Have we fallen out of love with property?

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12 February 2009

It seems that not long ago we were all smitten with the success of our banking sector and the growth in property values. Is the romance over or are we just going through a seven year itch?

The Joy of Stats

Lending Up 123% Month on Month, but down 80% over 3 years.

The Bank of England recently released Net Secured Lending figures which showed a month on month increase of 128% from £834m to £1,903m for lending in November to December 2008. This was seen in some quarters as a suggestion of a potential up turn in market trends. The Council of Mortgage lenders were quick to counter these claims, highlighting the still historically low levels and the fact that quarterly lending was only at 1995 levels (see top graph).

What is notable about these figures is that, while this index only goes back to 1993, the December figure is reflective of the level of lending that was present for most of the 1990s and it has only been in the past decade (almost to the month) that we have seen lending rise substantially above these levels.

Further issues highlight the depressed nature of current mortgage lending even in a 1990s context. When you factor in inflation the comparative buying power of the £1,903m lent in December is greatly reduced, and would actually be the equivalent of £1,389m in 1995. While this is broadly in line with the mid 90s levels the November 2008 figure of £834m, which would be the equivalent of £608m, is well below. Furthermore, on top of inflation we have seen strong asset price growth on the back of credit expansion and with average house prices 3 times their level in 1995, the actual buying power of £1,903m is greatly reduced.

We can see this weakness most clearly not in the headline value of lending but rather in the number of loans being made; these are down over 60% on a 10 year period and down over almost 80% in the 3 years from the peak of lending in November 2006. 

It's BALTIC out there! 

Whilst Baltic Dry might sound like a tasty beverage, according to the likes of the BBC Business Editor Robert Peston, the Baltic Exchange Dry Index (BDI) is in fact a key indicator of economic activity as it measures the demand for bulk sea carriers.

This concept is similar to the view that to monitor America's economy you monitor road haulage as changes in demand in that sector will show economic activity before other statistics.

It is therefore relevant that the BDI reported an upturn at the start of February from historically low levels. It will be interesting to see if this upturn is an accurate indication of things bottoming out or just another index to watch. 

Vital Statistics

Are we facing a Valentine's Day Massacre? 

With Ed Balls announcing that our current situation is "more extreme and more serious than that of the 1930s", and Mervyn King confirming that we are in a "deep recession" it is worth looking at the most recent statistics. 

The ESPC has reported this month that sales of homes in January are down 35% on last year at 277, compared to 425 in 2008.

The Council of Mortgage Lender have released their comparison of 2007 and 2008 lending statistics; these show a substantial, if not unexpected, drop across the board. (see graph).

The CML have also announced that, in figures due to be released on 20th February, repossessions could be lower than their 2007 forecast of 45,000 for 2008. By September 2008 the figure had reached 30,200. The change in repossession rate will be interesting to watch as it is likely to be influenced by government involvement and the attitude of lenders.

RICs have reported that although activity remains weak there has been an upturn in buyer interest, attributed to the interest rate cut and falling house prices. They also report the first increase in sales to stock ratio since September 2007 - influenced by diminishing stock levels rather than a significant upturn in sales - this index still remains close to its lowest level since December 1992.

According to recently reported insolvency statistics the final quarter of 2008 saw 55 Scottish companies go into administration, compared to just 5 in Q4 2007.

UK unemployment rose 146,000 in the final quarter of 2008 and 290,000 from this time last year, up to 1.97 million (6.3%).

In January we have found that our viewings were 62% up on January 2008 and our newly registered buyers were 68% up on January 2008. It does appear that certain areas are showing less of a negative outlook; this mirrors some of the more positive reports of buyer interest.

It is clear that many indictors are not looking positive, however, many indices do seem to be steadying at historically low levels and with increased buyer interest, if not commitment, is there a growing sentiment that the time to buy could not be too far away?

Treasury Select Committee

There was certain poetry to Andy Hornby's slip of the tongue when he defended the fact that he had listened to the 'siren voices' regarding the banks position on risk. Whilst he might have meant the "warning sirens", the former seems to be more accurate.

The Treasury Select Committee's interviewing of the former heads of RBS and HBOS may not have been as enlightening as many hoped as we learned that HBOS had "made some mistakes" when lending 40% of HBOS loan book against UK property and property companies, that they were over exposed and lent too much at the wrong time in the cycle and that they "did not foresee the deterioration of asset values".

The aftermath of this committee meeting has also led to the resignation of Sir James Crosby from the FSA days before the FSA announcing that they had been concerned about the running of HBOS from as early as 2002.

Foreign Buying Power 

In a follow up to our article last week on the comparative value of UK property to the foreign buyer, it is worth mentioning that we have seen a continued increase in interest from this quarter especially from the Swiss Franc and Japanese Yen. 

Bank Notes 

The bonus culture of large banks has loomed large this week, with RBS facing the most intense pressure not to pay out over £1bn in bonuses. The Treasury Select Committee has collected over 23,000 signatures against payment.

RBS Job losses: Seven RBS non-executive directors have now gone in the same week that 2,300 RBS employees are announced to be cut, with some commentators saying that up to 1,500 could be lost from Scotland in the next 3 to 5 years.

Links

FSA concerns over HBOS 

Airport to receive £40m makeover

Uri Geller buys a Scottish island 

CML comments on BoE Figures

Robert Peston Blog

Valentine's Links

DemiJohn - Liquid Deli

CoCo Chocolate - Bruntsfield Chocolate Shop

5pm.com - Credit Crunch Restaurant Deals

Boudiche - Lingerie in Edinburgh & Glasgow

Contact Us 

If you have any questions, would like any further information regarding the above content or would like to discuss how the Rettie & Co. Consultancy & Research Team can help your business, please do not hesitate to contact:

Andrew Meehan
Researcher

t: 0131 624 9051
e: andrew@rettie.co.uk
 

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