Cash rich buyers and lack of lending pushing Mr Average out of UK property market

Cash rich buyers seeking out bargain properties are likely to push down prices in the UK’s already hard hit locations, a new hard hitting report suggests.

The latest analysis of the property market published today (Monday February 21) from Rightmove paints a picture of a three tier market emerging.

It says that in the more economically depressed areas of the country forced sales are becoming more prevalent while in elite parts of London prices are rising. Then in the middle is Mr Average who can’t get a mortgage to buy.

Bargain hunting bottom feeder’ investors are expected to become more prominent in the second half of the year and will push prices down in the areas worst affected. And while there is evidence of growing competition to lend in this traditional first time buyer market segment, lenders are not looking to support the greater volume of deposit light first time buyers, it says.

Instead lenders are reportedly gearing up to chase the minority market of equity heavy buy to let investors but this means that mortgage funds are being denied to those who need them most. ‘Agents report that cherry picking lending practices are leading to some dysfunctional and desperate behaviour to solve housing needs,’ said Rightmove director Miles Shipside.

‘Some average sellers of yesteryear are now trading up by letting out their own home and renting the next rung up the ladder as they cannot get a suitable mortgage to sell up and buy a more spacious house. The accidental landlord is now being joined by the deliberate limbo landlord,’ he explained.

‘Meanwhile, professional investors are being funded by lenders to buy starter homes, condemning many of those who would have been first time buyers in the past to be permanent residents of the rented sector,’ he added.

The report also indicates that the number of new properties coming to market remains subdued as a substantial element of the mass market is locked in to their existing homes. Average unsold stock levels per agency branch have now declined for five consecutive months, falling from a peak of 78 properties to the current level of 69.

The main exception to muted new seller numbers is London, which is up 21% on the same period last year. ‘This is further evidence that the more elite and southern based markets have some immunity from the effects of stunted equity growth and problems accessing mortgage finance,’ added Shipside.

The remainder of the country has seen new listing numbers remain more stable, being marginally up by just 6% year on year on the same period last year.

Its report also shows that this month’s new sellers are mimicking last year’s February hike by increasing their asking prices by 3.1% to an average of £230,030, leaving year on year prices virtually the same, up 0.3%.

'Trends during the first six weeks of the New Year normally shed light on how the remainder of the year might pan out. The start of this year is very much a repeat of 2010 and so we expect 2011 to be characterised by what may well be the new norm, with the average buyer of yesteryear locked out of the market,’ said Shipside.

‘Any hopes that transaction volumes may be on the springboard preparing to return to historic norms will have been dashed by lenders’ predictions that 2011 lending volumes will match 2010’s dire levels. Mr Average will be left out in the cold in the buying and selling game unless the beneficiary of a hereditary hand out,’ he explained.

‘The current subdued market volumes are set to be the new norm unless the seemingly never ending discussions between Government and mortgage lenders find some way of increasing Mr Average’s access to lower deposit mortgages without pricing them out of the market,’ he added.

Demand and optimism in UK rental property market remains high

Demand for rented residential properties in the UK has hit a two year high but rents have fallen slightly for the second month in a row.
Four out of 10 landlords reported strengthening levels of tenant demand in the final quarter of 2010 and yields remain steady but voids fell, according to the latest Private Rented Sector Trends report from Paragon Group.
It also found that mortgage finance availability in the buy to let sector is improving but still scarce as the proportion of landlords reporting growing levels of tenant demand reached its highest level since the final quarter of 2008.
While the latest buy to let index from LSL Property Services shows that rents fell slightly in January compared with December but they are still 4% higher than a year ago and are showing signs of renewed growth in several areas of the country, according to the latest buy to let index.
Average rents fell to £682 per month as increasing investment pushed up supply, the index shows. It also found that tenant arrears also declines but remain high with 11% of all UK rent in arrears and total annual returns declined again as annual house price growth declines.
This is the second successive month rents have fallen. The average yield fell slightly to 4.9% in January, as rents declined at a faster pace than rental property values.
‘The recent loosening in the buy to let mortgage market has boosted the supply of rental homes on the market, a crucial factor in the temporary drop in rents. In the last quarter of 2010, the number of buy to let loans leapt by 7% according to Council of Mortgage Lenders,’ said David Newnes, estate agency managing director of LSL Property Services, owners of Your Move and Reeds Rains.
‘With more products coming onto the market, there are signs that this trend is continuing into 2011, allowing a growing number of professional landlords to get onto the market, or broaden their portfolios, and take advantage of near record rental income and strong tenant demand. International investors, too, have played their part, looking to place their cash in UK bricks and mortar while yields look attractive and properties are affordable,’ he added.

Despite the slight decrease in rents, they are still 4% higher than a year ago - and are showing signs of renewed growth in several areas of the country. Rents in the East and West Midlands increased by 0.9% and 0.8% respectively, 0.8% in Yorkshire and the Humber, and 0.2% in London. However, the overall drop was driven by larger falls in the East of England, down 2.5%, Wales down 2.1%, the North West down 1% and decreases of 0.4% in the South West and South East.
But with the Paragon report showing that four out of 10 landlords said tenant demand grew during the quarter, compared to 36% during the third quarter, the proportion of landlords reporting growing levels of tenant demand has now risen for six consecutive quarters, which has coincided with a shortage of mortgage finance in the owner-occupied mortgage sector.
Just 4% of landlords said tenant demand fell during the quarter, the lowest proportion since the third quarter of 2008 and the second lowest level since Paragon started collating the data in 2004.
‘Tenant demand shows no signs of slowing down and in some busy markets, such as London, there is anecdotal evidence of sealed bids being used for certain properties. This will become more commonplace across the UK unless the PRS is able to expand to meet higher levels of demand. Four out of 10 landlords say that tenant demand grew during the period, which is a significant number and has major implications for renting in the UK if the issue of rental property supply cannot be addressed,’ said Nigel Terrington, Paragon Group chief executive.
The also found that there has been an improvement in the availability of buy to let mortgage finance with 19% of landlords saying that mortgage finance was either widely or reasonably available, up from 17% during the third quarter. Conversely, the proportion of landlords stating that mortgage finance was very restricted dropped from 29% in the third quarter to 26% in the fourth.