ONS figures show that the typical home in the UK cost £220,100 in April, with a rise of £3,500 on the previous month.
This equates to a £12,000 increase from the same month a year ago, the Office for National Statistics (ONS) says, despite banks and lenders reporting a stagnant property market period.
This does however oppose figures from Nationwide Building Society and Halifax Bank, which have proved a stalling housing market over the past few months.
This week Finance Monthly has heard Your Thoughts on the housing market and gathered some insight from the experts below.
John Eastgate, Sales and Marketing Director, OneSavings Bank:
House prices have been galloping upwards for the past five years, but it seems that softening demand might be starting to rein-in the pace of that growth. Mortgage approvals fell once again in April, reflecting falling consumer confidence that will hardly have been helped by the election outcome.
Until we get some clarity around how the political landscape will unfold, it is difficult to envisage a material change in consumer confidence, so we should expect the pattern of reducing house price growth to continue. Falling real incomes will remain a challenge for affordability although we should expect to see mortgage rates remaining at record lows for some time to come and this will no doubt support a core level of demand and ensure a modest level of house price growth in the medium term.
Luke Somerset, Business Development Director, Contractor Mortgages Made Easy:
Whist housing sales are reported to have dropped by 19% across the UK since this time last year, there remains an overwhelming sentiment that we remain in a sellers’ market. House prices remain incredibly resilient despite of Brexit uncertainty and the stamp duty levy introduced in April 2016. This has led to a substantial increase in the cost of an average house in the UK putting further pressure on first time buyers and next time movers. However, it is not all doom and gloom.
The number of mortgages that require just a 5% deposit have increased by 14% over the last 12 months and there are now 287 mortgage products available to these borrowers with minimal deposit. With increased competition amongst lenders, interest rates for younger borrowers are starting to fall, so in spite of an increase in house prices, the actual cost of funding a mortgage hasn’t increased proportionally, thanks to the drop in mortgage rates. This doesn’t however help young borrowers when it comes to saving a deposit and more should be done to assist young borrowers onto the property ladder.
Mark Noble, Managing Director, Castles Residential Sales and Lettings:
If you listen to media coverage, believe everything you read in the papers and listen to some local estate agents, you could be fooled into thinking that the housing market is in the doldrums and there seems to be surprise that house prices have risen fairly dramatically over the last 24 months.
However, if you are in the housing sector or scratch under the surface, you will quickly realise that the lack of good property inventory coming to the market in the right numbers has created a huge supply and demand problem, creating a situation of more buyers than property and ultimately, pushing house prices upwards.
At Castles we have sold 2 properties in the last few weeks at over the asking price, one came to the market at £189,995 and sold (stc) for £197,000 and the other came to the market at £200,000 and eventually sold (stc) at £212,000, this was as a result of mini open houses and best and final offers.
The simple facts remain, if you put your house on the market with the wrong agent, at the wrong price the property will remain on the market for weeks, if not months, creating the false impression of a stagnant market place.
Should you decide to employ the services of an agent with a proven track record in selling property in your area and price your home correctly, then a sale can be achieved in a reasonable timescale, some properties are still selling within days and before reaching the internet.
There is always a period of reflection before and after events like the recent election but we envisage the market will continue in the same vein for the foreseeable future, so if you are thinking of selling, chose your agent wisely as they really can make the difference to the price you achieve for your property and in some cases, whether your property sells at all.
Mark Homer, Co-Founder, Progressive Property:
Despite stories of a recent cooling in the UK property market the longer-term trend for U.K. Property prices is rosier. As the typical house price has increased by £12,000 in a year (ONS) it is clear that a lack of supply and continued population increases are still pushing prices higher.
As 2017 has developed it has become clear that a 2-step market has materialised as a result of government policy.
Coming off the back of seeds that were Sewn in 2016 when the government increased stamp duty on more expensive and buy to let properties sales of these types of properties have stalled. Many properties over £937k (on which stamp duty has increased with some now attracting 12%) are now sitting on the market and sellers are having to reduce the prices by up to 20% to get a sale. As interest rates are low however many are choosing to just sit on them hoping for a buyer to come along making this part of the market “gummed up”.
