29th June 2009
There was a modest improvement in most regions’ economic data last week. But activity indicators remain at
extremely weak levels and are still consistent with an economic contraction across the developed world, especially
in the euro area. In the UK, the process of households paying down debt is getting into gear. However, this will
have a long way to go.
Data released last week showed that households have
shaved 11% off their personal loan balances since
February 2008, taking balances below £60bn for the first
time since 2004. Mortgage debt has also fallen, but by just
0.15% since its peak of £1.26 trillion in November. Since
mortgages account for more than 80p in every £1 of
household debt, reducing the near £1.5 trillion of
household debt outstanding is not going to be a quick
process.
Deposits grew only marginally in the first five months
of this year, by £326m, a somewhat poor performance
compared to the £15bn in the five months to May 2008.
Given the lack of incentive to save from low interest rates
and the need to pay down debt, this is perhaps
unsurprising.
Low interest rates are helping to stabilise the housing
market a little. Data from the British Bankers Association
(BBA) showed that mortgage approvals for house
purchase rose again in May, reaching 31K, the highest
they have been in over a year. Approvals for remortgaging
fell though, as the decline in lenders’ Standard Variable
Rates (SVRs) has lowered the incentive for borrowers to
refinance when current deals expire. It is unclear how long
the decline in remortgaging will last. Market swap rates
(used to price fixed rate mortgages) have risen since their
April lows, pushing up the cost of fixed rate deals. Despite
the increased costs, if they anticipate further rate rises,
home owners may be encouraged to take out fixed rate
deals.
More encouragingly, existing borrowers are benefiting
from lower interest rates. As a result, the Council of
Mortgage Lenders has reduced its forecast for
repossessions in 2009 from 75K to 65K. This is still more
than 50% higher than in 2008, but below the peak in the
last recession.
Signs of encouragement also came out of the US.
Durable goods orders jumped 1.8% m/m in May, after a
similar gain in April. Orders excluding aircraft and defence
are less volatile and give a better indication of companies
underlying investment intentions. This measure rose 4.8%
m/m, the strongest monthly gain since September 2004.
Investment is firming, but from an extremely low base. On
this measure, orders are still down 22% on last year.
Last week’s statement after the Federal Reserve’s rate
setting meeting was largely as expected. The Fed
confirmed that interest rates are likely to stay at their
exceptionally low levels “for an extended period", and that
it would continue with the asset purchase scheme in its
current form. In an effort to keep mortgage rates low, the
Federal Reserve is already committed to buying up to
$1.25 trillion of agency guaranteed mortgage debt and up
to $300bn of treasury bills. So far, the Fed is about half
way through this process.
The flash PMI for the euro area for June showed a
fractional improvement. The composite PMI, a good
early indicator of activity, rose marginally to 44.4 this
month, some way up from February's low of 36 but still
stubbornly below the 50-mark that would signal a return to
growth. The different pressures on the euro area mean the
performance of countries within the single currency area is
not identical. Germany is still reeling from the decline in
external demand that has knocked the wind out of its
export sector while countries like Ireland and Italy are
adjusting after large property bubble bursts and recent
sovereign credit rating downgrades.
Indeed, house prices in Ireland continued their downward
spiral in May matching the kind of declines we have seen
in the UK. Prices have dropped 21% since their peak in
February 2007 and now stand at the same level they were
in mid-2004. Low levels of demand and a supply overhang
suggest the market has some way to go before it reaches
a bottom. As prices have risen four-fold since 1996, while
incomes have not even doubled, affordability was
stretched. With a deep recession underway income growth
is unlikely, leaving prices to make most of the adjustment.
Finally, inflation in Japan hit a seven year low this
month. Consumer prices dropped 1.1% in June compared
to a year ago, in the fourth and steepest decline so far this
year. Deflation, a sustained period of falling prices, looks
like it has returned to Japan. And whilst it is not a pleasant
bed-fellow, it is a familiar one. In the last decade prices
have only increased in 29 months compared to a year
earlier, but have fallen in 85 monthS.
This data has been provided by kind consent of Alison Peacock of RBS Banking Group.
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( 2.9 / 101 )London at this moment in time is a very popular place to buy either in the residential or the commercial property markets, because as our friends on the continent have very clearly identified London is the hub of what is going on in the world and is a very good place to live or work.
