New Build Sales Blocked By Low Valuations

(Telegraph) – THE NEW BUILD VALUATION DEBATE has reared its head again this week, with housebuilders warning that mortgage valuations are a major stumbling block in sales. Barratt said it had been forced to turn away sales after valuations came in too low amid extreme bank caution over lending.

The Sunday Telegraph Money section first revealed the plight of new builds two years ago. They told the story of a Barratt development in Britain’s oldest recorded town, Colchester, and how many properties had been repossessed and were under the hammer at knock-down prices. The flats at Henry Laver Court, which sold, with incentives, for between £224,995 and £249,995, had reserve prices at the auction of around £140,000.

One of the issues with new-build properties is valuation, and there have been concerns in the past that they were overcooked. Such concerns were first raised three years ago by the Council of Mortgage Lenders (CML). It argued that incentives used to attract buyers were muddying the water on valuations.

The stigma of new-build valuations saw lenders tightening their lending criteria on new builds, with some refusing to lend full stop —  irrespective of how much money buyers could afford to put down as a deposit.

Even the Royal Institution of Chartered Surveyors (RICS) conceded that the valuation of new builds could ‘pose difficulties for valuers, especially when there is limited comparable evidence available or when buyers have been offered incentives.’ It rewrote its Red Book, which gives valuers guidance, to warn surveyors that ‘developers may offer incentives on new properties, and occasionally on non new-build property, in order to achieve quicker sales and give the appearance of high sale prices.’

Redrow said the ‘widespread practice of downvaluation by surveyors representing mortgage lenders’ posed a ‘major obstacle to the recovery of the housing market.’ Having agreed on a price with the prospective buyer, Redrow said deals are being undermined when surveyors, representing lenders, value the homes at less than the asking price.

It is easy to see why a conservative valuation can wreak havoc with a potential sale. If a price of £120,000 has been agreed for a flat, a buyer seeking an 80% mortgage should be able to borrow £96,000; but, if a surveyor values the property at £100,000, the buyer will only be able to borrow £80,000. The buyer will then need a deposit of £40,000 instead of £24,000.

Housebuilders, along with everyone else, jumped on the property bandwagon and actively encouraged a wave of budding buy-to-let tycoons with juicy incentives such as paying their rent for two years. Such incentives were still dangled after it emerged that the values of flats, mainly in city centres, had started to plummet. In October 2007, for instance, new builds were being promoted heavily under the tag-line ‘Why England’s second city should be your first choice for investment’ — despite reports that the property market in Birmingham was being hit.

Lenders have suffered bigger losses with new builds than traditional properties and, understandably, now take a developer’s own, seemingly generous valuations, with a pinch of salt. But housebuilders only have themselves to blame — they created a rod for their own back.

Nationwide Offers 125% Mortgage

(BBC) – THE NATIONWIDE BUILDING SOCIETY has introduced a mortgage allowing borrowers to take loans worth 125% of the value of the home they are buying. It will only be available to existing customers in negative equity who want to move house.

Negative equity means that the value of someone’s home is worth less than the amount they owe on their mortgage.

Nationwide only offers new customers mortgages worth 85% of the value of the home they want to buy and there has been much criticism of the loans above 100%, available at the peak of the housing boom, which immediately placed borrowers in negative equity.

The Financial Services Authority is considering limiting mortgage loans to 100% of a house’s value.

Under Nationwide’s new product, borrowers would take out a loan for 95% of the value of their new house at a fixed rate of 6.73% for three years, or 7.48% for five years. They would then be able to add on the negative equity from their old home — up to another 30% of the value of the new property — at a higher fixed rate of 7.23% for three years, or 7.98% for five years.

… (11/07/2009) – New Build Sales Blocked By Low Valuations

Public Housing ‘Not Favouring Migrants’

(BBC) – ACCORDING TO A REPORT, based on figures from the 2007 Labour Force Survey and carried out by the centre-left Institute for Public Policy Research think-tank, 64% of people who arrived in the UK within the last five years live in private rented accommodation; and just 11% of new arrivals get help with housing — almost all of them asylum seekers.

But after five years, when many immigrants are able to get residency and become entitled to government help, one in six live in social housing —exactly the same proportion as those who were born in Britain.

On 29 June, the prime minister told MPs he wanted to allow councils in England to give additional preference to locals. He said guidance would change so that local people would get priority for social housing.

That was seen as a broadside to the British National Party, which has campaigned heavily on the issue, claiming that British people are being short-changed for housing in favour of newly arrived immigrants.

Speaking to the BBC’s Today programme, Housing minister John Healey said councils would get more ‘leeway’ to deal with specific housing pressures in their areas.

He insisted the changes would not alter the current requirement for council housing to be awarded on the basis of need; or the policy that economic migrants cannot apply for housing for the first five years after settling in the UK.

