Top London Prices Continue To Soar

The most expensive residential street in London now has an average house price of almost £7m.

Courtenay Avenue in Hampstead has an average property price of £6,803,900. It’s a cul de sac near Hampstead Heath and Kenwood House and properties there are large, often with big gardens and swimming pools.

The top end of the London property market is being driven by buyers from overseas. One example if Russian-Israeli diamond billionaire Lev Leviev, who spent £35m on a property in Courtenay Avenue.

Prices are cheaper in the capital’s next most expensive location: Chelsea Square, SW3. Here properties go for an average of £6,440,600. Here prices have gone up by over a million in a year, as last year the average price was £5,098,047. Jemima Khan is one local resident.

Just off Chelsea Square is third-placed Manresa Road, where terraced fifties houses combine with very expensive apartments, some of which used to be part of the old Chelsea College of Art.

Billionaire’s Row –as it is known – is Bishops Avenue in Barnet, but this wasn’t even in the top 20, although some properties here are worth £41m. That’s because there are a number of lower priced houses too.

The figures come from website Mouseprice and they indicate that London property prices in top locations have continued to rise throughout the last year. In 2006 the top street was Kensington Square in W8, where average prices were £5.5m.

In 2007 15 of the top 20 locations are in Kensington and Chelsea, and average prices in the top 13 streets are above £5m. Prices in the top ten locations are three to seven times higher than top prices in other areas.

A flat, due for completion in 2010, developed by brothers Christian and Nick Candy, will blow all these figures out of the water. It is expected to sell for over £100m. The address? A penthouse at One Hyde Park.

MPC Member Warns Of Consequences Of Housing Market Slowdown

Falling prices in the housing market and the reduction in the amount of mortgage lending represents a serious short-term threat to the economy. So says economist Kate Barker, member of the Bank of England’s Monetary Policy Committee. She want on to say that the Bank could not prevent this in the short term, but the MPC would be watching property and financial markets very closely.

Further rate cuts, she warned, might be hard to justify given the pressures of inflation. At the North Staffordshire Chamber of Commerce, she said:

“The risk I believe to be of most concern is around the interplay between the property market and the financial sector resulting from the credit turmoil. If credit tightening were to prove more severe than in the MPC’s present central projection, leading to a significant fall in lending to households and companies, this could prompt a further decline in property values.

“The consequent adverse impact on growth could prove difficult to turn around quickly, potentially resulting in a protracted period of low output growth and below target inflation.”

The Council of Mortgage Lenders has already raised the prospect of the financial market’s credit crunch choking off the property market. It warned last year that the “mortgage tap” might be turned off as banks need to borrow about £30bn to finance lending this year.

Ms Barker said that if house prices fell by 15%, then 5% of mortgage holders (2% of all households) would fall into negative equity. Although a small number, this would still be a pull down on the economy as a whole.

She said: “A prolongation of the present difficulties in accessing wholesale funds could restrict the quantity of mortgage lending during 2008. In this case, the mortgage market could become less competitive and more expensive, feeding back into a decline in the housing market, somewhat lower consumer spending, and also into lenders’ balance sheets, reducing lending capacity further.”

Although she hinted that interest rates would ideally be cut further to head off this possibility she said that strong upward inflationary pressures in the economy made it likely that the Bank’s inflation target would be breached later this year, so cuts might not come as hoped for.

Government Face Fall-out From Rock Nationalisation

Labour’s decision to nationalise Northern Rock leaves the taxpayer with £100bn in mortgage debts and the government’s reputation somewhat tainted.

Ron Sandler – who rescued stricken insurer Lloyd’s of London in the nineties – will be paid £90,000 a month to ‘return the bank to a more sustainable size’, in his words. It is expected that branches will close and jobs will go.

Desperate to find a buyer, Chancellor Alistair Darling was not , however, convinced that either private package – from Virgin and the Rock’s own management – would pay back the government enough of its loan.

