First-time buyer market needs government and parental support to recover – Savills
In Savills’ residential market prediction, the firm said rising house prices, unemployment, furlough and the withdrawal of high loan to value (LTV) mortgages had caused the first-time buyer market to shrink from 30 per cent in March 2020 to 24 per cent a year later.
It said the mortgage guarantee scheme could support new buyers by helping 50,000 borrowers a year if it reached a similar scale to the previous scheme which ran between 2013 and 2017. The report also said the end of the stamp duty holiday would give first-time buyers a competitive edge.
However, government initiatives will continue to be needed by new buyers going forward, Savills predicted.
It said the end of the Help to Buy scheme in 2023, which supports 40,000 purchases a year, would result in a decline in market share and the First Homes scheme is unlikely to make up for this loss.
The government aims to make 1,500 properties available under the First Homes scheme by the end of this year, with a total of 10,000 homes dedicated to the programme over an undetermined period.
The report said: “Any recovery in first-time buyers will have to be backed by various forms of government support, or by continued large contributions from the bank of mum and dad.”
Rising prices and interest rates
House price growth is expected to reach annual growth of nine per cent by the end of the year and after 2021, will be capped by an earlier than expected increase in interest rates.
Savills forecast the Bank of England base rate would rise to 0.25 per cent by 2023 before increasing to 0.5 per cent in 2024. This is ahead of its original view that the rate would not reach 0.5 per cent until 2025.
Now Savills predicts the base rate will be set at 0.75 per cent by the end of 2025.
“The recent strong price growth, combined with an expectation that interest rates start to rise a little earlier than previously anticipated, leaves much less capacity for price growth post-2021,” it said.
Transactions will begin to fall towards the end of this year but will reach 1.62 million overall.
This will be the first time residential transactions have exceeded 1.6 million since the 2007 financial crisis. It is also 35 per cent higher than the average number of transactions for the five years prior to the pandemic.
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Beyond that, lender initiatives on EWS1 forms and post-pandemic criteria and market conditions topped the headlines, with some M&A activity also piquing interest.
UPDATE: Police to investigate Savills’ employee Twitter account over racist Euro 2020 football tweets
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Amazon warehouses spark local house price growth – Paragon
The research analysed 10 Amazon Fulfilment Centres, including Daventry, Ellistown, Birmingham, New Rossington, Runcorn, Altrincham, Dunfermline, Tilbury, Dunstable and Banbury.
Average house prices in Dunstable and Altrincham achieved the highest growth of 23 per cent and 17 per cent in the year after the centre opened. Fife, however, reported a decrease in average house prices of four per cent.
The research also found that across that new-build house sales increased by 16 per cent, and the average number of homes in the private rented sector also grew by two per cent.
Analysis also showed that the opening of Fulfilment Centres had a positive impact on employment, with three per cent more jobs available in the year after opening and an average of a seven per cent fall in unemployment.
Paragon Bank’s managing director of mortgages Richard Rowntree (pictured) said the growth of warehousing in the UK stimulated demand for housing in both the homeowner and rented sectors, as well as buy-to-let.
He added: “As the pandemic has accelerated the trend towards online shopping, it is expected that greater numbers of warehousing units will be created, adding even more demand for property in those markets.
“Taking the Amazon Fulfilment Centres in isolation, the impact on property prices is clear and landlords will be looking at where new warehouse developments are located and how many jobs will be created as a result.”
The growth of online shopping has led to a boom in warehousing, with Savills pegging the number of warehouse units at 566 million square feet and has increased by nearly a third since 2015.
Knight Frank also found that UK online sales were predicted to growth by up to £67bn over the next five years, which would require 92 million square feet of space.
Amazon has opened 17 Fulfilment Centres in the UK and is due to open four more in Hinkley, Dartford, Gateshead and Swindon. Each centre is expected to create 1,300 permanent roles and additional seasonal temporary roles.
UPDATE: Police to investigate Savills’ employee Twitter account over racist Euro 2020 football tweets
Andrew Bone, commercial building manager at Savills, posted tweets with racial slurs after the penalty shootout of last night’s England match against Italy.
Black players Jadon Sancho, Marcus Rashford missed their penalty shots while Bukayo Saka’s was saved, leading Italy to their win.
