordable prices. A basic two-bedroom house costs £88,000, plus land. For a four-bedroom detached home, you can expect to pay £167,000 plus land.

With landholders desperate to find buyers, Cloud Nine's moment has come. Its clients appear to have the cash to buy sites outright. 'We are getting a stream of people who want to buy our houses, many of whom have the finance,' said Chapman. 'We are looking to pair these up with developers who have plots, so we can create eco-hamlets, with customers buying off-plot. This is a major reduction of risk for all concerned.'

The firm has a production capacity of 250 homes a year. The houses are built in Poland on a production line, which dramatically cuts costs. Panels are pieced together on a modular basis - a bit like a sophisticated flat-pack.

Read the full article at Guardian Business Online

Labels: Cloud Nine, eco-homes, first time buyers, flat-pack homes, Housebuilders, Housing market, property prices

Kier Group, the construction, housebuilding and services group, reassured investors that it would meet full-year profit expectations this morning, despite the mounting woes afflicting the property market.

The company, which this month announced 350 job cuts in its residential division, said it continued to see "little evidence of a slowdown in the markets for construction and support services, both of which continue to perform strongly and have record order books".

The shares, which have fallen by almost 60 per cent over the past 12 months, rose by 35p to 945.5p, up almost 4 per cent.

Kier, which was involved in the construction of the Channel Tunnel rail link, said the mixed fortunes experienced by various parts of the company reinforced the benefit of having a range of businesses operating in different sectors of the market.

In a trading update covering the year to the end of the June, Kier said that the level of tender awards in construction had been "very high" and its strong order books reflected continued demand from both public and private sector clients.

It said the division continued to generate strong cashflows, contributing to a year-end net cash balance for the group of more than £140 million, not far short of the £148 miilion balance this time last year.

Article continues at Times Business Online

Labels: House market, Housebuilders, Housing market, Kier Group, property development, property prices

A scheme to make homes more affordable by allowing first-time buyers to rent a property as they save up to buy it has been announced today by the government.

Under the pilot scheme, households earning up to £60,000 will be able to rent a new home at a discounted rate for a period of two or three years while building up a deposit to buy a share in it.

Rents will be 80% or less of the real market value.

The scheme, which will be managed by the Housing Corporation, will be open to buyers who qualify for the government's new-build HomeBuy scheme, but are currently unable to buy.

When the buyer can afford to, he or she can buy a share of the property of at least 25% and continue to pay rent to a housing association on the remaining share.

Ultimately, the buyer can purchase a 100% share in the property, or move and take the equity built up in their share.

Earlier this year the government extended the HomeBuy scheme, opening it up to all first-time buyer households earning up to £60,000.

The government said the Rent to Homebuy scheme was designed to give more choice and flexibility to first-time buyers who have been hardest hit by the credit crunch.

Since the start of the year, all of the 100% mortgages available to new buyers have been withdrawn and many lenders have started to ask for a deposit of at least 10%.

Despite price falls, the average price of a property in the UK is still more than £180,000, according to Halifax, meaning a first-time buyer would need to raise a deposit of around £18,000.

Article continues at Guardian Online

Labels: first time buyers, Halifax, homebuy scheme, House market, property prices

The Government is to benefit from the slump in the commercial property market, raking in £100m more than it expected from controversial changes to business rates.

The Government withdrew commercial property rate relief on empty buildings in April to encourage landlords not to leave buildings empty.

But rising vacancy levels in the sector mean landlords will have to pay millions of pounds more in rates on empty buildings than was forecast when the changes were introduced.

Figures from property agent NB Real Estate suggest that since the change in the law was first proposed, the number of vacant commercial buildings has jumped 15pc, resulting in a substantial increase in the rates payable on empty buildings.

Andrew Warde, director of rating at NB Real Estate, said: "This empty rates tax was conceived when the property market was performing strongly, but the downturn is heaping misery upon misery. The Government's belief that landlords keep buildings empty without good reason is just plain wrong and the blanket application of additional rates tax just doubles the pain."

Under the new legislation the 15pc increase in vacancy levels will result in landlords paying 15pc more business rates on their portfolio of empty buildings. For the Government this will result in a similar increase in its tax take on empty buildings. Original estimates ranged from £950m to £1.4bn.

Original article continues at Telegraph Business news

Labels: business rates change, commercial property rate relief, Housing market, NB real estate, property analysis, property development

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

Housing is back in demand in the US - especially when homes can cost only £10,000, writes James Quinn

Other than being home to cereal giant Kellogg's, the town of Battle Creek is little known outside the Michigan bible-belt in which it sits.

Set on the western side of the "Great Lakes State", the 53,000-person municipality appears to have seen better days. Take a look at the Battle Creek Enquirer. Squeezed between small-town stories about flash floods are bleak economic tales. The local school board has voted to lay off 17 teachers from the start of next term as it tries to find $1.5m (£760,000) in savings due to a string of budget cuts, and residents are complaining about the state of "crumbling roads".

This is just one town in a state which has been in recession for the past five years, where unemployment is running at 10pc, and which in March was ranked at number six in a nationwide state-by-state foreclosure league table.

But Battle Creek is different. Home sales here are rising.

In May, the town saw a 13pc increase in existing home sales - against a 2pc rise nationally.

Although local records have not yet been compiled for June, there is no suggestion sales have slowed.

Matt Davis, of Rosemary Davis Realtors in the town, said: "I think that people are finding fair and good deals that suit them. Maybe that's an indication that people have a bit more confidence."

Mr Davis, president of the local realtors' association, added: "A lot of the problem in the housing market is negative perception. People's psyche gets affected."

The sales numbers in Battle Creek show that people's psyche is beginning to turn, albeit spurred on by low prices. The number of low-end sales has doubled in the past year, with houses offered at a staggering sub-$20,000 (£10,000) being the most popular. One house price was so low the purchaser used a credit card to buy it.

According to Lawrence Yun, chief economist at the National Association of Realtors, other towns experienced higher sales activity in May - the most recent month records are available for - including Sacramento and parts of the San Fernando Valley in California, and Sarasota in Florida.

Dennis Lockhart, president of the Atlanta Federal Reserve, believes the US housing market might finally be healing: "There are early and tentative signs that a bottom may be forming in some housing markets."

Before the green shoots of recovery are able to sprout, however, the economic landscape must be fertile enough to encourage growth.

Story continues at The Telegraph online

Labels: Battle Creek, James Quinn, property analysis, US house prices

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

There is now a very real chance that Taylor Wimpey, the UK's largest housebuilder by production, could become the first builder to fall victim to the credit crunch.

Created from a merger of Taylor Woodrow and Wimpey just a year ago, the company has stolen the dubious mantel of housebuilder most likely to collapse from Barratt Developments, after it revealed today that it had failed to secure between £400 million and £500 million of new funds from investors.

In theory, Taylor Wimpey has plenty of time to sort out its balance sheet, as it is not in danger of breaching covenants on its £1.7 billion debt until February. In the meantime, short-term cash flow is good and the company has taken tough measures to make sure it stays that way by closing a third of its offices and almost a fifth of its staff.

Full Story at Times Online

Labels: Barratt Developments, Housebuilders, property analysis, property development, Residential property, Taylor Wimpey

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