At the same time big incentives for first time buyers through the help to buy scheme coupled with low interest rates is fuelling demand from those looking to get on the first rung of the ladder. Small new build houses and flats are selling well because of this and have provided support to the lower end of the market. As these types of purchases are making up an increasing large proportion of sales they are contributing increasingly to transaction volumes which have faltered in many other parts of the market.
We expect once Britain’s place in Europe becomes clearer and uncertainty around a lack of government majority subsides the market will grow around 5% per annum overall once again.
David Martin, Chief Operating Officer, Hatched.co.uk:
Understandably, people casting an eye over the UK property market in recent months would be forgiven for being somewhat confused. Conflicting news stories are released on what seems like a daily basis. The difficulties start when we all compare house prices around the UK. When you look at a regional level, many parts of the north of England are still showing steady growth – Rightmove reported in their June 2017 House Price Index a 3% annual price change in Yorkshire and the Humber, compared with a 1.8% increase in the South East and an overall decline in London of -1.4%.
Here at Hatched, we cover the whole of England and Wales and we’ve seen recent figures more comparative with the banks and building societies, rather than many of the ONS. For year-on-year activity to the end of May, we’ve seen a 18.5% increase in viewings booked, a 27.4% increase in the number of offers made and our average house price at point of sale-agreed is up 3% to £271,632.
Our number of house completions is up by 19.7% for the same period, with the average house price of those completions being £236,801 in 2016. Interestingly our average sale-agreed price in the same time period this year is £271,632, an increase of nearly 15%.
In June, we’ve continued to see a steady stream of viewing requests, in-line with the year so far. Ultimately if a property is priced correctly, presented in the best way possible and shown to as many buyers as possible, the best price for the client will be achieved more often than not.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Here, Damon Walford, Chief Development Officer at alternative lending industry pioneers ThinCats, shares his thoughts with Finance Monthly on the merits of alternative finance.
According to Altfi’s latest statistics, the alternative finance industry has originated a total of £8.7billion in loans, and there are currently almost 40,000 companies benefitting from the funding offered by this innovative and fast-growing sector. But why should businesses in need of funding approach such a platform rather than going down the traditional route of a bank loan? There are many answers to this question, but the overarching sentiment from the many and varied businesses that ThinCats has helped over the years is that it offered them a more personal, accessible and human service than they would have received through traditional means.
In discussing the benefits of alternative business funding, it’s important to set the context as to why the sector thrived so soon after emerging. Not long after it came to exist in its current form, we were struck by the financial crisis and most banks effectively pulled up the drawbridge and shut the gates on businesses looking for funding. Naturally, this created a major problem for ambitious SMEs looking to grow, but equally presented a huge opportunity for alternative finance. By offering small businesses a much-needed lifeline, the industry began to establish itself as a worthy alternative and a decade later, thousands of UK SMEs are testament to this.
One major point of difference between an alternative finance platform and a traditional funder is flexibility. For example, a bank’s lending criteria can be governed by a number of factors that don’t necessarily reflect an applicant’s deservedness of a loan; some big lenders take into account how much capital they’ve lent in a particular sector and a business can be turned down if it has reached its designated limit. Such a stringent approach inevitably results in worthy businesses being turned down for loans. Alternative finance platforms, however, aren’t limited by such criteria and can judge each applicant on its merits, on a case-by-case basis, taking a more personal, realistic approach to the transaction.
Alternative business lending also fulfils a large range of loan types from MBOs and growth capital to cashflow lending, across all regions and industries across the board, from the motor trade to renewables, IT, social care and everything in between. It therefore opens avenues for growth, development and expansion that are not recognised by some traditional lenders.
