Green Shoots?
19 January 2009
RBS
Graph courtesy of Google Finance
It has been quite a week for RBS; they have now sold their stake in the Bank of China for £1.6bn, the Government has increased its stake in them to 70% and this has culminated, as anyone watching their share price movement yesterday would have seen, with a drop in share price to a 23 year low of 10.00 on the news of the potentially largest deficit in UK corporate history with annual losses & write downs of £28bn.
For Edinburgh the continued suffering of RBS, and doubts over its future, can only add to the worries regarding the health of the financial sector, employment outlook and the availability of disposable wealth being generated from an industry that accounts for over 10% of the city's employment base. With RBS and HBOS, the two largest private employers in Edinburgh, employing in excess of 15,000 staff, the impact on the local market cannot be underestimated; it has been estimated that recently up to 40% of houses in excess of £1.5m have been RBS or HBOS executive relocations.
Green Shoots?
Margaret Beckett's comments at the weekend in The Sunday Times have caused a bit of stir, as she stated there was some anecdotal evidence of a market upturn (believed to be based on the RICS monthly survey of Estate Agents) and that the government was potentially concerned about the next housing boom. This comment seems to be slightly at odds with the current mood of the nation as repossessions rise, house prices fall and the outlook for the economy and employment is bleak.
Certainly while we have seen an upturn in buyer enquiries at the start of the year there is still a clear lack transactions completing as sellers remain reticent to enter the market, or to deal at the levels being offered by cocksure buyers. It is also unlikely that the circumstances which led to the 2007 market peak (asset price growth, equity release and credit expansion) are going to be same even once the banking sector resumes a more normal approach to lending.
The graph of Rettie & Co. Registered Buying Power shows an increase from the levels at the end of 2008, as buyers emerge to test the market; this may not yet equate to green shoots, but may suggest that condition capable of supporting life are improving.
While it is still too early to tell if the series of measures announced by The Government over the past week will be the kick start required, the current ongoing paralysis in mortgage lending (most especially to first time buyers and those lower down the housing ladder) will keep large swathes of the market locked.
The increase in enquiry levels is as a sign of people coming to test the water; they have not yet jumped into the pool and will not do so while they think the water will get materially colder. Just as with the Banks and their bad debt provision, the housing market needs to re-establish confidence and demonstrate that market prices now offer genuine value.
It should be remember that despite the gloom there are genuine reasons to consider buying, such as the following 3 examples;
- Potential buyers may need, or want, to trade up in size for the long term. The relative 'shortfall' on ones own property will be considerably less than the saving on the acquisition of the larger unit, depending of course on location.
- In some circumstances the emerging yields are looking very attractive compared to the currently low savings rates.
- Traditionally, bricks and mortar have offered a strong hedge against inflation.
Home Reports: A Change to the Way We Do Business
by Tony Perriam, Director of Residential Sales
Since 1 December, all properties newly introduced to the market in Scotland require a Home Report at the time that they are first made available. This comprehensive package incorporates an independently commissioned survey of the property's condition and valuation, an energy efficiency assessment and a questionnaire completed by the seller detailing useful household information. Inevitably, its preparation will be time consuming and expensive, typically doubling the pre-marketing costs of most sales campaigns.
At such an early stage of the Home Report's life cycle, it is clearly too soon to assess its impact on a market already besieged by severely constricted mortgage finance, an uncertain employment outlook and a sensationalist press that delights in passing on grim forecasts. Our own experience over the first working fortnight of 2009 suggests that far fewer potential sellers are coming forward than would usually be the case after the long, reflective Christmas holiday period. A positive aspect to this is those properties already for sale, already far more numerous than the norm after both six months of reduced trading activity and the exemption to Home Reports offered to those who have remained continually available since 1 December, are unlikely to be swamped in the short term by new prospects.
Those few buyers currently both willing and able to transact are well aware of their purchasing power. In turn, our clients now recognise that a prompt result from a cash buyer has a recognisable value in its own right, even if at a discount from original expectations, and in turn equips them to go shopping with vigour for competitively priced onward prospects.
Feel free to contact Tony Perriam, our Director of Residential Sales, on 0131 624 9040 or via tony@rettie.co.uk if you would like more information on the effect of the Home Report on trading patterns in the residential sphere.
Mortgage Lending
This week the CML released their November statistics which show lending at an all time low of 20,400 loans for the month, down 16% on October 2008 and 59% year on year. The November statistics also reported a drop in the percentage mortgage interest payments consume as part of buyers income, down to 14.4% from 18.2% for first time buyers; this is balanced by the requirement for the highest deposit levels for FTBs (18%) since their records began 35 year ago.
Again the main issues is that whilst some improvement in affordability and lending is occurring this is only available to a select number buyers that are in a strong financial position to take advantage of the better rates.
Bank Notes
While RBS has been providing most of the headlines this week, it is also worth mentioning that the Lloyds take over of HBOS has now completed, however, it has had a tough first days trading closing down around 33%, with further falls in excess of 20% today. As with RBS, we will all be waiting to hear about the future of jobs in the capital now that the HBOS flag has flown for the last time on the mound.
Links
UK Inflation drops to 3.1%
http://www.statistics.gov.uk/cci/nugget.asp?ID=19
http://newsvote.bbc.co.uk/1/hi/business/7839023.stm
Sterling drops below $1.40
http://news.bbc.co.uk/1/hi/business/7839391.stm
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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