House price rises continue to cool in February – Halifax
Having seen five months of consecutive strong growth in 2020, this is the third month of easing, with prices coming down slightly from the high of 252,890 in November.
However, on an annual basis prices are still 5.2 per cent higher than the £239,414 in February 2020 before the pandemic hit.
The results are somewhat of a contrast to those from Nationwide Building Society published earlier this week, which showed a 0.7 per cent increase in house prices in February after a January pause.
Halifax managing director Russell Galley welcomed the stamp duty holiday extension which “has removed a great deal of uncertainty for buyers with transactions yet to complete”.
And he approved of the 95 per cent loan to value mortgage guarantee scheme also announced in the Budget.
“While mortgage approvals have reached record highs in recent months, hitting levels not seen since before the financial crisis of 2008, raising a deposit continues to be the single biggest hurdle for first-time buyers to overcome,” he said.
Galley noted the housing market had been at a crossroads to start the year, with upcoming events such as the Budget key to determining the path of activity and prices.
“Having enjoyed an extremely strong period of activity in the second half of last year, the housing market continued its softer start to 2021, with average prices down very slightly compared to January,” he said.
“However, with annual house price inflation currently at 5.2 per cent, property values remain comfortably higher than 12 months ago, when February was the last full month before lockdown.”
Industry commentators expect the Budget announcements to reinvigorate the market and prompt more buyers and sellers to return in the short term.
Former Royal Institution of Chartered Surveyors residential chairman Jeremy Leaf said: “The slight softening in house prices contrasts with those from Nationwide earlier in the week.
“It shows the market pausing in February as many buyers and sellers were deterred by the prospect of not being able to take advantage of the stamp duty holiday, as well as being hampered by further lockdown restrictions.
“However, when it became clear from Budget leaks that there was a good chance of the concession being extended and further support for higher loan to value mortgages, the market perked up and gained in confidence, even though the extension is relatively short.”
MT Finance commercial director Gareth Lewis noted that it was a sustainable slowing, rather than values falling off a cliff.
“There is still a desire to transact and if people are less likely to pay over the odds, then all the better,” he said.
“The stamp duty holiday extension should help that trend. Price growth is great as far as capital appreciation is concerned for investors but it is hard for those trying to get on the housing ladder.
“As those trying to buy a home may have been furloughed for a time, we can’t live in a price bubble for too long.
“The 95 per cent mortgages announced in the Budget are a positive as they will help stimulate the market, encouraging first-time buyers which allows further transactions to happen up the ladder,” he added.
Not sustainable throughout 2021
In the longer-term, Galley highlighted that the performance of the housing market remains inextricably linked to the health of the wider economy.
“The pace and extent of recovery are still highly uncertain, and much will depend on the ongoing success of the UK’s vaccination roll out,” he continued.
“Though there is the likelihood of an economic bounceback from lockdown, with households not unduly impacted by the pandemic deploying the significant reserves of savings that they have built-up, higher unemployment is likely to limit new buyer demand.
“Therefore, we would not expect the level of growth seen in house prices over the past year to be sustained throughout 2021.”
Coventry BS mortgage lending dips 22 per cent as BTL ticks up
The figure is a steeper fall than the overall UK mortgage market which dropped by 10 per cent from £267bn to £241bn as the pandemic hit last year, according to the Bank of England.
Coventry Building Society also increased its provision for potential future losses on its mortgage loans by £36m, although it said the book was continuing to perform well.
“This year, our approach to lending was more cautious in light of the pandemic, market disruption and the significant uncertainty we faced,” the mutual said in its annual results.
Buy-to-let lending increased as owner-occupier mortgages accounted for 60 per cent of total new lending, down from 67 per cent in 2019, at an average loan to value (LTV) of 65.5 per cent.
And total mortgage assets at the end of 2020 rose by £1.2bn comprising £25.7bn of owner-occupier loans and £17.7bn in buy-to-let loans.
Just 0.09 per cent of mortgage balances were 2.5 per cent or more in arrears, on par with 2019 and below the latest available industry average of 0.69 per cent.
During the year more than 39,000 borrowers were supported with payment holidays which helped keep possessions and forbearance low.