ThinCats are unique in using a network of business finance specialists who work as loan sponsors to help review borrower proposals. A loan sponsor can be a single individual, but more typically consists of several advisors with significant experience in finance, who are there not just to say ‘yes’ or ‘no’ to a business, but to help loan applicants make their case and be confident in their application. They take on the vital task of presenting the funding application accurately and specifically, allowing the business owner to continue running their business whilst providing investors with vital details on the investment opportunity. And by acting as the primary point of contact for the business, borrowers are given a personal touch which doesn’t always exist within the framework of bank business lending.
Furthermore, ThinCats has developed an award-winning, multi-layered, risk assessment model to give UK SMEs more than just a number crunching, ‘computer says no’ experience, whilst also protecting the interests of the lenders. The credit grading model consists of an in-depth, balanced analysis of a company’s financial health and dynamism, and is complimented by the security grading, determined by the asset to loan ratio. These scores are combined through multivariate analysis, and then professionally qualified by the credit team, giving all applicants a candid and fair opportunity to access funding.
A number of the worthy businesses that have borrowed via the ThinCats platform have been declined by banks, for one reason or another. Take Jack Norgrove, for example. An experienced member of the building and construction industry, Jack identified the promise in a plumbing and drainage supplier in Kidderminster, and put a proposal together to buy it out. When the bank he was talking to declined the deal due to insufficient security, he went looking elsewhere.
He was put in touch with a business consultant, who took the proposal to ESF Capital, major shareholder in ThinCats and sponsor to the platform, to discuss accessing an alternative business loan. The consultant was able to demonstrate that it was a solid business with a good track record and ESF and ThinCats concurred. The loan was listed on the platform and filled on schedule, allowing Norgrove Building Supplies Ltd to officially purchase the business, and immediately start implementing the development strategy, thereby making the most of a profitable situation in a timely manner.
For many business owners who have borrowed through alternative finance, it’s the very different nature of the platforms which offers the benefit and acts as the draw. Alternative lending firms are more independent than high-street lenders and offer more transparency for borrowers and lenders. On such a platform, if your business appeals to investors, you will be able to raise a loan and have it fulfilled. For many borrowing businesses and lenders, this ability to access investors directly is one of the main appealing factors; the social element of being able to witness investors compete on the platform to back your business with a loan, and become an advocate of your brand, and potentially a loyal customer.
A major benefit for businesses looking to borrow is speed. These platforms are generally much smaller organisations than big corporates, so naturally there can be a more hands-on approach from the outset when it comes to dealing with potential borrowers. With a tighter business framework, there are also less hoops for applicants to jump through, and complicated and unnecessary covenants and conditions are reduced. The time taken from a business first contacting ThinCats with an application to drawing down of the loan is a matter of weeks rather than months, enabling company owners to make the most of business opportunities as they arise.
Alongside these benefits, the alternative finance industry is able to offer competitive interest rates as well as flexible terms when it comes to loans, such as a choice of security terms, a range of repayment options or no early repayment charges, which may not be the case with some traditional loan providers.
ThinCats is one of the pioneers of the industry, and has recently had a record month, setting the scene for a record quarter; with an incredibly diverse pipeline of loans in prospect, it shows that the alternative lending industry is incredibly buoyant, and provides opportunities for SMEs and investors across the board.
The developments and investment that have come with strong institutional backing behind the industry has meant that early niggles have been ironed out, and the sheer volume of loans, investors and borrowers demonstrates the strength of the sector. Borrowing businesses can now have peace of mind that the major players offer an alternative funding package that is worth considering, even before approaching a traditional lender.
According to L&G research, the ‘Bank of Mum & Dad’ is the 10th biggest mortgage lender in the UK as buyers, and many fi5rts timers, rely heavily on their parents for support.
In the UK, the average mortgage deposit is around £26,000, the average age to lend is around 30, and the average borrowed money is at £132,100.
Finance Monthly set out to hear from a number of experts in the property, legal and banking fields, and heard Your Thoughts on the Bank of Mum & Dad.
