It was all go on the housing market yesterday, with a raft of reports and forecasts.
The Royal Institution of Chartered Surveyors released its latest survey into the letting market. It seems rents are still falling, but a fascinating development has emerged.
Meanwhile, the FSA released its latest data on mortgage lending. Repossessions are up on this time last year (surprise, surprise), but down on the last quarter. Dig a little deeper, however, and a little golden nugget of data comes out – and once we examine that, things look different.
The Council of Mortgage Lenders seems to be getting rather chuffed over all the green shoots, and has cut its forecast for repossessions this year; and, finally, Fitch Ratings has come out with some disturbing stuff about negative equity.
The buy-to-let market is suffering. The good news is that tenant demand is rising. The bad news, so is supply. RICS asks its members a series of up or down questions, and takes the percentage number who say up and deducts the percentage number who say down. The RICS balance for tenant demand is now 16, so once again demand was up. Although, this was in fact the lowest rise since January 2008. In the previous quarter, for example, the balance hit 42. The index measuring supply, however, is even further into positive territory: it stands at 23. The RICS index measuring supply has been greater than the index measuring demand for four quarters in a row now.
Perhaps a more telling stat is the one that relates to rental income. For the third quarter in a row this has been negative, falling to minus 55 in the latest quarter – the lowest reading yet.
The fascinating development is this. The latest survey showed an increased willingness of landlords to consider selling their property at the expiry of a tenant lease. This clearly has repercussions for the wider housing market.
As for the latest FSA data on repossessions and arrears: in Q1 of this year a ray of hope came on the arrears front with news that there was a fall in the number of new cases from the previous quarter. In all, there were 59,550 new cases, compared to 67,601 in the previous quarter and 54,351 in Q1 last year.
So that’s good. However, the number of repossessions was up again, this time hitting 14,825 in Q1. But, more worryingly, the number of mortgages which are now more than three months in arrears rose quite significantly, hitting 262,800 from 219,000 in Q4 last year and just 142,000 in Q1 last year.
So that really is quite worrying: the number of new cases fell, but the total number of properties in arrears rose by over 20 per cent. This suggests that once mortgages get behind, they are staying there. And that really is a crucial point. Unemployment is rising. The interest rates on mortgages are going up. It seems we are in for a long battle. Should this growing list of arrears convert into a rise in repossessions, then the surge in supply will lead to dramatic falls in house prices.
Both the banks and the government are terrified this may happen, although the government’s efforts have been pretty pathetic, by the way. So far, just two households have benefited from the government £285m mortgage rescue scheme.
The question is, how long can the banks hang on in there? This may be crucial in determining the ultimate story of the housing crash.
According to Fitch Ratings, no less than 10 per cent of homeowners with excellent credit ratings are now living in properties with negative equity. It says negative equity could reach 23 per cent of all borrowers if the worst case forecasts for the housing market are proven correct.
But in the intro to this article it said there was a golden nugget of data lurking in the FSA stats, and here it is.
In Q1 there was a large fall in the number of non-regulated loans in arrears. In other words, buy-to-let lenders were finding things a touch easier. Why was this? It seems a large number of buy-to-let loans are interest only, so borrowers will have especially benefited from the falls in interest rates. But alas, combine the latest data from RICS about rental prices and news that banks have started upping interest rates on mortgages, and there is good reason to expect buy-to-let arrears to start rising again.
And finally, the Council of Mortgage Lenders has reduced its estimate for repossessions for this year, from 75,000 to 65,000.
It may well be right, but as this article has shown, there are plenty of reasons to fear we are not out of the woods yet.
© Investment & Business News 2013