There were 22 cases in possession at the year end from 33 in 2019, while forbearance levels were down by 17.1 per cent year-on-year in value terms and 21.3 per cent in number of cases.
The lender’s CET 1 capital ratio increased slightly to 33 per cent which it expects to continue to be among the highest reported in the UK.
‘Carefully managed’ mortgage activity
Overall, the lender maintained its profitability, recording a profit before tax of £124m which was down slightly from £147m in 2019.
It said its net interest margin recovered in the second half of the year following the Bank of England Base Rate reduction in March, but decreased by 0.02 per cent to 0.81 per cent.
It added that no employee was furloughed and 75 per cent of office-based staff have worked from home since the first lockdown on 23 March 2020.
Coventry Building Society chief executive Steve Hughes said he was pleased with the mutual’s performance during the pandemic, including growing its mortgage book.
“Through the pandemic we continued to grow both mortgages and savings, delivered outstanding service and value to our members and provided strong support for colleagues and the local communities,” he said.
“Despite the market effectively closing down during the first lockdown, mortgage growth was £1.2bn to £43.5bn, as we carefully managed participation through the year.
“In the early weeks of the pandemic, we arranged over 39,000 mortgage payment holidays for borrowers, with the vast majority now resuming payments. Although our mortgage book continues to perform well, we increased provisions by £36m to protect against potential future credit losses.
“Our strong relationship with intermediaries, and our ability to support them with a consistently good service, helped underpin our growth in 2020 and we remain cautiously optimistic that, with the right support, the housing market will remain strong in 2021.”
Zephyr trims BTL rates but ups fee
Rates on the products start at 3.19 per cent and have a two per cent arrangement fee with loans of up to £1.5m available for individual and limited companies.
Previously the reciprocal 60 per cent loan to value (LTV) deal was at 3.39 per cent with a 1.5 per cent product fee.
Zephyr will lend up to £1.5m on its standard range at up to 70 per cent LTV and up to £1m with a 75 per cent LTV.
Managing director Paul Fryers said: “We are delighted to offer a reduced and highly competitive Spring Special on our five-year fixed rate product which coincides with the peak property buying season.
“The new rates are one of the lowest in the specialist buy-to-let market today, offering landlords and property investors further product options when considering either plans to purchase a new property or re-finance existing mortgages.”
IMLA: Some lenders would prefer looser LTI and stress tests to enable high LTV lending
Responding to chancellor Rishi Sunak’s Budget delivered yesterday, the trade body noted the stamp duty holiday extension had not taken a more nuanced approach and as a result the industry would need to continue managing buyers’ expectations.
“IMLA asked specifically for added flexibility to the scheme’s deadline to prevent harm to those who stood to miss out, while also avoiding a simple extension of the scheme that would only have postponed the inevitable cliff-edge impact,” said Kate Davies, executive director of IMLA.
“That has not been included – so it will remain important for estate agents, intermediaries, lenders and conveyancers to continue to manage consumers’ expectations in the light of what may continue to be a very busy period between now and the end of June.
“As the weeks go by, those who have not already started the process of buying a home will become increasingly unlikely to complete their purchase by that first deadline. We may also see prices rise as activity remains buoyant,” she added.
Predecessor had low take-up
Davies was also more circumspect about the 95 per cent loan to value (LTV) mortgage guarantee scheme, noting that it would help some lenders to return, but questioned its effectiveness.
The scheme is designed to only be available until December 2022 and has just £3.9bn worth of guarantees available.
It has already attracted commitments from at least six major lenders and has been welcomed by brokers.
“We shall need to digest the detail – and assess how this scheme differs from its predecessor, which attracted relatively low take-up, with buyers accessing just £2.3bn of the £12bn of guarantees offered,” she continued.
“Some lenders would prefer a simpler model of high LTV lending, which could be enabled via a revision of the current loan to income and stress testing requirements.”
The trade body emphasised that more was needed to be done to support the environmental impact of the housing sector.
“Interestingly, the chancellor’s announcement was silent on specific plans to improve the energy efficiency of Britain’s housing stock.