Luke Somerset, Business Development Director, Contractor Mortgages Made Easy:
Generation Z is about to start working. Born just before the Millenium they are too young to remember 9/11 but have grown up in a world filled with political and financial turmoil. They are keen to look after their money and make the world a better place. Along with Generation Y these young people have an entrepreneurial spirit like no other generation before them and many of them are either shunning university to set up their own businesses or are going freelance when they graduate. Generation Y and Z are now joining the 2 million freelancers already working in the UK and we have already seen a 26% increase in the number of professionals aged 16-29 registering as self-employed over the last eight years. But these young people might think that they can never get on the property ladder and are destined to be forever known as ‘generation rent’.
However, the Bank of Mum and Dad might be an alternative option or even saving for a deposit. Let’s face it, saving a deposit is the single biggest hurdle between you and owning your own home. It’s not easy to save a substantial deposit when you’re establishing yourself, but thankfully help is at hand in the form of specialist savings accounts such as the Help to Buy ISA which will assist you in saving the 5% deposit you need to purchase your first home. And things have got better for the Bank of Mum and Dad too! Traditionally if your parents wanted to help you to get onto the property ladder, they would have had to write you a cheque and accept that they’d probably never see that money again.
But today there are a range of innovative products which allow your parents to lend you the money you need to buy your first home whilst ensuring that they’ll see their hard-earned savings back from the bank after an agreed period of time.
Mark Homer, Founding Partner, Progressive Property:
As government regulations controlling the type of borrowers which banks can lend to, and the size of the loan as a % of their income bites, many now find the simplest route is to take some of the cash/equity which the older generation sit on in their homes and pass it down to allow those onto the first rung of the ladder.
With the pendulum having swung far in favour of increased bank controls, many believe it has moved too far post the 2008 banking crisis as often happens immediately following periods of crisis. Indeed, there does seem to be a growing consensus that perhaps things could be loosened a little which would allow banks to lend more than 15% of their mortgage book at over 4.5 times income.
As buy to let lending reduces due to stamp duty, tightening lender criteria and the reduction of interest relief bite younger, purchasers are spotting the opportunity to marry family cash with some very cheap bank finance. Often able to secure mortgages at sub 2.5%, many residential purchasers are finding a purchase much cheaper in the long run versus renting.
Jonathan Daines, lettingaproperty.com:
We monitor both the housing and rental market closely and have watched the rise of Bank of Mum and Dad (bomad) steadily grow to where it is today – the ninth largest lender, which is set to fork out £6.5bn this year compared to £5bn in 2016.
But for those who aren’t able to tap into or even unlock the funds of bomad, renting remains the only affordable option which offers flexibility and the chance for tenants to move on as personal circumstances change.
A Which? survey has revealed that 49% of 18 to 34-year-olds regard buying a home as a greater concern than social care costs or energy prices, with some admitting to never wanting to have to tap into parental funds in order to own their own home.
Indeed, as a nation we have always strived to become home-owners, but with prices so high and the demand supply-ratio so out of balance, we have certainly noticed that generation rent is here to stay, with longer-term tenancy agreements more popular than ever in a bid to families in particular feel home from home within their rental property.
Gary Davison, Managing Director, QualitySolicitors Davisons:
As a property lawyer and also a deep-pocketed generous co-director of my very own ‘Bank of Mum and Dad’ (5 to support; I deserve some sympathy, as well as a cold flannel on the forehead at times), I feel suitably qualified to give some guidance on the topic in relation to property matters.
We are Birmingham’s leading conveyancer for residential property purchases according to official Land Registry data, and a significant number of these transactions are on behalf of buyers looking to take their first step onto the property ladder. In recent years a number of our younger clients have taken advantage (quite literally) of the Bank of Mum and Dad in order to secure a larger deposit that grants access to more favourable mortgage rates and cheaper monthly repayments.
For those parents looking to contribute to the deposit, it’s important to be clear whether the contribution is intended as a gift or a loan.