The facilities in London are superb both for living and working with communication, travel, education and the social life, together with a very strong and attractive property market that although has been hit by the downturn is expected to make a very quick recovery before the other parts of the UK.
Buyers seem to be queueing up to find the bargins in the city as this is unlikely to be repeated in the forseeable future, and history tells us that this is every twenty years or so.Because so many of the buyers are from abroad who seem to be cash rich and the exchange rate is in their favour, mortgages are not on the shopping list, and they are able to exploit the buyers market while we just grin and bear it.
This activity will certainly help property prices to recover but until we can see the money tap turned on residential and commercial mortgages will remain in short supply, and the recovery will be that much slower as clients who are desperate to go forward, particulary in the commercial property market are unable to do so because the banks are not lending despite what they say, and the help from our government, commercial mortgages, finance, and business loans are in short supply, and until that changes we are all working with one hand behind our backs.
Michael J Alexander acommercialmortgage4you.co.uk
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( 3 / 123 )A swoosh shaped recession has been predicted by the MP for housing and planning, apparently the MP, John Healey said that a slow recovery from the very sharp downturn in the market, was the most likely outcome to the recovery of the UK economy.
It is also predicted that the global economy will shrink by 1% this year according to the International Monetary Fund, with the UK predicted to contract by four percent.
Well lets speak in our language, English, I have no idea what a swoosh is as I am sure most of the British public do not. Supply and demand is always the driving force behind the economy, and if the general are confident about employment and their general state of their finances they will spend money.
If there is a feel good factor among the population then it will not just be about buying a house it will be about changing to a new car, nice holidays and clothes, with some evenings out to eat or be enterntained.Its not rocket science, we have to feel good about ourselves and have confidence in our future.
Very sadly we do not have any of the above ingredients to bake our UK economy, housing and commercial property cake, because without the life-blood of our economy being available to business and residential clients, ITS CALLED MONEY, we cannot go forward.
The demand from people who want to move or buy their first home is massive, and business clients who want to expand, purchase new premises, or start up a new business, again is massive. Bur until the Banks start lending again, instead of finding reasons to say no. we cannot go forward, as the money supply is being strangled at source.
We do not want to return to the days of anything goes, because we will back here again sooner than we realize, and this downturn came so quick and has been so damaging to the confidence of the country in general.
Clients will have to accept that if you want to buy a house or a commercial property, you have got to put in some of your own money, and if it all goes pear shaped, you will suffer as well as the lender. When clients have to use their own money it focuses the mindset and the attitude to losing that property or asset is so different.
When we see a return to normal lending both in the residential housing market and in the commercial mortgage market, the floodgates of demand will ensure that we see year of real growth after which it should level off slightly before we see a pattern of year on year sustainable growth.
Michael J Alexander acommercialmortgage4you.co.uk
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( 2.9 / 123 )When one of our leading SHORT TERM LENDERS comes out with a very innovative way of asking the people in the Industry their views on market trends, regulation, service standards and what potential clients are looking for in a lender providing short term and bridging finance.
Well done Tiuta, it will be an interesting survey with some of the usual answers pay us more money for less work. But Bridging Finance has been our salvation in the mortgage market both for residential and commercial mortgages and I hate to think how many deals have been saved by the speedy intervention of the bridging facility.
As the market becomes positive it will be very interesting to see in which direction the short term market evolves, because to survive it must move with the times and broaden its market share.
With most of the banks on a go slow, or even slower, a new partner is required to take the mortgage dance floor by storm, and teach us a few new steps to get our clients where they want to be. We have been doing the slow waltz for far too long and now we need to break into a mortgage quickstep, and get this market out of the doldrums, and as Mick Jagger sung, I see a red door and I want to paint it black.
Michael J Alexander acommercialmortgage4you.co.uk
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( 3 / 122 )When a company of the standing of Savills makes a statement about the possible recovery of the commercial property markets we have to look and listen. Although Savills are not making any wild predictions about the current commercial property market, the indications they have found is that the development activity fell at its lowest pace since the downturn began in the markets in 2007.
This does not mean that we can break open the vintage champagne and get out the party hats, but it does show how desperate we are to find any positive signs in a market that has become doom and gloom, as values are still falling placing surveyors in an almost impossible position.
You want to be positive and value the deal up, but if it goes pear shaped who will point the finger and at whom. Once we get to the bottom of the curve, and start the bouncing process before we get into positive territory, surveyors will then have the confidence to start valuing up, but that comes with the confidence that a positive market will bring to the valuation table, and we are not there yet.
