UK Property Investment – What is going on in the market?

Mixed sentiments and news snippets at the moment are causing uncertainty in most markets.

The United Kingdom

British Banker’s Association  mortgage approvals increased once again in November rising a further 5.1% to 44,713 units from an upwardly revised 42,552 in October (originally reported as 42,238). At this level approvals are up 152% year on year from the cycle low last November of 17,738. More significantly at these levels they are 0.7% above the November 2007 level when re-mortgaging was rife, as opposed to almost non-existent today. This is at best a recovery based on the stamp duty holiday and we will probably see another fall in January.

Last week’s UK GDP revision show that the economy was flat in the third quarter, which makes a lot of sense in the light of other data. This brings the peak to trough decline to 6.03%, marginally deeper than the 1979/81 fall of 6.0%, which was, until now – the strongest drop on record and brings into question any possiblity of a short term recovery.

The UK third quarter GDP had been revised upwards but not by as much as expected . The contraction over the quarter was limited to 0.2% rather than the 0.3% first revision and the 0.4% original estimate. Year on year total output remained 5.1% below the year ago level.

The UK third quarter savings ratio shot up to 8.6%, well above its long term average and a mile away from the minus 0.7% recorded just before the recession began .The change was helped by a 3% rise in real disposable income as mortgage repayments and interest rates collapsed, leaving more for the consumer to both save and spend. Sadly unsustainable.

The UK third quarter current account deficit came in at £4.7bn after a the announcement of a downwardly revised £4.4bn shortfall in Q2, a figure originally reported as minus £11.4bn.

Major UK banks mortgage approvals rose to a total of 63,000 in November from 60,000 in October (revised down from 61k originally). These figures do not equate with those released by the BBA and are no more than a guide to mortgage activity.

The number of UK first time buyers registering with estate agents last month was approximately 20% of the total according to the National Association of Estate Agents, a substantial drop. The New Year is expected to show a further decline as the stamp duty holiday comes to an end and there are suggestions that most fort timers are still priced out of the market. The average number of house hunters registered per branch fell back to 279 in November from 287 in October, whilst the number of sales was steady at 8, a positive signal, despite the fact that one on 6 estate agents has gone to the wall.

The Bank of England semi-annual Financial Stability Report, explains that British banks will need to refinance more than £1,000bn of wholesale funding including a large proportion provided through the government’s Credit Guarantee and Special Liquidity schemes. Much of the funding has been to alleviate stressed asset lending with those assets now difficult to sell. However nearly 50% of all private lending is to the commercial real estate sector which is not looking healthy at the moment.

According to the FT, November’s public sector net borrowing came in at £20.3bn – up from £15.5bn a year ago . This brought the shortfall in the first 8 fiscal months to £106bn from £85bn a year ago, on target for the £178bn (12.6% of GDP) expected for the full year. This sum exceeded total government borrowing in the first 11 years of the labour government. However in November central government cash receipts were up 3.6% year on year – the first such increase since the start of the crisis – thus although borrowing exceeded £20bn it was nevertheless below the £23bn forecast by economists. Spending a pound to save a penny.

Total UK business investment has been revised up to a fall of 0.6% in the third quarter, some 19.9% below the year ago level following what was originally thought to be a quarterly drop of 3.0% and a year on year fall of 21.7%. This should mean a further up-grade to Q3 GDP is on the way from a decline of 0.3%, itself revised from minus 0.4%

UK Money supply as defined by M4 was unchanged in November and just 9.2% above the year ago level down from an annual increase of 10.8% in October.

UK Retail sales fell by 0.3% in November to stand 3.1% above the year ago level . October’s figures were revised up from a monthly increase of 0.4% to 0.6% and an annual rise of 3.4% to 3.7%. In this light the November outcome is respectable.

GFK consumer confidence index moved to a level of minus 19 in December from minus 17 in November.
The price of an average house in the UK has increased by £1,517 this year to a level of £205,591 after falling by £31,355 last year according to the property website Zoopla. This adds £39.1bn to the total housing stock following last year’s fall of £811.3bn, which now amounts to £5,300bn, a fall of 13.1% from the 2007 £6,100bn peak. Thus the peak to trough decline was 13.8%. Zoopla adds that prices in England during 2009 went up by 0.9% (minus 13.9% in 2008) and in Scotland by 0.6% but fell by 2.5% in Wales. The company predicts  a burst of activity and higher asking prices in the spring, followed by a fall after the Election to leave prices little changed in 2010 as a whole.

According to the FSA – there were just short of 400,000 UK households in mortgage arrears at the end of the third quarter- up 16% year on year. Unlike the figures from the CML these statistics include unregulated mortgages (second charges), whilst the FSA uses a narrower definition of arrears. The FSA puts sub prime lending at less than 0.5% of all loans and mortgages in excess of 90% LTV at 1.6%. They put the level of repossessions at 14,000 – a rise of 2.8% during the quarter but a decline of 5% when compared to Q1 and largely due to teh banks holding off.

UK unemployment increased by just 21,000 in the 3 months to end October to 2.49m, the smallest rise in 18 months and equal to 7.9% of the labour force according to the ILO definition . A close ally of Gordon tells us we don’t really understand why US unemployment is rising faster when they have such a flexible labour market. Could it be their housing recession and the decimated car market or the fact that they are a manufacturing economy and we are financial services!

UK unit wage costs in the 3 months ended October rose by 3.0% year on year following an annual rise of 3.5% in the quarter ended September.

Average UK earnings excluding bonuses rose by 1.7% year on year in the 3 months ended October , a similar figure to the quarter ended September. Including bonuses the increase was 1.5%, up from 1.2% in the third calendar quarter again year on year.

The DCLG housing market index, always somewhat behind the other agencies, reported a 2.2% annual decline in average prices for October following a year on year drop of 4.1% in September. The index is based on the Land Registry model but adjusts for the indices of the majors.

All inflation measures picked up a tad in November with the CPI adding 0.3% to leave the year on year rate at 1.9% , up from an annual 1.5% in October, whilst the core CPI edged up to a 12 month rate of 1.9% from 1.8%. The RPI added 0.3% on the month and over the year after an annual decline of 0.8% in October. The RPIX, which excludes mortgage repayments, recorded an annual rate of inflation of 2.7% after 1.9% in October as last year’s steep decline moved out of the comparison.