For many parents, their contribution to the deposit is meant entirely as a gift with no intention to claim a stake in the property or recoup the money at a later date. If this is the case, all mortgage lenders will require a deed of gift document signed by the persons gifting the money which confirms that they understand they have no interest in the property and no right to get their money back directly from the property. Gifted deposits will be free from inheritance tax if the donor lives for seven years after the payment is made.
For those parents who intend the money as a loan, one possible option is to take out a joint mortgage with your child. This may help increase their chances of a successful mortgage application, though you may also have to pay Capital Gains Tax when you come to sell the property as it is not your primary residence and if your share is over the annual CGT allowance.
Another option is to create a second mortgage against the property. This would be repaid out of the sale proceeds. However, you would need to gain permission from the mortgage lender first, which may be problematic.
The third option is less formal – a Deed of Trust – which is not registered against the property but sets out the proportions in which the property is held. Many of our clients will be buying with a partner, and whilst parents would happily give money to their own child they may not wish their partner to also benefit in the event of a separation or dispute.
Ultimately, if parents are intending to make any contribution towards a deposit then it is important that they take legal advice to agree on the most suitable course of action.
Shelley Chesworth, Partner and head of the family team, SAS Daniels:
We are increasingly seeing Generation Y turn to their parents to help them get a foot on the property ladder. However, we’re also seeing more frequently, situations that arise as a result of both parties not considering the long-term ramifications of gifting a substantial sum of money. Many are entering into this financial arrangement without giving consideration to inheritance tax consequences or the potential liability for beneficiaries.
Navigating this complex minefield can be tricky. Cohabitees in particular, acting as either a gift provider or beneficiary, need to consider putting certain agreements in place to ensure their gift is protected. For example, a Transfer Deed can protect an investment by expressing particular shares in the property while a Declaration of Trust can be used to set out the parties’ intentions at the time of purchase, so a property can be held in joint names but the trust details how the proceeds should be divided in the event of separation. A Cohabitation Agreement should also be considered as it sets out exactly what was intended as a gift or deposit.
Married couples should also take action. Imagine being gifted a substantial sum by your parents to invest in your marital home, only for the marriage to break down. In this situation the matrimonial assets as a whole will be taken into account and generally divided equally. A Declaration of Trust can be used in this situation but it won’t override the court’s ability to divide the couple’s assets in line with Matrimonial Causes Act. In order to protect parental deposits we’re seeing more people entering into pre or post nuptial agreements – they are no longer just for the rich and famous.
Charles Fletcher, Head of Analysis, Cogress:
The bank of mum and dad is now the ninth biggest lender in the UK with nearly one-third of first-time buyers seeking financial support from their parents. As property prices across the country continue to rise and outpace growth in average earnings, there is little reason to believe this trend will slow down anytime soon.
This year, UK parents are estimated to collectively lend £6.5bn to their children to help them buy their first homes. The bank of mum and dad already provided the funds for almost 300,000 mortgages in 2016, which represented 26 per cent of all property transactions.
Unsurprisingly, the London property market has the highest level of support for first-time buyers from their parents. 40% of homeowners in the nation’s capital have relied on parental finance support to buy their property. With an average house price of £610,418, prospective buyers in London are likely to continue depending on the bank of mum and dad to secure property.
Like any form of loan, lending from the bank of mum and dad is not a risk-free option. Not only can parents go bust like a bank, familial loans can also cause tension in the relationship between the lender and their parents. Problems can often arise due to miscommunication between the two parties, regarding any potential “strings attached” to family financial support such as interest rates, confusion over whether the money is a gift or a loan, and parental concerns about their child’s partner benefitting from their mortgage contributions.
The nation’s rising dependence on the older generation to access the property market highlights not just the current inequities in the market, but also opportunities for developers to create more affordable housing that addresses the needs of today’s first-time buyers across the country
Amy Nettleton, Assistant Development Director of sales and marketing, Aster Group:
The UK’s reliance on the bank of Mum and Dad is borne out of a serious affordability crisis. It’s an unsustainable solution that heavily favours those with parents that can afford to gift or loan them money.