As we are all looking for positive signs of growth or recovery, the indications from Savills provide a tiny pin prick of light in a very dark sky, we just need to see a few more pin pricks of light and we can all start believing that maybe recovery and access to commercial mortgages, finance, and business loans is not that far away.
Michael J Alexander acommercialmortgage4you.co.uk
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( 3 / 116 )Commercial Mortgage Brokers are still looking for any chink of light at the end of the Money Tunnel that would signal a slight change in the lending attitude of most of our high street banks, who still seem to be looking for ways to say no rather than how can we do this one or help the client.
All the old horror stories of the grim early nineties come back when you look at lenders calling in overdraft facilities without any real reason, and placing businesses in a very difficult position.
The will is certainly there for most companies who want to go forward, but feel in the current market that they are working with one hand behind their back as the banks still do not appear to want to help unless they are unable to find any reason to say no.
This hardly builds confidence at a time when confidence is crucial to recovery, without which we will remain in the dark ages for a great deal longer than we have to. When the banks are willing to start lending businesses have to have the confidence to know that by investing in their business they can go forward. There is so much vacant office space in London at present which indicates that this area will take a very long time to recover, as companies are not prepared to pay the high cost of renting office space in the capital unless they can see a tangible return.
The return to normal lending is crucial to our recovery, and that pebble must be dropped in the pool of London to allow the ripples of good news to float across the country. When we can get normal access to commercial mortgages, finance and business loans just watch the business community take off with a smile on its face once more.
Michael J Alexander acommercialmortgage4you.co.uk
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( 3 / 116 )As strange as it may seem the tax man has come to the Commercial Property markets rescue, please stop laughing and you may need a good stiff drink to understand that the person we love to hate has actually some thing to help us.
The relaxation of the TAX Rules regarding Self Invested Pension Plans will allow clients to move commercial property held within their portfolio much more easily between providers.
Under the new regime, clients who wish to move from A to B providers will not be subject to the A- Day pension rules introduced in 2006, which carry extra charges attached to the rules.
The last budget as we all know did not favour high rate income rate payers, with a real reduction intax relief, they now have the opportunity to invest take commercial property into a SIPP and enjoy TAX FREE growth.
Thank you the taxman for a little shot of help into a very difficult market just when we need it, prehaps the taxman is not such a bad person after all, but he will not be getting a christmas card, lets see some more positive action first please.
Michael J Alexander acommercialmortgage4you.co.uk
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( 3.1 / 113 )A number of Chartered Surveyors are seeing an increase in new enquiries again in May, with 48 percent reporting a rise rather than a fall, the seventh consecutive monthly gain. Sales also rose, although from a very low start point, indicating that the increase in footfall of potential buyers is steadily improving activity in the housing market. The average numbers of properties sold over the past three months rose to 11.8, up from 10.6. At the same time the net balance of surveyors reporting a fall in house prices rose from a negative balance of 58.7 to 44.1 percent. History tells us that the commercial property market will recover around one year after the residential markets have recovered, so 2010 should be a very interesting year.
Meanwhile, new instructions are continuing to fall. As potential vendors do not have the confidence to put their property on the market uncertain as to what price they may expect to get even if they can find a buyer As a result, the average number of properties on surveyor's books has dropped in the past month to 58.4 from 69.4 (they have fallen by more than one third over the past year). The lack of new supply, coupled with the increase in activity, is now providing some support for house prices. This is being most visibly reflected in the sales-to-stock ratio, widely seen as a key indicator of market slack, which saw a sharp increase from 15.2 to 20.1 percent. Supply and demand has always been the driving force behind prices and this is now very clearly demonstrated.
Interestingly, expectations as to the outlook for both house prices and sales improved significantly in May, with a net balance of 40 percent more Chartered Surveyors expecting sales levels to increase the highest figure in the survey's history (1998). Only 11 percent more surveyors are expecting prices to fall rather than rise. This compares to 42 percent last month and represents the best reading since July 2007. This however is not borne out by the valuations that are coming in showing the difficult position that surveyors are in when trying to be fair with the valuation, but only having distressed sales to provide comparables.
