Chestertons Residential Observer Monthly Edition September

1Chestertons Residential Observer Monthly Edition – September 2015

Report highlights

– Lowest number of properties on the market since records began.

– House building in England is now at its highest level since 2008.

– House prices in East of England rising faster than in London.

– A London development is selling apartments to rent off-plan – believed to be the first of its kind.

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Chestertons NationalBarometer

Although there is anecdotally no shortage of demand, buyers remain frustrated by a lack of houses for sale, with July seeing the lowest stock levels ever recorded by the Royal Institute of Chartered Surveyors (RICS). Although mortgage lending reached its highest monthly level in seven years this summer, around half of this was accounted for by remortgaging.

Another drag factor is the continuing gap between buyers and sellers on price. Buyers are relentlessly pursuing best value for money, while sellers are resisting doing cut-price deals. However, concern about the inevitable rise of interest rates either late this year or early next may well force the hands of buyers or sellers, which may get things moving again.

National barometer

Chestertons Residential Observer

No. 41September 2015Monthly Edition

House prices page 2

Rental values page 4

Mortgage market page 6

Tax & regulatory news page 7

The last word page 8Housing market activity page 5

Merton

Bromley

Bexley

South-wark

LambethWandsworth

Kingstonupon

Thames

Richmond uponThames Lewisham

CroydonSutton

Greenwich

West-minsterWest-

minster

NewhamBarking &

Dagenham

HaveringRedbridge

WalthamForest

Enfield

Haringey

Barnet

Harrow

Hillingdon

Brent

City

HackneyCamden

LambethWandsworth

Camden

Ealing

Hamm.& Ful.

Hounslow

Hamm.& Ful. Kens.

& Chel.Kens.

& Chel.

TowerHamlets

26%-30.9%

21%-25.9%

16%-20.9%

11%-15.9%

6%-10.9%

0%-5.9%

Islington

– Land Registry data point to further slowing in

annual house price growth in London (+8.3%).

July was the first month this year when London

has been outpaced by another region, with the

East of England recording growth of +8.9%. The

average house price across the capital rose to

£488,782.

– Hillingdon (+14.6%) recorded the fastest annual

growth in house prices, while central prime

locations continue to lag behind the London

wide average prices rises by quite a margin.

Nick Barnes (NB), Head of Research at Chestertons: Prime central values remain subdued, with stamp duty rates and high asking prices putting buyers off. There are signs that some of the pent-up demand could be released as buyers decide to act rather than wait for a change in the market. The wider market meanwhile continues to slow as affordability worries prevail.

Figure 1: London borough house price growth: 12 months to July 2015Source: Land Registry

Top 5 boroughs

1. Hillingdon 14.6%2. Enfield 13.9%3. Newham 13.5%4. Harrow 13.3%5. Croydon 12.7%


House prices – London


North East0.1%

£97,974

North East0.4%

£100,670

East Midlands5.1%

£136,600

East8.9%

£209,989

London8.3%

£488,782

South East8.2%

£252,528South West

4.2%£190,996

Wales1.5%

£120,091

North West1.4%

£114,064Yorks and Humber

3.1%£123,663

West Midlands3.2%

£139,525

Source Price (£) 12 month change

3 month change

Monthly change

Data as at Definition

Land Registry £183,861 4.6% 2.3% 1.7% Jul-15 England & Wales: sold price

Rightmove £292,284 6.4% -0.7% -0.8% Aug-15 England & Wales: asking price

Home.co.uk £281,497 6.2% 1.0% 0.6% Aug-15 England & Wales: asking price

LSL Acadametrics £279,515 3.7% 0.9% 0.3% Jul-15 England & Wales: based on Land Registry data

ONS £277,000 5.7% 1.5% 1.1% Jun-15 UK: price at mortgage completion

Nationwide £195,279 3.2% 0.1% 0.3% Aug-15 UK: price at mortgage approval

Halifax £198,883 7.9% 1.3% -0.6% Jul-15 UK: price at mortgage approval

Key national housing market indicators

Figure 2: Average national house prices & price growth Source: Various

Figure 3: Regional average house prices & 12 month price growth (July 2015)Source: Land Registry

House prices – national & regional – Annual house price growth at national level slowed in July (+4.6%) according to the Land Registry. More recent data from Nationwide (+3.2%) suggest that further deceleration occurred in August.

– The East of England is now the region with the fastest rising house prices – ahead of London – with annual growth of 8.9% recorded by the Land Registry, nearly twice the national average.

Nick Barnes (NB), Head of Research at Chestertons: House price growth may be slowing in most parts of the country, however affordability has not improved. First-time buyers are particularly frustrated that, despite low interest rates, they often struggle to raise a deposit, especially if they are trying to save while renting. Could an interest-only mortgage tailored for first-time buyers and the Government’s shifting emphasis to delivering more affordable homes get this part of the market moving again?