The biggest challenge facing first-time buyers is saving for a deposit. The average house price in the UK currently stands at £218,000[1] and setting aside cash for a £20,000 deposit is proving difficult for the millions of people facing high costs in the private rented sector.
In the absence of a drop in overall values of homes, we need more attainable deposit sizes. The shared ownership tenure has been offering this for over 30 years, with smaller deposits allowing home owners to scale up their equity over time. With affordability affecting a growing cross-section of first time buyers, shared ownership will have to become increasingly mainstream.
At Aster we have pledged to increase the number of homes available under this tenure, but making shared ownership work is about more than just building houses - it needs backing from lenders. Although there has been some progress in recent months, we are still to see many of the big players commit to offering products for the tenure.
While pressure is on the bank of Mum and Dad, we need increased mortgage provision for shared ownership. But there also needs to be a step-change in the way it is viewed – not just as an affordable tenure, but as a viable solution to a problem that affects society as a whole.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Melanie Leech, Chief Executive of the British Property Federation
New lending to commercial property increased by over fifty per cent and reached a six-year high in 2014, as non-traditional lenders entered the commercial real estate (CRE) market at record levels.
The value of commercial property loan originations soared to £45.2 billion at year-end 2014, the highest figure since new lending reached £49.82 billion in 2008, according to the independently compiled De Montfort Commercial Property Lending Report.
The most comprehensive study of the UK’s commercial property lending market showed that the total value of outstanding debt declined to £165.2 billion at year-end 2014, excluding loans of approximately £16.1 billion secured by social housing.
At year-end 2014, insurance companies and other non-bank lenders accounted for 25% of new loan originations. Outstanding debt also saw increased diversity, with insurance companies representing 12.7% of the total debt, up from 10.2% last year, and other non-bank lenders representing 6.5%, almost doubling their 2013 share of 3.7%.
The value of distressed loans more than halved in 2014, falling from £44.7 billion at year end 2013 to £21.1 billion at year-end 2014, supported by a strong recovery in the underlying property market as well as an improving UK economy more generally.
Greater market diversification is further evidenced by the share of outstanding debt held by the top 12 lenders, which stood at 66% of outstanding debt in 2014 compared to 72% in 2013.
Lending intentions remained strong, with 82% lenders intending to increase their loan book size and 84% intending to increase loan originations.
Melanie Leech, chief executive of the British Property Federation, said, “The increasing diversification of lenders has been marked over the past year, and we feel this is broadly positive for the market.”
Bank lending conditions in emerging economies tightened abruptly to their weakest level in three years in the first quarter of 2015, according to the latest Emerging Markets Bank Lending Conditions Survey from the Institute of International Finance (IIF).
"The sharp tightening of EM bank lending conditions is further evidence that emerging market economies are struggling," said Charles Collyns, Chief Economist at the IIF. "In addition to a demand slowdown, supply conditions continued to deteriorate. Banks reported a continued tightening in funding conditions, likely reflecting the cautious tone in EM financial markets, at least until the March FOMC (Federal Open Market Committee) meeting."
The composite index of the IIF's Bank Lending Survey dropped 1.7 points to 48.1 in Q1 2015, the lowest since Q4 2011. An index reading below 50 reflects a tightening in bank lending conditions. This tightening in lending conditions was driven by a sharp decline in loan demand, whose index fell to the lowest level in the series starting Q4 2009.
The index for domestic funding conditions edged up 1.5 points to reach 50.7 in the first quarter of 2015. This was primarily driven by a substantial improvement in funding conditions in EM Asia, even as funding conditions in other regions tightened.
By region, EM Asia and Latin America drove the overall tightening in bank lending conditions. Lending conditions in EM Europe also entered tightening territory after easing in 2014. The improvement in bank lending conditions in the MENA region continued to moderate, probably reflecting the impact of weaker commodity prices since the second half of 2014.
The survey covered 130 EM banks and was conducted between March 12 and April 23, 2015.
