Property repossession numbers continue to fall

The Council of Mortgage Lenders (CML) have reported that there were 8,900 homes repossessed in the three months to October, which was a drop of 5% compared with the previous quarter.  This is the fourth quarter in a row that numbers have dropped since they reached a peak of 12,200.  The CML have warned that the trend of falling repossessions could reverse.

I was recently at an insolvency conference and one of the topics discussed was that there had not been the explosion of repossessions in either residential or development property that was initially expected.  I think this is down to a number of reasons but the main one is that the historic low levels of interest rates means that borrowing for both individuals and businesses is affordable. From my discussions with various lenders, I think they are taking a more pragmatic view of what is the point of repossessing or taking over a development site if there is little or no chance of selling this on in the open market?

I think this flags potential problems when the economy starts to improve. As interest rates rise, this could make mortgage payment unaffordable, increasing the number of people who fall into arrears. As the property market picks up, I think lenders will be more inclined to repossess or take over development sites as they realise they have more of a chance of selling them on. I also know that a number of the large banks have set up their own holding companies and have transferred ownership of a number of development sites to these holding companies waiting for market recovery.  This is something that I will continue to monitor as it is likely to have a knock-on effect to at least the short to medium term house prices.

Lindsay Darroch
Head of Property Services

Social housing and the end of ‘right to buy’

I was recently at a Clydesdale Bank conference on social housing which was timed to coincide with the vote by the Scottish Parliament on the right to buy legislation.  The Scottish Parliament voted to end the 1980s legislation.

I am a great believer in social housing, and with the current turmoil in the property market leading to an overheating of the rental market, the role of registered social landlords (RSL) is now more important than ever.

Given the lack of developments and the depreciation in the value of development sites, I would urge the government to find ways of funding the RSLs to enable them to buy sites and start building social housing to assist with the further development of the property market.

During the course of the conference an interesting statistic was highlighted – that for every £1 central government spends on social housing, the economic return is £9 – another important argument in the case for RSLs.

Whilst I would not necessarily have abolished the right to buy, I certainly would advocate that in its place the government allows a ‘right to sell’ to enable RSLs to develop properties and sell some on, which would allow them to raise funds to carry on the development process.

Again, this shows the importance of the property market in the general economic climate and the need for central and Scottish governments to take action and have a clear strategy in respect of the property market.

Lindsay Darroch
Head of Property Services

House price data – mixed messages

There continues to be mixed messages regarding house price data, with some surveys showing the trend up and others showing that prices are falling.  Only recently a national newspaper claimed that Scottish house prices were rising at the fastest rate in 3 years.

This graph from the Registers of Scotland shows the residential sales volume over a number of years.  You will see that in September the 2010 line crossed the 2009 line for the first time.  This is certainly a trend that I am noticing, with volumes starting to drop and fewer houses coming on the market.  This will have an effect on average house prices and when you take into account the fact that the bottom end of the market, i.e. the properties that are normally bought by first time buyers, are not moving at all then this is also having another distorting effect on house prices.

I feel that within certain parameters house prices will continue to plateau until the volume of mortgages increases, in particular for first time buyers.

Given the shortage of properties on the market, I do think that it is a good time to be putting your house on the market as you are certainly going to make an impact.

Lindsay Darroch
Head of Property Services

US housing turmoil – will the same happen in the UK?

There has been a recent report from Realtytrac, an organisation which monitors repossession activity in the US, which confirms that the foreclosure crisis has spread across a wider area of the country and also shows an increase in foreclosures.  This trend is the latest sign that the US foreclosure crisis is worsening as homeowners facing high unemployment, slow job growth and uncertainty about house prices continue to fall behind on their mortgage payments.  My fear is that we, in the UK, may have a similar problem developing.  The repossessions and insolvencies in the UK have not reached anticipated levels and my feeling is that this is because the banks know that if they did repossess or make developers insolvent, there is no-one out there to buy the property and they would just saturate and depress the domestic housing market.  This does not mean that the problem has gone away, it simply means that the difficulties have been delayed.

This reinforces to me the urgent requirement for the UK Government to take action to bolster the housing market.  I advocate a three point plan:-

  1. A fund set up to assist first time buyers guaranteeing deposits with the bank to allow first time buyers to get back on to the housing market.
  2. Change to the Pension Rules to allow residential investment properties to be included in pension portfolios – perhaps limited to say five properties or to a certain value.  This again would assist the housing market, help with the pension crisis and also deal with the overheating rental market.
  3. Some form of fund to encourage banks to begin lending on residential developments.

I would fund the above proposals by changing the Capital Gains Tax Rules to tax heavily anybody that sells a property, other than their sole or main residence, within a certain period of time.  I would also slightly tweak the stamp duty levels so that there were bands at £750,000 and also £1 million.

Unless action is taken now, I fear that the UK housing market will face the same issues as the US.

Lindsay Darroch
Head of Property Services.