Through his now deleted account Bone_andrew, the Savills employee tweeted: “N***ers ruined it for us.”
A secondary account, Picofru which has Bone as the display picture and the screen name ‘Andie Jones’, was also discovered to have offensive tweets.
One included the message: “Brit wifes gonna catch lotta lefts today [sic]”, seemingly referencing domestic abuse. It also had the post, “They dragged this lad like a runaway slave,” in relation to Italian player Giorgio Chiellini pulling Saka by the shirt during the game.
Labour MP David Lammy was among those condemning Bone’s posts today.
Posting screenshots of the messages, Lammy tweeted: “This is why we take the knee. Praying for a better future – worthy of the values, beauty and respect exemplified by every single England player.”
Author and activist Dr Shola Mos-Shogbamimu tweeted: “See this guy – who is he? Report him to @twitter and @metpoliceuk. Whoever his employer is must fire him. If he runs a business, make it your business to never use his services.
“He must be prosecuted and convicted. Being a racist has consequences.”
Others alerted Savills to the tweets and called for him to be fired.
This morning, the firm posted on its Twitter account, saying: “Savills is committed to eliminating discrimination and encouraging diversity amongst our workforce. A full investigation will be carried out in regards to this unacceptable incident.”
The firm also issued the statement: “Savills abhors and has zero tolerance to any form of racism and racial discrimination and is appalled by the racist comments in these tweets. Savills is immediately investigating and will take appropriate action.”
It has not been confirmed whether Bone is still employed by Savills but his profile no longer appears on the company’s employee page.
This afternoon, Savills issued an updated statement indicating Bone’s Twitter account had been taken over by a third party and was now under investigation by the police.
The company said: “Savills confirms that the staff member connected with the racist comments placed on Twitter claims that his account was taken over by a third party and that the matter is being referred to the Greater Manchester Police.
“Savills has acted swiftly and confirms that the individual is suspended from duty pending the findings of this investigation, which is being progressed as a priority. Savills has a policy of zero tolerance on any form of racial abuse or discrimination.”
Low rates and muted price rises pre-Covid will protect against house price crash – Savills
The real estate group crunched Bank of England data to reveal that the total amount spent on mortgage interest was £29.6 billion in the year to 21 April 2021. Excluding the effect of mortgage payment holidays, it would have been £31.6 billion.
“When you combine the fact that we’re in this incredibly low interest rate environment, with the fact that price growth pre-pandemic was fairly muted, the total level of mortgage debt hasn’t risen that significantly — or at least, as significantly as it did in the run-up to the financial crisis in 2007,” said Lucian Cook, head of UK residential research at Savills (pictured).
Regular mortgage payments – mortgage interest plus capital repayments – were pegged at £78.7 billion, which is 19 per cent lower than their July 2008 peak, and about the same as in the year to June 2013.
Without mortgage holidays, regular repayments would have summed £83.9 billion, or 13 per cent below July 2008, and similar to the year ending July 2014.
“This data looks to have been driven by more affluent buyers, who have been using equity to fund purchases, so they haven’t overstretched themselves. That’s important in the context of what happens next,” Cook said.
He added that calls for a relaxation to lending restrictions brought in after the financial crisis that have been rippling around the market in recent weeks, were likely to be given short shrift by the regulator.
“The mortgage regulators are going to be keen to avoid any kind of debt-driven housing market boom,” Cook said.
“Over the medium to longer-term rates are likely to rise — that’s almost exactly why mortgage regulation was put in place, to make sure people don’t overstretch themselves.
“The lessons of the credit crunch, going back 14 years, are ones that linger in the memory,” he added.
Savills raises housing market forecasts on improved outlook post Budget
House prices were forecast to rise by 21.1 per cent over the five years with the UK average value expected to reach £279,644 by the end of 2025.
The rate of growth is expected to peak at five per cent in 2022, although the analysis excludes new-builds.
Transaction volumes were forecast to return to normal levels of about 1.2 million per year by 2023.
Savills forecast the strongest price growth over five years in the North West, at 28.8 per cent, and Yorkshire and the Humber, 28.2 per cent.