“Green Bonds can only go so far, and more incentives will be needed to help homeowners overcome the existing barriers to making home improvements, such as the high cost of effective remedial work and the fact that pay-back periods may be unrealistic,” Davies concluded.
Landlords breathe sigh of relief as Sunak ducks CGT increase for now
However, tax and accounting representatives warned that more significant changes may still be within Sunak’s sights.
Landlords and property professionals were particularly concerned about the prospect of a significant increase to the rate of Capital Gains Tax (CGT) to match that of Income Tax as suggested by the Office for Tax Simplification (OTS).
However, Sunak (pictured) only announced that the value of gains a taxpayer can realise before paying CGT will be maintained at the present level until April 2026.
The Annual Exempt Amount (AEA) threshold will remain at £12,300 for individuals, personal representatives and some types of trusts, and at £6,150 for most trusts.
The policy is expected to earn an extra £65m in total by the end of the 2025-26 tax year.
However, other tax thresholds not being increased with inflation could have much more significant tax revenue impacts.
Personal tax allowance frozen
The personal tax allowance which is how much people can earn each year before paying income tax will increase to £12,570 in April from £12,500 but will then not be increased again before April 2026.
There will also be a freeze of the threshold at which people start paying the higher rate of income tax, which will increase to £50,270 in April from £50,000 and remain there until 2026.
Combined, these changes are likely to earn more than £19bn in additional Income Tax revenue over the period.
Inheritance tax and VAT
The thresholds at which estates start to pay inheritance tax have been frozen until April 2026 – they currently stand at £325,000 for individuals and double that to £650,000 for couples.
The change is predicted to claim almost £1bn more in additional tax over the five-year period.
And the threshold at which businesses must register for VAT will be held at £85,000 for the next five years – that is expected to generate around £480m more in revenue.
‘False sense of security’
Rebecca Williams, head of wealth planning at Brown Shipley, noted that the “big freeze” lasts until 2026 and will bring more taxpayers into the higher tax brackets.
“Changes to Capital Gains Tax were widely anticipated but ultimately didn’t materialise today, with the chancellor rightly focusing on the pressing matter of kick starting the economy,” she said.
“However, we shouldn’t be lulled into a false sense of security. This doesn’t preclude the chancellor raising rates of CGT and the spectre of alignment with income tax rates is still hovering in the background.”
Tim Snaith, partner at Winckworth Sherwood, added the lack of action on some of these tax changes was surprising.
“That is not to say that the door has now closed on these changes; in fact, we think it remains wide open and that the chancellor will turn his attention to some of them in due course,” he said.
“It is also interesting to see the Government’s forecast for inheritance tax receipts for the coming year has, for the first time, reached £6bn.
“With this news and the OTS’ most recent report on the subject in hand, it remains an area we believe that is due for significant reform in the coming couple of years.”
Two more tranches of help promised in budget for the self-employed
The fourth self-employment grant will stay at the current level covering February to April, offering up to 80 per cent of trading profits or £7,500 over three months.
For the fifth grant, available from July, people whose turnover has fallen by 30 per cent or more will continue to get 80 per cent of average profits; those whose turnover has fallen less than 30 per cent will receive a 30 per cent grant.
The Treasury said last year that a fourth grant would cover the months of February to April. But self-employed workers have been frustrated about the lack of detail about the scheme, despite the grant period having already begun.
Eligibility of the SEISS grants has also been widened to include about 600,000 people who became self-employed in the 2019-20 tax year, as tax return data for 2019-20 is now available. These workers were excluded from previous grants as you needed to have filed a tax return for 2018-19 to apply.
However, many workers who have not received any government support so far will still be excluded from financial help.
These include directors of limited companies paid by dividends, anyone newly self-employed, freelancers paid via PAYE and workers earning more than £50,000 a year.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “The extension of the self-employment grant to those who have just submitted their first tax return will come as a huge relief. The last year has been an incredible struggle in impossible circumstances without government support beyond Universal Credit. They will finally get more of the help they so desperately need.
“However, this doesn’t help all of those excluded from government schemes. There’s no respite for self-employed people with profits of over £50,000 or who receive less than 50 per cent of their income from self-employment, who will continue to battle on. It must seem even more unjust that the scheme is scooping up hundreds of thousands more people, and still leaving them behind.”
