Lucian Cook RESI 2013

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Lucian Cook presentating 'Market Focus' at RESI Thursday 12 September 2013

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Lucian Cook RESI 2013

  1. 1. savills.com Market Focus Lucian Cook
  2. 2. The real story - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Loans for House Purchase Transactions NSA Approvals Non SA Source: CML, HMRC, BoE
  3. 3. National trends hiding local variation Transactions v 10 years pre Crunch 3 year price growth
  4. 4. Constrained mortgage availability -5000 0 5000 10000 15000 20000 25000 30000 35000 Jun-03 Mar-04 Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Gross Mortgage Lending Net Mortgage Lending Source: Bank of England Gross Mortgage Lending Year to Q3 2007 £m Year to Q2 2013 £m Q2 2013 v Q3 2007 75% LTV or below 180,548 103,012 -43% 75%+ to 90% LTV 138,572 48,130 -65% 90%+ to 95% LTV 31,516 2,810 -91% 95%+ LTV 21,126 670 -97%
  5. 5. Rising demand for rented accommodation 0 100 200 300 400 500 600 Increase in O/S buy to let mortgages Increase in UK's private rented stock Number FTB Mortgage Completions Source: CML, CLG, Savills Value of UK Housing Stock £ trillion % of Value 2002 2012 2002 2012 Owner Occupied Un-mortgaged 0.97 1.71 28% 30% Owner Occupied Mortgaged 1.29 1.83 37% 32% Private Rented Sector 0.35 0.89 12% 17% Social Rented Sector 0.18 0.32 19% 17% Other 0.12 0.24 4% 4% Total 2.91 5.00 100% 100% Source: Savills
  6. 6. Government Stimuli Funding for Lending Equity Loans Mortgage Guarantees Build to Rent Debt Guarantees National Planning Policy Framework  To what extent will they be adopted?  What will they do for house building?  Will they create a housing bubble?
  7. 7. Equity Loans £3.5bn of equity loans: • up to 20% of the purchase price up to £600,000; • interest free for first five years; • fully funded by the government. Potential to fund 75,000 loans over 3 years. Available to first time buyers and home movers. Levels of owner occupation among the under 35s down by one third in 10 years Levels of owner occupation among the 35-44 year olds down by 17% Average FTB deposit equivalent to 80% of their income Two thirds of first time buyers assisted by the bank of “Mum and Dad”
  8. 8. Mortgage Guarantee £12 billion of guarantees £130 billion of potential lending Lender & Borrower Demand House Purchase 325,000 transactions Private renters 110,000 transactions Mortgage prisoners 215,000 transactions Remortgaging 165,000 loans Spread over 3 years across the second hand and new build market
  9. 9. Impact on house building 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 HousingCompletionsinEngland(alltenures) Unsupported Volumes Previous Government Support Schemes HTB Equity Loan HTB Mortgage Guarantee Source: DCLG, Savills
  10. 10. The emergence of build to let Five fold increase in the Build to Rent Fund from £200m to £1 billion
  11. 11. The players
  12. 12. Size of the investment market Source: Savills; Bank of England £0 £500 £1,000 £1,500 £2,000 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Residential Portfolio Investment £m (Annual)
  13. 13. Impact on the growth in PRS Current Growth in Private Renting (UK) 260,000 households per annum 2014 9,500 FTB equity loans 26,500 additional FTB mortgage guarantees 224,000 additional PRS households 2015 19,000 FTB equity loans 37,000 additional FTB mortgage guarantees 204,000 additional PRS households 2016 25,500 FTB equity loans 47,500 additional FTB mortgage guarantees 187,000 additional PRS households
  14. 14. Demand Growth -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 70 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Agreed Sales New Buyer Enquiries New Instructions Source: RICS
  15. 15. The underlying affordability issue 0% 5% 10% 15% 20% 25% 30% 35% Q21980 Q41981 Q21983 Q41984 Q21986 Q41987 Q21989 Q41990 Q21992 Q41993 Q21995 Q41996 Q21998 Q41999 Q22001 Q42002 Q22004 Q42005 Q22007 Q42008 Q22010 Q42011 Q22013 Interest as a % Income Interest and Capital as a % Income Source; CML, Savills Average Interest Rate Interest payments as a % of income Total repayments as a % of income Q2 1990 (12.5%) 27.1 29.9 Q4 07 (6.1%) 18.9 27.2 Current (3.5%) 10.4 20.8 4.00% 11.7 21.5 5.00% 14.6 23.5 6.00% 17.6 25.5 7.00% 20.5 27.6
  16. 16. UK mainstream forecasts 5 years to end 2012 2013 2014 2015 2016 2017 5 years to end 2017 At the beginning of 2013 -11% 0.5% 1.5% 2.0% 3.5% 3.5% 11.5% Revised -11% 3.5% 4.5% 5.0% 3.0% 1.0% 18.1%
  17. 17. 14% 13% 13% 19% 14% 16% 15% 20% 24% 25% 22% Follow me on Twitter @LucianCook For more go to Savills.co.uk/research

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