In London, growth was forecast at 12.6 per cent, and in the South East, at 17 per cent – supported by housing equity which would help to overcome income constraints.
“The outlook has improved since the beginning of the year,” said Lucian Cook, head of residential research at Savills.
“By extending the stamp duty holiday and the furlough scheme in last week’s Budget, the chancellor has significantly reduced the downside risks in the mid-year, while a recovering economy should support price growth towards the year end.”
Additionally, Savills expected mortgage interest rates to stay lower for much longer compared to the outlook before the pandemic.
“This means there remains capacity for medium-term house price growth despite the unexpectedly strong performance of last year,” Cook said.
Prime residences in London and the wider country house market were tipped for continued growth. Prime central London price growth was forecast at 21.6 per cent over five years, prime outer-London at 14.6 per cent, and prime country 20.5 per cent.
Frances Clacy, residential research analyst at Savills, added: “Activity has already picked up more quickly than expected, with more £5m-plus sales last year than since 2016.
“It tells us that buyers believe in the future of London as a global city and supports our expectation that values will recover quickly as the city reopens for business and international travel resumes.”
Regional prime markets see strongest year since financial crisis – Savills
The estate agent noted the UK market had bounced back remarkably well since the end of May, although the capital had been less responsive.
In a year-end trading update, Savills said: “Our UK prime residential business, which effectively missed the spring selling season during the first lockdown, showed an extraordinary rebound in activity from the end of May”.
This was predominantly in the regional markets outside London “where the volume of activity in prime residential markets for the year as a whole was the strongest since before the global financial crisis,” it added.
However, it noted that commercial property transactions were significantly affected by the pandemic which remained substantially below 2019 levels.
Looking to the year ahead, Savills acknowledged it was too early to predict the direction of activity with renewed lockdowns and substantial increases in infection rates in most markets.
“That said, global investor demand for secure income, restricted supply and expectations of continued low interest rates suggest that the medium and long-term attraction of real estate as an asset class remains highly positive,” it noted.
“The pace and efficacy of mass vaccination programmes and consequent reductions in lockdown and travel restrictions will dictate the rate at which transactional markets recover from here to reflect underlying demand.”
And in general terms, Savills said it expected transactional activity to remain suppressed in the first half of 2021 with improvement in some markets in the second quarter followed by progressive recovery through the second half of the year.
Full year results will be published in March, but the board said Savills had delivered a resilient performance with underlying results for the year expected to be at the upper end of its expectations.
Prime country homes market strongest since 2010 – Savills
Country homes priced in the region of £2m have risen by 5.5 per cent adding around £100,000 to the purchase price.
This is the strongest performance for the prime country house market since 2010 with the South West, the Cotswolds and Scotland standing out as the most active markets.
Meanwhile fierce competition from second homeowners and families looking for a change in lifestyle has pushed up the prices of properties in prime coastal towns such as Devon, Cornwall, Dorset and Norfolk by an average of 5.6 per cent over the year.
Smaller homes and flats in central London that come with a £2m price tag have fallen in value by around £8,000. In the rest of the prime London market, where £2m would typically secure an additional 1,000 sq ft of accommodation and more garden space, gains have averaged £36,000.
Figures from property data firm TwentyCI showed that the number of sales of £1m plus properties that were agreed in the 11 months to the end of November was 29 per cent higher than in the same period last year, despite a significant fall in activity during the first national lockdown.
Beyond London they have risen by 43 per cent.
Savills head of residential research Lucian Cook said: “The unique circumstances of 2020, have led to a surge in market activity at the top end of the housing market. This has supported prices and delivered some unexpected gains, but it hasn’t resulted in runaway price growth.
“The very top end of the country house market, in particular, has had an extraordinary year – perhaps its best since the 1980s, as buyers sought a lifestyle shift and recognised the relative value on offer.”
London prices dip
Overall, prime regional house prices rose by 3.6 per cent in the year, while prime London values rose by an average of just 1.1 per cent.
Values in the UK capital’s most expensive central locations, which remain almost 21 per cent below peak, slipped by 0.4 per cent across the year, but stabilised in the final quarter.
In London, there was price growth of more than four per cent for homes with medium or large gardens, while those with no outside space fell by 0.7 per cent in the past year.