Paragon adds five-year BTL fixes and West One cuts holiday let and expat rates
The first deal has an initial rate of 3.44 per cent and a product fee of two per cent while the second has an initial rate of 3.50 per cent and a one per cent product fee.
The maximum loan size for both products is £750,000 at up to 75 per cent loan to value (LTV), £1m up to 70 per cent LTV and £2m up to 65 per cent LTV.
Both products come with a free valuation and are available for purchase or remortgage through single self-contained properties in their personal names or through their limited company.
Moray Hulme, director for mortgage sales at Paragon said: “In response to the current strong demand and ahead of the imminent budget announcement, we have reviewed our product range.
“We have decided to offer two products that give landlords who are interested in either purchasing or remortgaging on single self-contained properties a couple of well suited options.
“This comes ahead of a significant re-structuring of our product range and we look forward to sharing more information once it is available.”
Meanwhile, West One Loans has cut rates on its short-term let and expat semi-exclusive buy-to-let mortgages.
The lender has taken 15 basis points off both deals.
Its holiday let product on the W1 range is a five-year fix at 4.19 per cent up to 70 per cent loan to value (LTV) with a maximum loan size up to £500,000.
And the expat W1 product is also a five-year fix up to 70 per cent LTV at 4.09 per cent and maximum loan of £500,000.
Both deals have an application fee of £150 and a lender fee of two per cent.
West One Loan managing director of buy-to-let Andrew Ferguson said: “We re-entered these markets back in January and have been pleased with the response we’ve seen.
“These price changes reflect our ongoing support for the products in a market where we see great potential.
“It follows on from a very busy start to the year for West One’s buy-to-let team, which has included the launch of new products and a new funding agreement which means we’re able to offer more choice to brokers and their clients, broadening our proposition still further.”
Landbay launches small portfolio landlord mortgages
The range is designed to support the increasing number of first-time landlords and those early investors looking to build their portfolio, the lender said.
It noted stock market volatility and a resilient housing market had seen an increase in first-time landlords which it expects to continue this year.
Rates on the products start from 3.14 per cent for the two-year fix and 3.44 per cent for the five-year version. The range has a maximum 75 per cent loan to value (LTV) and comes with a free valuation option for remortgages with a maximum loan size of £1m.
Paul Brett, managing director of intermediaries at Landbay, said the lender was keen to support the growing number of potential landlords.
“Now is a great time to invest in buy-to-let properties and demand in the buy-to-let sector is booming,” he said.
“Rent is increasing across the country, the stamp duty holiday is rumoured to be extended by three-months and house prices continue to rise.
“It is no surprise to see more and more first-time landlords looking to invest, and those with one or two properties looking to increase their portfolios.”
Govt mulling holiday let tax changes as Leeds BS adds pair of mortgages
The statement came following a written question about whether it would be applying HMRC guidance on furnished holiday lets to the business rates criteria for self-catering accommodation.
This follows a consultation published by the Ministry of Housing Communities and Local Government (MHCLG) considering the issue in November 2018.
Minister for regional growth and local government Luke Hall said: “The government has consulted on possible changes to the rules under which holiday lets are assessed for business rates, including the possible addition of a letting criterion.
“We have been considering responses to that consultation, taking into account factors such as the impact of the pandemic on the tourism industry and consideration of owners of holiday properties in less frequently visited parts of the country.
“The government intends to provide an update on the consultation shortly.”
The consultation proposed strengthening the criteria under which furnished holiday lets could claim business rates classification instead of council tax, which tends to be more expensive.
The holiday let market has generated great interest since the pandemic hit restricting holidays abroad, with brokers calling for lenders to launch new products.
Leeds Building Society said it experienced its biggest-ever month for holiday let purchase applications last September in a busy second half of 2020.
It is adding two five-year fixed deals at 60 per cent and 70 per cent loan to value (LTV) into its holiday let offering at 3.69 per cent and 4.29 per cent respectively.
Each comes with a free standard valuation, no product fees with fees assisted legal services available for remortgages.
“Holiday lets are a popular choice for our buy-to-let borrowers with the potential for higher yield returns,” said Matt Bartle, director of products at Leeds Building Society.
