A weekly news summary covering all aspects of the house building industry from Pierre Williams, HBF's Head of Media, available to members only.
Price Surge Provokes More Warnings
House prices surged in October at their fastest pace for more than a year according to the Nationwide. The building society said the renewed vigour that produced a 2% rise in average prices over the month, was due to lenders allowing buyers to take on larger mortgages. The rise has prompted the pessimists to predict an increased chance of a bumpier landing. Michael Hume of Lehman Brothers, said: “It looks like there’s not going to be a nice, gentle, soft landing but something a bit nastier.” (All media)
HBF Note: That the media is now concentrating on the possibility of a crash comes as no surprise - it makes for a better story. However, speculation of a crash might well be more dangerous than the reality of a limited rise in rates of just 1% to 1.5% by the end of next year. That the Nationwide chose to blame dangerous lending practices probably results from the Halifax being criticised in a BBC programme for pushing self-certification mortgages as a way of lending above traditional income multiples. A more balanced view as to what will happen to the market is perhaps best demonstrated, as below, by the growing number of stockbrokers declaring that recent price falls in housebuilder stocks are overdone.
Interest Rate Speculation Knocks Sector
The near certainty of a rise in interest rates - perhaps as soon as this week - has knocked housebuilders’ share prices. Westbury fell 19p to 368.5p; Bovis lost 21p to 418p; Bellway 27.5p to 611.5p and George Wimpey 13p to 325p. However, an increasing number of traders felt the falls had been overdone and analysts expect little or no impact on consumer spending from the much anticipated quarter-point hike in rates. (Telegraph, FT, Sunday Business)
HBF Note: It seems that there is a growing awareness that a moderate rise in rates may not produce a nightmare scenario for the housing market. That an increasing number of brokers feel the latest falls “overdone” whilst others see this as a buying opportunity, reflects this more balanced approach. However, speculation over which way the market will go is far from over.
Average Mortgage Doubles in Six Years
The average mortgage has doubled in six years to £112,000 according to the British Bankers Association - five times average annual earnings of £23,000.
Some are borrowing larger sums to get on the property ladder but the growth in remortgaging for home improvements and luxuries is just as strong. In September a record 292,800 mortgages for a total of £23.3bn were approved and the borrowing frenzy shows no sign of abating - adding further pressure on the Bank of England to increase interest rates and adding fuel to arguments of those predicting a market crash. The HSBC, said: “We are moving into the unknown as the consumer has never been so indebted and will be more sensitive to rate changes than in the past.” (All media)
First Council Ups Council Tax on Second Homes
South Hams District Council in Devon is set to become the first council in the country to charge owners of second homes an increased level of Council Tax. It plans to charge up to 90% of the full rate rather than the current 50% limit. The council said it would spend the extra £7 million a year raised on more housing for locals. North Devon is also close to following suit and this is likely to be copied by councils throughout the country and especially in touristy rural areas. (BBC,Times)
Prescott “Wrestles” With Developers’ Landbanks
Prescott will spell out his plan for a huge increase in housebuilding in the South East later this month says the Guardian. However, with rocketing land prices limiting the ability of housing associations to get involved, Prescott will rely on private industry to do his bidding. It is increasingly thought that government will replace S106 agreements with a development tariff to reduce the tortuous negotiations between developers and planning departments. However, the housebuilding programme could still be derailed if a downturn in the housing market materialises. If this happens, housebuilders may be tempted to sit on landbanks and await more favourable conditions. Or they might seize the opportunity to increase volumes. In any event, the government is looking to see if it is possible to penalise builders who refuse to develop land with planning consent. (Guardian)
Westbury Booming
Westbury has announced robust results and says Space 4 is about to prove itself. In the six months to the end of August, turnover rose from £345m to £409m, operating profit from £42m to £59.4m and pre-tax profits from £35.2m to £47.6m. Earnings per share rose to 28.7p from 21.6p. The company said the market in the South East was recovering and average selling prices nationwide increased 21% to £192,300. CEO Martin Donohue blamed a small reduction in overall output on planning constraints. Importantly, Donohue said Space 4 was turning the corner with forecast losses of £250,000 to £500,000 in the second half expected to be the last - especially with three housebuilders in line to buy Space 4 products in 2004. The firm has also dismissed speculation of a hostile bid. With £100m to spend, the firm is looking to acquire rather than be acquired. (FT, Mail Independent, Times, Telegraph, Express)
Tax South to Help North
Higher earners in London should pay more Council Tax to provide services for the government’s growth areas a leading Blairite think-tank, the IPPR, has suggested. It also recommends that growth in the south east should be more self-sustaining rather than be subsidised by the taxpayer - a direct challenge to Prescott’s Thames Gateway plans. It also calls for councils and agencies to “capture” a proportion of increased land values after housing sites have been granted planning permission. (Guardian)
Ministers Plan Countryside Shake Up
The Government is planning a shake-up of England’s official countryside watchdogs. Unconfirmed reports suggest English Nature and the Countryside Agency will be incorporated into a new body provisionally called the Land Management Agency. The move is seen by some as a government pre-emptive strike to undermine opposition to new housing, roads and airport plans. (Independent)
HBF Note: Anti-development campaigners are sure to see this as a threat but English Nature has sometimes been surprisingly supportive of housing. Last month it called for more low density housebuilding to allow gardens to provide wildlife “corridors”