As they claimed that every family in Britain now effectively had a second mortgage of £4,000, Conservative shadow chancellor George Osborne said: “This is the day when Labour’s reputation for economic competence died. Gordon Brown has dithered his way to the disaster of nationalisation. Now the taxpayer will bear the full risk of lending £100billion of mortgages in an uncertain housing market.”

Mr Darling said that nationalisation would only be temporary, but couldn’t say how long that might be, with experts saying it would be years.

The government is likely to face fall-out from job losses in one of its heartlands, and from the 180,000 small shareholders who could end up with very little. The government has also broken one of Labour’s ‘golden rules’ - that net public sector debt should not exceed 40% of national income.

It was last September that the sub-prime crisis in the US spilled over to bring Rock into crisis with a lack of cash to fund its operations. The Treasury was asked to step in and assist as this was the first run on a British bank in over a century. As the government lent the bank money, the search for a private buyer began, but eventually came up short.

Prime Minister Gordon Brown cut short a weekend break in Scotland to help make the decision at the weekend.

Darling said: “It is better for the Government to hold on to Northern Rock for a temporary period and as and when market conditions improve, the value of Northern Rock will grow and therefore the taxpayer will gain. The long-term ownership of this bank must lie in the private sector.”

Banks Set To Announce Record Profits

After all that – sub-prime crisis, credit crunch, law suits for return of charges, and the rest – some of the largest retail banks are set to report increased profits and rising dividends!

The eight biggest banks listed on the London Stock Exchange are set to report profits this week, and it is expected to be a total profit figure of £41.5bn for 2007 – up from the then record of £40.5bn for 2006.

Shares in Barclays and Lloyds were up sharply on Monday morning as investors anticipated a good week to come.

Nevertheless Barclays has seen a 40% fall in its share price in the last 12 months, and experts are expecting a £1.5bn write-off from sub-prime exposure, although that is much less than many of its American and European rivals. Barclays profits are expected to be just above last year’s £7.1bn, and dividend rise of 10% is anticipated.

At Lloyds, a rise in dividends has been on the cards for many months, as it is not as exposed to sub-prime as most other banks. Its dividend is expected to go up by 5%, as profits rise to just shy of £4.4bn.

It is likely that Alliance & Leicester will be worst hit by the credit crunch. It reports 2007 figures on Wednesday, and has already warned that write-downs of £185m will knock profits for 2007. Analysts expect a drop from £598m to around £400m.

Meanwhile, the banks are preparing to take on Northern Rock under its new public ownership. They will be prepared to raise their voices in complaint if they believe the new management under Ron Sandler uses its Government backing for unfair competition against them.

Nationalisation still has to be approved by the European Commission, who will monitor the Government’s ownership of Northern Rock closely to make sure it does not amount to illegal state aid.

Bank investors are also relieved that Northern Rock is actually more likely to be less competitive under state ownership than it might have been under Virgin.

Northern Rock To Be Nationalised

Chancellor Alistair Darling has made the decision to nationalise Northern Rock, putting an end to a five month search for a rescue from the private sector.

The search ended when he said that proposals from interested parties – Sir Richard Branson’s Virgin consortium and the Northern Rock management team – were not able to offer the government enough, as it had lent the stricken bank £25bn.

Darling said: “In the current market conditions we do not believe the two proposals deliver sufficient value for money for the taxpayer.”

This is the first full nationalisation of a company since the 1970s, though the government may hope it’s only temporary public ownership. The move will not do a lot to enhance the government’s long self-proclaimed prudence for the nation’s finances, as the Rock balance sheet deficit of £90bn will now become a public deficit.

Small shareholders of Northern Rock shares will find this a bitter blow. The 180,000 may not get much for their shares as an independent committee will determine the value of the shares. If not held up by the government’s £25bn, experts say the bank would have gone bust anyway, and shareholders may have got even less.

Two hedge funds – SRM Global and RAB Capital – have built up almost a 20% stake in Rock in the past few months, and they are unlikely to take this decision lying down. SRM boss Jon Wood is said to be willing to take his case to the European courts if necessary.

The new people in charge at Northern Rock will be former Lloyd’s of London boss Ron Sandler, and Ann Godbehere, formerly at reinsurer Swiss Re, as finance director.

