Market News - Second Homes Are All the Rage

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22 May 2009

Elected-to-buy

Usually in this day and age a political scandal involving cash, women's clothing, baby wipes, two feather dusters and a chocolate hobnob would come as little surprise. In this case the furore over MP's second home expenses continues to rumble on as the excesses and endemic profiteering grate with a country in recession where many people are struggling to afford even one house. However, maybe rather than castigate MPs, I contend we should in fact follow their lead.

With the average deposit for an Edinburgh property (75% LTV) now standing at around £48k, if a buyer had bought an average flat in 2004 and sold now they would have realised a profit (after capital gains tax, fees and stamp duty) of around £34k. Unfortunately this is £14k short of the deposit required to step back on to the same step of the property ladder.

However, this is where the MPs show their brilliance. If said buyer chose to follow Hazel Blears example and not pay capital gains they would save £6,284. If they also trust our economic leader, Alastair Darling, they could save £3,468 by not paying stamp duty. Theresa Villiers has shown we really shouldn't have to pay transaction costs and legal fees ourselves and that would save our buyer another couple of thousand and both Ken Clarke, former Chancellor of the Exchequer and Jack Straw, former Home Secretary, illustrate only fools pay the full rate of council tax providing our buyer with a further saving of £2,625. In total this is a saving of £14,378, enough to cover the deposit shortfall with change left over for a few hanging baskets, some scotch eggs and a black glittery toilet seat, although maybe not enough for the moat maintenance, tennis court repair and obligatory 'duck island'.

With the lucrative profitability of second homes clearly established by our parliamentary representatives it may be worth visiting Rettie & Co's MaRIO website, which aims to provide a more legitimate way of profiting from second home ownership.

For more information: www.rettie.co.uk/mario

Unwatered Green Shoots?

Rightmove this month reported a 2.4% increase in its average price, building on the month on month increases over the course of the year. This positive figure, when read out of context, can be somewhat misleading and is in fact attributable to low volumes and buyer ambitions, as Rightmove themselves point out.

It is worth highlighting that the Rightmove survey is based on the asking price of a property, not the actual price achieved, and therefore has the advantage of being more current than sold prices;  but the drawback of not reflecting the actual movement in values in the same way that the Land Registry or mortgage based statistics might. With increasing campaign durations and many properties remaining unsold, the difference between expectation and reality can be starkly different. 

A telling statistic from Rightmove's monthly index has been the low levels of new properties listed this month; 61,000, down from 88,000 on the previous month, and from 135,000 a year ago. These low listing figures speak volumes about the actual health of the market and the fragility of any perceived revival; they are also interesting on a couple of other counts.

First, it raises the issue of limited supply despite buyer interest and how those waiting for the technical market nadir may discover there is in fact little quality available; much like arriving at the last day of the sale when even an 80% discount wouldn't convince most to buy a XXXXL duck patterned lilac cardigan.

The second interesting point about this statistic is how it compares to Globrix's announcement that for the first time in a year their new listings topped 100,000, up from 40,000 in January,  leading Daniel Lee, chief executive of Globrix.com, to say 'Now that sellers believe the buyers are out there, they are returning in their droves.'

Which is right? Rising numbers or a potential drought for the promising green shoot buyers? From Rettie & Co's experience it is clear that there has been a decline in stock level as unforced sellers remain reticent to enter the market. The consequence of this has been that quality properties have attracted substantial interest and are now beginning to elicit offers in excess of the home report valuations as competition returns.  We also have a number of clients who are tempted to test the market in a private capacity rather than commit to full exposure. These tentative enquiries hint at a change in mindset as certain sellers are starting to feel that they do not want to put their life on hold any longer and have enough security on which to plan for the future. The key fact is that at the moment quality property is in short supply and is therefore gaining ever improving levels of interest.

Risky Business

The CML figures for repossession this month show that their estimate of 75,000 repossession for 2009 may now be overly pessimistic with fewer than expected households in arrears.

The importance of this figure lies in the fact that risk underpins investment; too risky and you have subprime;  not enough risk (arguably) and you have a credit crunch. As lenders attempt to recover and readjust their exposure and risk appetite  the economy and housing market has been suffering withdrawal symptoms from their easy credit habits. The combination of low interest rates, government support and lender 'tolerance' are being promoted as the reasons why repossession are not only lower than expected this year but also lower than in the early 90s downturn.

The CML "Home Owner Equity Through the Downturn" report shows that there is a distinct difference in the Scottish profile when compared to the UK. In Scotland only 1% of loans are in negative equity, far lower than 4.8% across the UK as a whole. Furthermore, due to lower leveraging and more stable house prices only around 6% are in a low equity position compared to over 10% UK wide.

The lower leveraging, better affordability and lower negative / low equity create a distinct risk profile for the Scottish market. These factors should contribute to a greater degree of stability within the market, which despite strong growth of recent years has had a lower level of price retreat when compared to other areas of the UK; these factors bode well for aiding market stabilisation, minimising market distress and enabling future potential.

CML Equity Report

(Super) MaRIO

With many investments performing so badly more and more individuals, not all hardened property investors, are considering the security of bricks and mortar as a safe bet for their savings.

With this in mind Rettie & Co. has launched MaRIO (MAnaged Residential Investment Opportunity) which brings together individual investors and discounted residential stock with the potential for improved gross yields of up to 7%; fully managed by Rettie & Co's RICS registered Letting and Management Team.

For more information: www.rettie.co.uk/mario or if you would like to see Matthew on STV News talking about MaRIO then click here and skip to 30 seconds into the clip.

100% Roi...

...if the adage that giving is in itself the reward. For those of you still reading having realised this is about charity, Rettie & Co. have entered a team for this year's Rob Roy Challenge, supporting charities including Sightsavers International and the Prince's Trust among others.

This year Chris Hall, Tony Perriam, Diarmid Mackenzie Smith, Ben Brough, Graham Nicholson and myself will be attempting the 55 mile walk and ride from Drymen to Kenmore - with varying degrees of suffering.

This year's probable trial by rain and midge will be particularly poignant given the unexpected passing late last year of our friend and colleague Bryce McCall Smith, who hosted the Rettie & Co. team at his family home for the 2008 event. I would therefore urge you to visit the site below, dig deep and remember that unlike second home allowances "In charity there is no excess".

http://www.justgiving.com/rettie

Short News

• Just like TheTerminator, FM Developments at Western Harbour are back having bought the development from the administrators.
• There have been fresh calls in the Commons to scrap Home Information Packs - we will watch with interest to see how our Sassenach neighbours address their own dodgy HIP.
• Lloyds have announced their 'Lend a Hand' mortgage scheme which offers a competitive rate and 95% LTV based on the legal rights over parents or friends savings account. This has been welcomed as an innovative solution to equity constraint for First Time Buyers.

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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