“Ongoing pandemic-related uncertainty around international travel adds to the likelihood that more Britons will holiday in the UK this year.
“Therefore, a suitable property in a prime tourist area may offer an opportunity for buy-to-let landlords to diversify their portfolio with a short let holiday property.
“We’ve expanded our holiday let range to offer more choice to borrowers, who may wish to take advantage of this under-served part of the mortgage market,” he added.
Eastgate: Shawbrook and TML strategy looks to distribution, product design and two core markets
The most significant change advisers are likely to see from the Shawbrook and TML merger is a wider representation of both brands, but it also brings stability of funding and cross-pollination.
“For both of us there was opportunity to grow – for obvious reasons there were challenging forces last year and that uncertainty created opportunity,” explains Eastgate.
“But the merger had been on our agenda for some time and the pandemic probably accelerated that thinking. We looked at what TML would get and what we would get, and both believed the whole would be greater than the sum of the parts.
“This will extend the Shawbrook name into distribution we have not had much exposure to before and for TML there’s the benefit of having a savings association behind them.”
The distribution changes will not come in overnight and the lenders will take time during this year to assess how to do it exactly, but there will be extra visibility and support from both sales teams.
“The TML salesforce will be representing us, they will be an introductory gateway and that makes us more resilient,” Eastgate continues.
“A mainstream broker is probably not going to come across a Shawbrook-type deal that often, this will just open up the opportunity for someone who wasn’t aware of Shawbrook before.”
The dual branding is already visible with Shawbrook being a prominent part of TML’s latest mortgage ranges.
“The aim is to reinforce the message that TML is backed by a retail bank and to show that we are permanently in the market,” Eastgate says.
“TML competes with a lot of non-bank lenders they have just created for themselves a point of competitive advantage.”
But is there a risk of the brands overlapping and confusing brokers and borrowers, or potentially even taking each other’s business? Eastgate believes that is unlikely.
“Distribution will play a large part and then it comes down to product design,” he says.
“Shawbrook has a long history of complex transactions in the buy-to-let (BTL) and commercial markets – these are not done by the more mainstream lenders like TML and its peer group.
“We’re very clear of the markets each business will point at and rather than cannibalise each other it gives us market options where TML has an avenue to route cases if they do not fit for it.”
Core lending markets
So with a deal intended on growing two businesses, where does Eastgate believe that growth will come from?
BTL is the prime opportunity, but perhaps surprisingly he also sees potential for the commercial lending sector despite its many issues at present.
“There’s going to be huge challenges across consumer landscape so if you want to get a mortgage its more difficult than it was a year ago,” he continues.
“So many people may have no option but to rent and that’s continuing a long-term trend, so I can’t see prices falling significantly and as a result BTL demand will be strong and very robust.
Eastgate notes the lender has been taking “very conservative views” on commercial properties with a focus on particular sectors away from those in challenging situations, and investors are returning.
“Commercial is very different, but there are parts that have been very resilient, for example, warehouse storage and semi-commercial have done very well,” he says.
“So these are the core markets for Shawbrook and TML but under slightly different situations, and that being the case, I believe for both firms growth will be underpinned by these two markets.”
Small and local businesses have done, perhaps counterintuitively, “really well” during the pandemic year as has warehouse and distribution space with the increased reliance on mail order.
“There are selective markets that we can rely on,” he adds.
‘Off the pace on bridging’
And then there is the bridging market which the lender notes is “very robust” at the moment, fuelled in large part by the stamp duty holiday, but also the need to renovate and convert properties.
Eastgate admits that after being in the market for 10 years the lender’s proposition in the area had “come off the pace”.
“So we have done a lot of with our bridging proposition after recognising that we needed to do some work on it – we’ve focused a lot of our investment in improving products and processes,” he says.
“It’s a big market for us and remains an attractive market. I think it will increasingly see people buying properties to add value.
“And it will be interesting to see how commercial spaces become residential spaces as planning regulation changes – we want to be well set to take advantage of that trend.”
Overall, Eastgate believes the housing market will remain resilient through the year and even if there is something of a dip, he argues the long term returns from property investment warrant confidence in a rapid recovery.