HSBC chairman and head of the British Bankers Association Steven Green believed that nationalising the Rock would create ‘a perfectly viable institution’.

However, another senior banking industry source said it would only be successful if the government winds the bank down over time. He commented: “Nationalisation is fine as long as it is being run off. But if we see a government-owned bank jousting for new business, then it is not a good option.”

First-time Buyers Are Getting Older

The difficulty in buying home has meant that first-time buyers are getting older, on average. Property website Rightmove has found that one in five of new house buyers are older than 35. Recent gains in the housing market and the expense of getting a mortgage has pushed the price of getting on the housing ladder out of reach of many young people.

The website’s survey showed that some 22% of first-time buyers are over 35, and further 51% are aged between 25 and 34. That leaves 27% in the age bracket under-25.

The research also found that 36% of first-time buyers remained living with their parents while they tried to save enough money for a deposit, while 49% were renting property, either on their own, wit a partner or with other people.

While 25% of new buyers said they had saved the money for a deposit on their own, 13% did admit that they had relied on parents to help them out with deposit money, and 2% said that their parents were acting as mortgage guarantors. Another 10% said that they had borrowed the full amount of the property value for the mortgage. There were another 4% who said they were buying a property through a shared ownership scheme.

People remain keen to buy their own property, even if prices were to shoot up again. Around 43% of current first-time buyers said they would still look to but their own home if property prices soared, but a higher figure, 46%, said it would be likely to hinder their chances of buying a home.

However, many people believe that house prices will not rise this year: 40% said that prices would not rise in 2008. Some 38% said they though prices would rise, and 23% weren’t sure.

Rightmove’s survey was carried between September and December 2007

First-time Buyers Feel Even More Pain

The amount first-time buyers have to spend on their mortgage is continuing to rise. Figures from the Council of Mortgage Lenders have revealed that new home owners are spending over a third of their take-home pay on their mortgage.

Along with a number of other figures concerned with the housing market recently, this is the highest level since the last property crash in the early 1990s, and financial advisers have said that huge mortgages are a disaster waiting to happen.

Young buyers are having to use 35% of their net monthly income on mortgage repayments; and this at a time when other household bills are rising fast. Food, energy, fuel – all bills are going up.

Rising house prices over the last ten years have resulted in first-time buyers taking out higher mortgages than ever before. The average first-time borrowing is £118,000. Five years ago is was just £71,000 – meaning an increase of 66%. In that time the average annual pay rise has been a mere 3%.

CML figures show that first-time buyer mortgage interest uses up 20.7% of their gross income – that’s before tax.

Investments director of financial advisers Torquil Clark, Philippa Gee, said: “This is a disaster waiting to happen. The situation may be even more serious than it was in 1991 because so many other costs are spiralling. The financial squeeze may be too great for many. The extraordinary prices for petrol, gas and electricity combined with mortgage payments will push people over the edge. It will have a devastating effect on many people’s lives.”

In addition, more first-time buyers than ever before are being forced to pay stamp duty. Only two years ago, less than half of first-time buyers had to pay the tax; now there are only 38% who avoid it. The first band starts at £125,000.

Many young buyers are forecast to be among the rising number of victims of repossession for 2008

RICS Reports More House Price Falls

The latest survey from the Royal Institution of Chartered Surveyors (RICS) indicates that house prices are continuing their downward trend.

For the first time since the house price crash of the early 1990s, the number of surveyors reporting falls in house prices increased for the sixth month in a row. In January there were 54.7% more surveyors reporting lower house prices in January than those seeing higher prices. December’s figures was 49.1%, and the gap has steadily increased from 3.1% when the balance was tipped last August.

The January figure is the highest since November 1992, the measure than having grown for five consecutive months.

The institution blamed a weakness in demand for property, rather than a drop in supply coming to market, for the rising balance. The effects of the credit crunch are also still holding back would-be buyers from entering the market.

Other recent figures support evidence of the declining house market. The number of home loans approved fell by more than 20% in December, and the Halifax said that house prices continued to fall in January. Goldman Sachs, the investment banker, has forecast a 5% fall in property prices in 2008, followed by another 2% in 2009.