A similar trend was seen when comparing houses with flats, and homes with five or more bedrooms to those with just one or two.
These trends favoured traditional family house markets such as Chiswick, Fulham, Putney and Richmond.
In prime central London, the strongest markets were Notting Hill, Holland Park and Bayswater, which combine good local amenities, access to green space, walkability and good family housing stock.
Cook added: “Given the practical implications of Covid-19, the prime central London market has relied on demand from domestic buyers and resident non-doms in 2020. In light of that, it has held up well but it simply hasn’t been able to match the performance of the regional markets or indeed the leafier parts of outer prime London.”
Mortgage affordability ‘wiggle room’ expected as base rate to stay low until 2025 – Savills
Savills UK senior analyst Lawrence Bowles also suggested chancellor Rishi Sunak should have delayed introducing the stamp duty cut and that a more targeted version of the government’s furlough scheme was likely.
Speaking at the Association of Short Term Lenders (ASTL) conference, Bowles (pictured) noted that previously the Bank of England was expected to increase its base rate to around 1.5 or 1.75 per cent by the end of 2024.
But latest forecasts suggest no rise in the base rate until middle of 2024 with rates remaining around 0.5 per cent in the middle of 2025.
“That is an unprecedented length of time for interest rates to be this low,” he said.
“So we can expect to see some affordability wiggle room emerge in terms of mortgage home owners and buyers, even with a slightly lower level of income growth than you would expect and higher unemployment figures.”
He noted that in the short-term that was not being reflected by borrowing rates.
“In the short-term we can expect to see interest rates show a larger premium to that base rate, as a result of that higher risk environment, that risk of higher unemployment,” he continued.
“But we expect to see that premium erode over the next five years, particularly with base rates remaining low over the next five-year period, which gives us more affordability wiggle room.”
Stamp duty holiday ‘mis-timed’
Bowles also suggested it would be “naïve” not to assume the chancellor doesn’t have a more targeted or form of replacement for the end of the furlough job retention scheme which ends in October.
But he added that the stamp duty holiday could have been better used.
“The stamp duty holiday is possibly mis-timed to some extent,” he said.
“We were seeing a recovery in housing market sentiment anyway and introducing that later rather than as the market was already in recovery was perhaps Rishi Sunak playing his hand too soon to some degree.”
Five-year house price growth revised down to five per cent – Savills
This amendment was made due to Oxford Economics’ forecast that there would be a longer lockdown and slower recovery, with economic output returning to pre-Covid levels by mid-2023.
Despite this, Savills expects mortgage affordability to be better by 2024 than what it predicted it would be in November due to interest rates remaining low.
The real estate firm said the Bank of England base rate would remain at 0.1 per cent until the second quarter of 2022 Q2 before rising gradually.
GDP is expected to fall 8.3 per cent over the year overall, Savills said, with rebounds of 6.3 per cent and 4.7 per cent in the third and fourth quarter.
Savills said lenders would be “bruised” by mortgage payment holidays and “more cautious” in the short-term but predicted the appetite to lend would return once the economy began to recover and unemployment fell.
The firm also amended its predictions for average house prices over the year, saying it now expected them to drop 7.5 per cent.
This new outlook is a middle ground expectation from the five to ten per cent decline in house prices the firm predicted in March and lower than the one per cent growth it forecast in November.
Savills originally said completed transactions will remain low at 25 per cent of the five-year average over the second quarter of 2020 with 700,000 transactions. However, due to the reopening of the housing market in England it believes activity will recover gradually over the second half of the year.
It also predicted transactions to return to normal levels by the third quarter of next year reaching one million transactions, followed by a higher amount of transactions in 2022 of 1.3m and above as the industry works to get through accumulated pent up demand.
Regionally, it predicted that house price movement will be “uniform” across the UK over the year with London and the South East leading the market’s recovery, instead of the expected strong growth in Midlands, North, Wales and Scotland.
Savills said: “When we launched our residential market forecasts in November 2019, the greatest uncertainties facing us were an impending General Election in December and the UK’s departure from the EU in January. The first case of coronavirus would not be confirmed for another month.
“The way we live and work has changed dramatically in the past few months, so too the lead economic and employment indicators.”