£1,226

£1,608

£1,045

£1,728

£1,324

£2,968

£1,297

£1,802

£1,342

£1,654

£2,279

£2,356

£1,661

£1,397

£1,135

£1,422

£1,968

£2,535

£3,977

£4,031

£1,740

£1,969

£1,532

£1,916

£1,649

£1,315

£2,574

£2,314

£1,211

£2,406

£1,328

£2,264Westminster

Wandsworth

Waltham Forest

Tower Hamlets

Sutton

Southwark

Richmond upon Thames

Redbridge

Newham

Merton

Lewisham

Lambeth

Kingston upon Thames

Kensington & Chelsea

Islington

Hounslow

Hillingdon

Havering

Harrow

Haringey

Hammersmith & Fulham

Hackney

Greenwich

Enfield

Ealing

Croydon

Camden

Bromley

Brent

Bexley

Barnet

Barking & Dagenham

– The Homelet Rental Index reports that in the three months to July, average monthly rental values for new tenancies in the UK (£977) were 11.8% higher than in the same period last year.

– Average monthly rents (£1,538) in London in the three months to July rose by 9.5% on the same period in June 2014.

Nick Barnes (NB), Head of Research at Chestertons: The shortage of properties available to rent is fast becoming as acute as that in the sales market in some locations, and in London is arguably worse. This suggests that rents will continue to rise for some time to come. The Government has introduced a raft of new red tape and has signalled it will prefer against more buy-to-let development in future, which will likely shorten supply still further and inevitably push rents up.

Rental values

Figure 4: London borough monthly asking rents for two-bed flats (as at 9 Sep 2015) Source: Zoopla

5-bed4-bed 3-bed 2-bed1-bedAll Properties

£1,928£2,682

£4,314£5,254

£6,833

Ave. Rent:£2,319

Figure 5: London average monthly asking rents by property type (as at 9 Sep 2015) Source: home.co.uk


– Data from HMRC reveal that residential sale transactions in July were 2.4% up on the previous month and 8% higher than in July 2014.

– House building in England is now at its highest level since 2008 according to Government figures. In the year to June, 131,060 residential properties were completed, a rise of 15% on the same period a year ago.

– At least 38% of all council flats sold under the Right-to-Buy scheme in England are now being rented out privately, according to research by Inside Housing.

– Runnymede has become the latest local authority to move into the private rented sector. The Surrey council has created an investment vehicle (RBC Investments) which will buy the private rented sector element of a £70m project and has another five potential opportunities in the pipeline. Runnymede’s plan imitates Newham council’s Red Door and Ealing’s Broadway Living.

– Atlas Residential – a US Build-to-Rent company which operates 18,000 rental units across 13 states valued at a total of £1.3 billion – is entering the UK private rental market. Working alongside Rockspring Property Investment Managers, it has purchased a 145,500 square foot site in prime central Southampton with the intention of building 211 private rental units, which it will design, fund, build and then manage.

– In what is believed to be the first of its kind, a property developer is marketing apartments to rent off-plan. The apartments, in Poplar, east London, will not be finished until October and cannot be viewed. Instead, prospective tenants can look at the 158 flats via a “Virtual Walkthrough”, which lets them see size, dimensions and layout via their PC, tablet or phone. 60% of the properties have reportedly been let already.

Nick Barnes (NB), Head of Research at Chestertons: The growth of the private rented sector continues relentlessly, which is attracting increasing interest from institutions and larger corporate players. The marketing of apartments to rent off-plan is an interesting concept that only serves to illustrate the strength of demand for rented homes in London.

Figure 6: UK residential transactions (July 2014 – July 2015)

Housing market activity: Sales, rentals, development & investment

Source: HMRC

Jul 15Jun 15May 15Apr 15Mar 15Feb 15Jan 15Dec 14Nov 14Oct 14Sep 14Aug 14Jul 14

114,

720

105,

170

110,

280

114,

990

99,0

10

103,

880

77,7

50

78,5

40 91,4

90

86,7

90 97,5

90

116,

270

119,

080


– Latest data from the Council for Mortgage Lenders (CML) shows that gross mortgage lending in July rose by 9.3% compared to the previous month and was 13.7% up on the July 2014 figure. At £22 billion, gross lending was the highest monthly total for seven years. Remortgaging reached a four-year high, and was nearly 29% higher than in July 2014 according to the British Bankers’ Association (BBA).

– According to the CML, house purchase lending in London saw a quarter-on-quarter rise in Q2, in both the number and value of loans, compared to Q1. Despite this, there were fewer borrowers in London than in the same period in each of the two preceding years. House purchase lending in the quarter was driven by first-time buyers, who made up 57% of all house purchase activity. Remortgage lending also saw a rise year-on-year and quarter-on-quarter in the amount borrowed and in the number of loans.

– Buy-to-Let (BTL) lending in Q2 was 25.5% higher by volume and 39.7% higher by value than in Q2 2014. However, remortgaging accounted for just over half of this amount both in terms of volume (50.7%) and value (52.2%).

– The average loan value for house purchase stood at £176,000 in July, according to the BBA.