Mr Healey said it was ‘wrong’ to say the government had been forced into action to counter the BNP’s arguments after it succeeded in getting two Euro MPs elected. But he added that he wanted to ‘nail the myth’ that certain groups were losing out in terms of housing allocation.

The National Housing Federation said, in March, that housing waiting lists in England will reach record levels by 2011. It predicted that an extra 200,000 families over the next two years will push the total to a new high of around two million.

The Conservatives have said that the new guidance would be illegal under existing law and the forthcoming Equality Bill.

Buy-To-Let Landlords Hit Hard By Recession

(BBC) – NEW RESEARCH SHOWS that buy-to-let landlords are losing their properties at over three times the rate of other homeowners.

Council of Mortgage Lenders figures show 1,700 buy-to-let properties were repossessed by lenders in the first three months of this year; but landlords lost 4,100 properties when cases of lenders appointing a receiver of rent are included.

A receiver of rent collects rent on behalf of a lender when the landlord defaults on the mortgage.

The recession is also making buy-to-let mortgages much harder to come by.

As the downturn bites, lenders are appointing more receivers of rent. In this process, a tenant is allowed to remain in a property instead of losing their home. It also gives the lender time to decide what to do with the property, whilst offsetting the mortgage interest against the rent. That in turn can help reduce the arrears faced by the landlord.

In the first three months of 2008, there were just 300 receivers of rent appointed, compared with 900 repossessions.

In the first three months of this year 2,400 receivers of rent were appointed — an eight fold increase and far more than the number of buy-to-let repossessions.

… (Telegraph, 12/06/2009) – House prices: further falls look likely

Mortgage Lending Down In April

(Press Association) – ACCORDING TO THE COUNCIL OF MORTGAGE LENDERS, a total of £10.4 billion was advanced during April, 9% down from the £11.4 billion lent in March — and 60% below the level for April last year.

The news, which dampens any prospect of a housing market recovery, comes as more grim reading was made available from the Office of National Statistics. It reported that public sector net borrowing hit £8.5 billion in April.

The steeper than expected rise in borrowing is a record for the month, and more than four times higher than the £1.8 billion seen 12 months earlier.

… (10/06/2009) – Buy-To-Let Landlords Hit Hard By Recession

… (13/06/2009) – Nationwide Increases Mortgage Rates

… (08/07/2009) – House Prices Fall Further In June

Desperate Home Sellers Inflate Asking Prices

(David Milliken) – AFTER A 1.7% RISE IN APRIL, Rightmove said that asking prices for homes in England and Wales rose by a further 2.4% in May —the biggest increase for the month since 2003.

Rightmove’s asking prices are still 6.2% below their level of May last year, and there is little evidence that the rising asking prices recorded in recent months have translated into higher sale prices in the main mortgage lenders’ surveys.

The average price of a home newly advertised on Rightmove in May was around £227,000; compared to an average selling price of almost £155,000 recorded in April by the Halifax.

Rightmove’s survey was based on 61,000 homes newly advertised between April 12 and May 9; but it noted that over the same period the asking prices of 59,000 homes, already on sale, were cut by an average of 6.8% each.

Rightmove said that many homeowners were effectively trapped in their current properties as tighter lending conditions meant the equity in their existing home was no longer enough for a deposit on a more expensive one.

‘This might explain why some homeowners would risk scuppering the sale of their property by overpricing it; because only an overpriced sale would give them enough money to buy a new home.

‘Many people, who might have wanted to take advantage of the spring selling season to trade up, will be victims of equity immobility. The choice of when and how to move is now out of their hands.

‘While some of the impetus behind the increase of over £5,000 in average asking prices will be due to ambition or optimism, it will also be out of necessity as new sellers attempt to scrape together enough equity to move.’

… (21/05/2009) – Mortgage Lending Down In April

House Prices Continue To Fall

(Christina Fincher) – HOUSE PRICES RESUMED THEIR FALL IN APRIL, suggesting that last month’s surprise rise of 0.9% was nothing more than a blip.

Nationwide said the average house price fell 0.4% on the month, bringing the annual fall to 15%, which is down one-fifth from the peaks set in October 2007.

Howard Archer, economist at IHS Global Insight, said: ‘We believe that house prices still have some way to fall, although we do expect the rate of decline to moderate over the coming months.’

The figures follow the news of mortgage approvals falling in March. While record-low interest rates have led to a rise in homebuyer enquiries, mortgage providers are still reluctant to lend to those without a significant deposit.
Job insecurity is also a powerful deterrent. The number of Britons out of work has now risen to above two-million — its highest for a decade — and is expected to reach three-million by the end of the year.

… (20/05/2009) – Desperate Home Sellers Inflate Asking Prices