by Richard Butler-Creagh
With food prices dropping at the quickest rate in eight years in January, combined with further falls in the price of vehicle fuels, consumer price inflation is likely to move to a new record low in January, edging the UK economy closer to deflation, as such it looks increasingly unlikely the Bank of England will raise the base rate in 2015. The Centre for Economics and Business Research said: “The headline rate of inflation, as measured by the Consumer Price Index, fell to just 0.5% in December.” This is welcome news after the last couple of years of steep inflation, as high as 10% when taking into account the steep rise of fuel and food, according to some indicators. Savers have been worse off with the inflation eroding their accounts and making their hard-earned worth less by the low interest rate.
There are other indicators that the slow-down is slowing down. Banks are cautiously making funds more available to borrowers. Barclays have shuffled into the lead enticing buyers wanting to fix for five years, with deals starting at 2.29%, a cut of 0.1% from a week ago. First Direct has also shaved 0.2% off its five-year deal with a 2.59% fix until 2020. As usual these are for lenders with large deposits, normally 30% or more, but it is all suggesting that the market is heading for an increase in activity. When choosing a lender based on these 0.1 or 0.2% differences, remember to blends in the arrangement fees as they can alter the overall rate.
House prices still managed to increase last month with figures from Halifax showing that it jumped an incredible 2% taking the average to £193,130. This could be due to the reform of stamp duty producing a temporary wave, a spokesman said.
Further to the released plans of aesthetically thrilling design of the Phase III of the Battersea Power Station project unveiled by Frank Gehry earlier this year, certain things are clear. Confirmed: it will be a positive addition to London, and contribute more interest to Battersea Power Station by letting it overflow with some of Gehry’s magic. Gehry in collaboration with Foster + Partners has designed the undulating building to the west of The Electric Boulevard called “The Skyline”, which brings together the other half of the planned homes in addition to a medical centre and 160-room hotel. Two floors of retail front on to the western side of the street, while breaks in the façade allow daylight to reach the public spaces below are bound to wow the architectural crowd and the entire top of the building is laid out as one of London’s largest roof gardens, who could ask for more. It even includes 103 units of affordable housing. The question is, how many people can afford £800,000 for the smallest apartment though? What is not so clear is their definition of ‘affordable’ is one that would serve only a small percentage of the population with a one bed apartment starting at £800,000.
Frank Gehry, Founder of Gehry Partners:
“Our goal from the start has been to create a neighbourhood that connects into the historic fabric of the city of London, but one that has its own identity and integrity. We have tried to create humanistic environments that feel good to live in and visit.”
Ed Vaizey, Culture Minister:
“Battersea Power Station is an iconic site and the unveiling of this exciting new design by Frank Gehry and Foster + Partners will ensure the development of this former industrial site will put Battersea on the world stage once again. The plans for a new high street for the capital show that London continues to attract the best in terms of architecture, design and innovation.”
These quotes are from their press release and it is clearthat everyone is in accord that it Phase III is going to be an aspirational environment, but only for a lucky few. Unfortunately this is going to happen more and more as the government has recently allowed developers in new build hot-spots like Milton Keynes to renegotiate the number of affordable housing in one case from 63 to zero in an effort to stop the scheme ‘stalling’ as the previous numbers were ‘economically unrealistic’. Seems like they didn’t have to go to the bother to renegotiate, unless their ‘affordable housing’ was aiming for the people earning more than £200,000 p.a.!
Savills have just published a well-researched article a bout the new affordability tests introduced by the Bank of England in June. They were designed to ensure financial stability rather than to control the property market and subdue house price growth. However, further to the regulatory changes set up by the mortgage market review, the Bank’s latest set of measures looking increasingly likely to rein in the more bubbly parts of the housing market and curtail the growing number of first-time buyers.
Under the new rules brought in by the Bank’s financial policy committee, lenders are required to assess whether borrowers could still afford their mortgages if, at any point over the first five years of the loan, rates would be three percentage points higher than the rate at origination. Mortgage lenders are also required to limit the proportion of mortgages at 4.5 times income above to no more than 15% of their new mortgages. These latest changes are far more prescriptive than the tighter lending rules introduced by the Mortgage Market Review in April which required a stress test but did not set a rate. Furthermore, the UK banking sector is currently undertaking a particularly stringent collective stress test, which examines the resilience of banks should house prices fall by around 35%. The exercise is to be completed by the end of the year.
I think this is a good article as these factors will and are impacting on the property market as the property market is controlled by the mortgage market: if mortgages are difficult to come by there will be less buyers. This can already be seen in the housing market when mortgages are becoming increasingly difficult to get.
The one sector which is being particularly affected is the market above £2 million, these are the mortgages which are proving difficult to pass the affordability test, as a lot of these people are putting large deposits down and maybe living off investments rather than income and the banks are failing to take this into consideration.
Richard Butler Creagh