Demand was muted with 35% more surveyors reporting a decrease in the number of prospective house buyers than those seeing an increase.

The stock of unsold property was up by more than 10%, according to RICS, and has gone up by over 40% since September. The average number of unsold properties per surveyor is now 85 – the highest since February 1999 when the figure was 86.

Spokesman at RICS, Jeremy Leaf, said: “A lack of demand and confidence in the housing market is clearly behind the recent price slowdown. Tightening mortgage lending criteria is a block to many who are keen to take the housing market plunge. Agents are finding it difficult to market properties to an audience which has decided to watch the current economic theatre from the wings.

Mortgage Numbers Fall

The number of mortgages taken out by homebuyers in the last quarter of 2007 were at their lowest for a year’s final quarter for 12 years. Just 225,200 mortgages were taken out in the period. Figures from the Council of Mortgage Lenders (CML) show that quarterly figures have dipped below that number since 1995, but this is the first time that it has happened in a quarter other than the first quarter – traditionally the slowest period.

The average number of mortgages taken out over a final quarter in the 12 years since 1995 has been 296,375, so last year’s figures was 24% lower than the average.

A spokesman for the CML said that lenders were facing the hardest times since the property crash of the 1990s, as funding problems from the credit crunch and a seasonal lull were hitting at the same time. The spokesman said: “What we have seen since around that time and since control of rates setting policy was handed to the Bank of England is a move to lower and more stable interest rates and more benign general economic conditions. This has contributed to very strong growth in house prices and mortgage lending for the best part of a decade. The factors now are potentially most challenging of anything we’ve had since the mid 1990s.”

The worst may be yet to come, however. As the first quarter is usually the quietest period, lenders may see the first quarter of 2008 go even lower.

The CML figures showed a drop of 35% to 62,100 in lending for house buying in December 2007 compared with the previous December (95,700). It was also the lowest monthly figures since January 2005.

Home purchase mortgages were down by 10% to one million, having fallen sharply from a peak in August of 103,000.

Lending values also fell in the year, by 2% to £155bn. Credit problems were largely blamed for the downturn.

CML Director general Michael Coogan said: ‘The decline in lending appears to be driven more by funding constraints than lower consumer demand.’

Fixed-rate mortgages were very popular with 73% taking them out in 2007. They peaked at 77% in July, as the base rate reached 5.75% and economists were forecasting that borrowing costs could soar above 6%. Then came the credit crunch, and by the end of the year, just 64% were opting for fixed-rate deals

Inflation Creeps Up To Dash Rate-Cut Hopes

The base rate cuts by the Bank of England in December and February have given people hope that there may be two or three more throughout the course of 2008. The trouble is that the Bank always has to remember its primary objective – and that is to keep inflation down to around 2%.

The bad news for people hoping for further interest rate cuts is that the Government’s preferred measure, Consumer Price Index (CPI), crept up again in January to 2.2%.

This is highest level since June last year (2.4%), but not as bad as some analysts were forecasting; some thought it would go back to that June level.

This gives the Bank a problem, as it would obviously like to keep pulling down the base rate to re-ignite the economy, but with inflation on the rise again, it is unlikely that Governor Mervyn King and the rest of the Monetary Policy Committee will bring base rate down again.

Sterling traders saw this as good news and, as they bet on no rate cut until early summer, the pound moved up nearly a fifth of a cent.

James Knightley of ING said: “We are likely to see CPI push above 2.5% in the next two or three months. This will keep the Bank cautious on inflation, suggesting the gradual policy easing stance will remain in place. Nonetheless, with the growth outlook continuing to deteriorate we still see the policy rate falling to 4.5% by the year-end.”

The Bank of England has cut the base rate from 5.75% to 5.25% over the last three months. The US Federal Reserve has slashed its interest down to 3%, but such drastic action would be highly unlikely in the UK.

Meanwhile, the broader measure of inflation, the Retail Prices Index, which includes mortgage bills, edged up from 4% to 4.1%.

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