7. The housing market
Mortgage arrears reduce building society profits
The growth in building society profits for this financial year is expected to be restrained due to a sharp increase in the number of buy-to-let property owners going into mortgage arrears.
However, the recent interest rate cut is likely to cause arrears to leave off, and recently-introduced government measures aimed at supporting the buy-to-let market are likely provide a last-minute boost to building society annual profits.
James Edwards, chief executive of the market leaders City and Provincial building Society, said in a trading statement last week that he broadly concurred with analysts’ forecast of full-year profits fro his company to rise by 5% to F240m. however, the fact that soaring growth in the buy-to-let market (Where C&P has a 19% share) has cooled significantly coupled with concerns about arrears has knocked 7.25p off the company’s share price, leaving is at 264p.
Despite predictions for growth across the sector as a whole averaging around 4.5%, the share prices of the five leading players in the market have declined by an average of just under 3%. Yields may be falling, but the restricted supply of new-build homes and continuing enthusiasm for buy-to-let have kept the housing market buoyant, and the only the most pessimistic of analysts are predicting a slump. Nevertheless, cautious corporate investors have been reducing their holdings.
Such fears may well prove to be misplaced. Hints by the bank of England regarding a further interest rate cut could underpin further growth.
An additional boost is likely to be provided by changes to pension rules from April 5th next year. Holders of self Invested personal Pensions (SIPPs) will be permitted to invest funds from their pension in residential property.
Up to f15bn of pension cash is expected to flood into the market, including tax relief worth as much as f5bn. This is certain to create a boom in buy-to-let investment, shoring up building society yields, and to push up house prices, especially in areas where they have been in decline, creating more attractive investment opportunities.
In addition, the buy-to-let market is likely to continue to benefit from the fact that many would-be first time buyers remain priced out if the market, ensuring healthy demand for rental properties. Evidence suggest that large numbers of potential first time buyers are also delaying their plans to buy to due uncertainty on house prices, creating a build-up of demand which is likely to be released when house prices stabilise.
A spokesperson for the number two mortgage lender Bolton and Rochdale reported last month that new business volumes have grown steadily month on month from a low base, and that the growth of both the residential and buy-to-let mortgage markets remains robust.
However, this upbeat stance was offset by Banker and Mortgage Lender magazine, which predicted that house prices are poised to fall by an average of up to 7% across the UK. The South West in particular was viewed as overvalued \, with prices in some areas set to see a drop as high as 15%. In contrast, London is now seen as slightly undervalued, following some dramatic falls over the last year and, according to the magazine house pricess there are set to rise by a maximum of 4% a year for the next three years.
1. buy-to-let owners
a. people who rent their homes b. people who buy homes to rent to others
2. growth has cooled significantly
a. it is growing more slowly b. it is declining
3. a boom in buy-to-let investment
a. a lot more people buying-to-let b. slightly more people buying-to-let
4. tax relief worth as much as $5bn
a. up to $5bn reduction in tax to be paid b. up to $5bn increase in tax to be paid
5. would-be first-time buyers
a. people who are going to buy their first homes b. people who would like to buy their first home
6. remain priced out of the market.
a. find it very expensive b. can not afford it.
7. overdue mortgage payments
10. low starting point
11. worth less than the current price
12. Mortgage arrears are starting to level off means that mortgage arrears…
a. have stopped increasing
b. are decreasing
c. are increasing more slowly than they were
13. there was soaring growth in the buy-to-let market means that…
a. profits from buy-to-let mortgages increased
b. house prices increased
c. buy-to-let mortgages became more expensive.
14. the housing market is buoyant means that…
a. house prices are rising b. house prices are static c. house prices are falling
15. investors have been reducing their holdings means that investors have been…
a. buying more shares b. selling all their shares c. selling some of their shares
16. interest rate cuts could underpin further growth means that interest rate cut could…
a. cause further growth b. prevent further growth c. be caused by further growth
17. Pension cash will flood into the market means that pension fund managers will.
a. avoid this market b. invest heavily in this market c. make a lot of money from this market.
18. New business volumes have grown steadily month on month means that
a. business has increased every month b. profits have increased every month
c. the number of new customers have increased every month
19 prices are poised to fall by 7%.
a. prices are falling b. prices are expected to fall c. prices will fall.