Commenting, RICS spokesperson Ian Perry said: "On the face of it, the housing market does appear to be close to bottoming out with activity picking up in a material way and prices at last stabilising. However it is important to remember that the lack of supply has been as important in underpinning prices as the rise in demand. Moreover, with the economic backdrop still quite uncertain, unemployment is set to continue increasing sharply and finance for first time buyers is still in short supply, there are a number of significant obstacles for the market to overcome over the coming months."
The main problem for first time buyers is that even with an A1 credit rating they will still have find a 10% deposit, and they have had even a mild history of late or missed payments they will have to find a 20% deposit, not very easy at the best of times. The money supply is the main factor holding back the residential and commercial property markets from taking off.
With commercial mortgages the loan to value has not changed a great deal but the attitude to risk has seen a dramatic change with good client proposals being declined by the dreaded credit committee if they deemed the proposal to carry even a small risk which would not have even been a blip on the underwriting prior to the downturn. It has to be a step in the right direction when surveyors talk in positive terms, but saying and doing are two very different things. When the money supply for commercial mortgages, finance, and business loans is in full flow we may just start to see the residential and commercial property markets move into a positive mode, and it cannot come quick enough.
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( 3 / 113 )What is that rare species of men that we all used to look up to as being one of the pillars of the community who we trusted and we could go to when we needed financial help, a Bank Manager. He was looked at in the same mould as your Doctor, Policeman, or Priest. How times have changed, and not for the best.
The old style Bank manager has been airbrushed out of banking history, after all he was a law unto himself and had the power to say yes or no without going to the dreaded credit committee. They sold insurance and kept the commission, and had all the little perks that have gone out with the morning tide.
Banks are now there to sell you as much as possible and everybody has a target from the telephonist to the personal banker. There are of course Bankers who have a personality and want to help but they tend to be there for the high net worth clients to whom they can charge their fees for looking after the premier accounts.
It would be nice to go back to the future or relive Life on Mars, but we are now in the future and banking has changed beyond recognition, with new rules, underwriters, credit and risk committees, and commercial mortgage brokers trying to form a long term relationship built around trust and good quality introduced commercial business. A good commercial mortgage broker is worth his weight in gold in this market, look for a recommendation, and see what a good job they can do for you in cutting through the red tape and getting you a very competitive deal. Commercial Mortgages Finance and Business Loans are on the way back just make sure that you get the right level of advice to guide you through the maze.
Michael J Alexander acommercialmortgage4you.co.uk
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( 3 / 102 )When someone of the standing of KPMG come out and say that risng default rates for office and retail space would mark another milestone in the recession that has held the economic world in its steeely grip over the last twelve months or so, you do not have to look far to see that the UK is one of the countries worst hit in the current downturn with our economy shrinking by nearly two percent in the first quarter.
All this bad news makes us the euro capital most likely to be attractive for a sale of the century in commercial property. There are some real bargains out there in the current market, and the wise investors are linning up to to take advantage of the markets and the opportunities that have presented themselves, to the investors with access to cash that has been put away for an opportunity just like this to present its self.
We have seen in the last couple of weeks some short term lenders opening the doors to the entrapaneur who can see the margins are very much in his favour. The real problem is that the high banks that we mostly rely on to take the short term finance are dragging their feet, and what should be a qucl turn-around tends to drag on for six to twelve months which will eat into the profit margins.
Fortunately we do have some lenders coming back into the market but its very slow and they are looking at their existing clients first, before opening the doors to you and I.If only our mainsream lenders could see how much they could do now to aid the recovery, if they started to lend at anywhere near the normal lending levels and confidence would return to the markets. Rebuilding their balance sheets is sound practise, but we have to see much more than that, we are being punished for the foolish behaviour of some of our bankers most of whom have now moved on.
The funds that our government made available to help the banks stay in business was meant to be recylced, not stashed away in the bank vaults to be added to the increase in lending fees and the increase in the lending margins that might be acceptable now but what happens when BOE base rates return to around 4.5%. Lending terms at BOE + 3.5%. may seem fine now with a pay rate of 4%, but with the base at.5% and with the margin at 3.5% making a pay rate of 8%, repayments become very expensive.
With this in mind it would be in every clients interest to look at fixed rates or a two year deal with no ERP , in order that you can refinance to take advantage of the lower lending margins in the future.Commercial lending has to start from a very low base point, but once it gets going there will be no stopping the flood of applications foe Commercial Mortgages, Commercial Finance, and Business Loans, and it cannot come soon enough for anyone in financial services, or the business community.
Michael J Alexander acommercialmortgage4you.co.uk
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