Friday property news update - 12th February 2021
Mortgage lenders compete, debt market distress, and what do Canary Wharf and Brooklyn have in common?
4 minutes to read
Tracking the taper, continued
Surveyors responding to a new RICS Residential Market Survey reported dips in new buyer enquiries, new listings and sales in January. Those themes are broadly in line with both the Nationwide and Halifax house price indexes, which reported house prices softening 0.3% during the month.
Respondents to the RICS survey broadly expect sales rates to remain at this level for the duration of the year, and a net balance of +30 expect national house prices to rise over the period. A reminder of our January forecasts for house prices here. Tom Bill will have more analysis of how housing market activity is likely to progress in light on these indicators on Monday.
New year, new lending targets
Last week we covered the Bank of England's December data showing a dip in mortgage approvals that gave the lenders an opportunity to clear the decks after being flooded with applications during the post-lockdown surge. It appears to have marked a turning point for the mortgage market, and banks have started the year with a renewed competitive edge, according to Knight Frank Finance.
Product choice has increased 42% since October, the largest quarterly increase than any time since 2007, and in January the largest increase in new products came at 90% LTV, according to Moneyfacts. Availability at 95% remains poor, largely due to lingering uncertainty over the outlook for house prices beyond the wind down of government support measures such as the furlough scheme. Should employment remain robust, availability should improve as the year progresses.
Having stopped accepting bonuses and commission late last year, we are now seeing lenders return to their old policies allowing that income to underpin borrowing - that will be big news for borrowers in certain sectors, particularly financial services.
The impact of Help to Buy price caps
This week, the government extended the completion deadline for the existing Help to Buy equity loan scheme by a further two months to May 31, the third and final extension before the switch is made to the revised scheme. Under the new version, only first time buyers will be eligible for Help to Buy purchases, while new regional maximum value caps will also be introduced to reflect regional variations in house prices. These caps range from £600,000 in London to £186,100 in the North East.
The data suggests that limiting the scheme to first-time buyers will have a fairly minimal impact, according to analysis by Ollie Knight. Since inception, some 82% of H2B sales have been to first time purchasers. In London, more than 95% of loans were to first time purchasers.
The impact of the new price caps are not as clear cut, however. An analysis of average H2B loans shows that values in the North East, North West, Yorkshire and West Midlands currently exceed the new regional caps. See the full piece for maps breaking all this down by local authority.
Renters return, New York edition
One unique aspect of the Covid-19 crisis has been the scope to which trends in various global residential markets have moved in tandem - the 'urban exodus' to find more space is probably the most notable.
Last week Tom Bill looked at movement among renters back into urban locations in London, attracted by cheaper rents and the ability to walk to work. Kate Everett- Allen and Jonathan Miller spot the same trend in New York.
In 2020, median rents in Manhattan reached their lowest level in a decade and as a result, by the end of the year new lease signings had rebounded to their highest since the global financial crisis. The story is the same in Brooklyn. Median rents dipped from $2,987 to $2,600 in the year to January 2021, with new leases (excluding renewals) surging 46% over the same period.
This time it's different?
Lisa Attenborough, Knight Frank's debt markets guru, checks for signs of distress:
In 2007, just before the onset of the Global Financial Crisis, the amount of new commercial real estate loan originations in the UK peaked at around £83bn. Using the UK market as a reference point, the loan market back then was dominated by retail banks, which accounted for around 60% of new loan originations in that year.
Winding the clock forward, the range of active lender types has increased compared to 2007 and UK retail banks accounted for 43% of new loan originations in the first half of 2019, followed by international lenders and non-bank lenders, which, as a lender type, didn’t exist in CRE lending in 2007.
Meanwhile, prior to the Global Financial Crisis, senior lenders were providing loans at around 80% loan to value (LTV), and in some cases, even higher. Coming into 2020, the average LTV for commercial real estate was closer to 55%. Lower leveraged positions in a post-Covid environment will give borrowers more headroom should values fall.
In other news...
Eurozone growth in 2021 to rebound less than expected, dip in US unemployment claims offers hope as new virus cases ease, UK developers give cautious welcome to buildings safety tax, will luxury property lead a recovery in San Francisco, cheap old homes draw US millennials, and finally, Berlin’s new timber tower comes with lofty ambitions.