– Over half a million people in the UK intend to use their retirement savings to pay off their mortgage by using either the tax-free 25% lump sum or their entire pension pot, according to specialist insurer Partnership.

Nick Barnes (NB), Head of Research at Chestertons: Worrying signs for borrowers with the recent withdrawal of some of the best fixed rate deals. Is this the beginning of the drift upwards in high street lending rates – regardless of how the Bank Rate moves?

Mortgage market

Figure 7: National gross mortgage lending, £m (Jul 2014 – Jul 2015) Source: Council of Mortgage Lenders

Jul 15Jun 15May 15Apr 15Mar 15Feb 15Jan 15Dec 14Nov 14Oct 14Sep 14Aug 14Jul 14

£M

17,8

37

17,8

12

19,3

50

18,3

69

16,1

16

16,2

25

14,7

57

13,5

20 16,3

30

16,0

17

16,0

79 20,1

31

22,0

00


– A new All-Party Parliamentary Group for housing and planning comprising MPs and peers has been set up to examine ways of tackling the housing crisis. The group will consider increasing the housing stock for both rental and private ownership, plus speeding up the building of sustainable homes in the UK, which now faces an annual shortfall of 130,000 homes.

– A year after the launch of the Mayor’s flagship London Rental Standard only 14,350 of London’s more than 100,000 private landlords have signed up – well short of the initial target of 100,000 when the voluntary scheme was launched.

– More than 25,000 individuals have signed up to an online petition calling on the Chancellor to reverse proposals announced in the Summer Budget to restrict the tax relief landlords can claim on property finance costs to the basic rate of income tax. The petition will remain open until 27 January 2016.

– The Government has refused to confirm or deny claims that it is preparing to launch a new wave of permitted development changes which would broaden the 2013 temporary office-to-residential changes to remove exemption zones and include the demolition and replacement of existing buildings. The current permitted development rights are due to end in May 2016.

– According to GLA data, at least 2,639 office-to-residential prior approval applications were received by London boroughs between May 2013 and April 2015. Around 39% of approved applications involved occupied offices.

– Research from publisher Bloomsbury Professional suggests the majority of accountants still believe the stamp duty regime on residential properties is unfair, despite recent reforms. Almost a quarter (22%) of those surveyed argued stamp duty ought to be set locally.

– More than 25,000 homes could be built on London’s wharves, according to new research from planning consultancy Daniel Watney LLP. Wharf safeguarding was introduced as part of the Thames Strategy in 1995 to protect commercial wharves in London from change of use, under the assumption that demand for wharf trade would continue to grow. However, demand fell by 29% between 2001 and 2010 and many are now unused.

Nick Barnes (NB), Head of Research at Chestertons: Our thoughts now begin to turn to the Autumn Statement on 25 November and what the Chancellor might have in store for us. Buy-to-Let landlords and purchasers of high-value residential property are no doubt hoping for a rethink on mortgage interest relief and stamp duty changes – if only!

Tax, planning & regulatory news


– Research from Lloyds Bank reveals UK house prices in locations near the country’s top performing state secondary schools are well above the area average. Residential values in the postal districts around the 30 top-performing state secondaries in England have reached £344,446, compared to the county average

of £303,738, equating to a 13% premium. Properties near Beaconsfield High School in Buckinghamshire have the highest premium (186%), followed by the Henrietta Barnett School in NW11 where a 76% premium was recorded.

The last word

Top 10 state secondary schools generating the highest house price premiums

ContactsNicholas BarnesHead of ResearchT: +44 (0)20 3040 8406E: [email protected]

Robert BartlettChief ExecutiveT: +44 (0)20 3040 8241E: [email protected]

Rob HaighDirector, Professional Services T: +44 (0) 20 3040 8235E: [email protected]

Richard DaviesHead of Residential T: +44 (0)20 3040 8244E: [email protected]

Sam Warren Head of Residential Development & InvestmentT: +44 (0)20 3040 8267E: [email protected]

The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision taking on the part of the reader. Although every effort has been made to ensure the accuracy of the information contained within this report at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of this report in whole or in part is not permitted without the prior written approval of Chesterton Global. September 2015.

School Postal District County Premium to county average house price

Beaconsfield High HP9 Buckinghamshire 186%

The Henrietta Barnett NW11 Barnet 76%

St Olave’s & St Saviour’s Grammar BR6 Kent 64%

Altrincham Grammar WA14 Cheshire 58%

Stratford Girls’ Grammar CV37 Warwickshire 38%

King Edward VI CV37 Warwickshire 38%

The Skinners’ TN4 Kent 31%

Tiffin Girls’ KT2 Kingston-upon-Thames 28%

Tiffin KT2 Kingston-upon-Thames 28%

South Wilts Grammar SP1 Wiltshire 19%

Top 30 state schools’ average - - 13%

Figure 8: Top 10 state secondary schools generating the highest house price premiums Source: Lloyds Bank

Documents

Chestertons Residential Observer Monthly Edition September