Britain's city centres left reeling by house price crash
The 1.5 percentage point cut in interest rates by the Bank of England last week came just hours after the latest house price index by the Halifax showed values had fallen by a record 15pc in the last twelve months.
By Graham Ruddick (AtW's comment: Graham - change name to Riddick, it would sound cooler.)
Confidence and credit have deserted the housing market. The Monetary Policy Committee will be hoping that the lowest borrowing rates for 53 years will help residential property prices to recover from one of their steepest challenges since the Second World War.
However, according to estate agents and consultants out in the field across the UK, the depths of the slump in parts of the market are worse than the research from the various lenders and property websites suggests.
At an auction organised by Allsop last Monday, a flat in an upmarket area of Leeds that was bought for £400,000 in July 2007 sold for just £159,000. A reduction of 60pc. At the same auction a flat in the city centre of nearby Wakefield, bought for £189,000 on October 31 2007, sold for just £69,000. They were not the only bargains on offer. The auction was originally planned to run for two but was extended to four.
"Unfortunately these were someones' dreams and they have been repossessed," said Andrew Wells, a partner at Allsop in Leeds, said. "It has become someone's deal now. "You could argue that this is a forced sale or a fire sale, but its been on the market with an estate agent and no-one has bought it. A property is only worth what someone will pay."
The city centre and urban flats market has taken a pummelling, he added. A recent survey by property website Mouseprice said city centre prices had fallen by up to 17pc but he called this "absolute nonsense".
"I don't know how they did their data," he explained. "City centre flats haven't fallen 17pc – it's much worse than that."
In late September, Alastair Stewart, an analyst at Dresdner Kleinwort, returned from a tour of city centres in the Midlands and the North of England to proclaim that, especially among new-build apartments, the housing market was seeing "carnage beyond even our most bearish expectations" with a massive over-supply of apartments, developers selling at virtually any price to shift stock and almost all forthcoming new developments "mothballed". He also found Barratt Homes were offering 43pc off on bulk deals of five-or-more flats in East Yorkshire.
Over a month on, and following the Government's dramatic bail-out of the banking sector, the cities of Leeds, Sheffield and Birmingham have more troubled tales about the apartment market.
"We've just got a situation at the moment where nobody is buying. You could talk to agents in this street where they have probably sold one dwelling per month each," Mr Wells said. "Any developer will listen to any agent who goes to them with a buyer who wants more than one unit. You can negotiate a very good discount."
Agents in Leeds reported falls in prices of new-build apartments of 30-40pc, pushed down by discounted bulk buys, with similar declines and low levels of transactions in Sheffield
"We are only putting properties on the market with people who will be flexible with their asking price," said John Francis of Crapper & Haigh. "We are being a bit more choosy – we don't want to waste a seller's time or our money."
In England's second city - Birminigham – agents report discounts of 25pc-30pc off bulk purchases with up to 40pc off on purchase of ten or more apartments. Additionally, there have been barely any new starts of apartment blocks in the last two years and, like Sheffield and Leeds, some existing projects have simply ground to a halt.
Amid the declining market, developers are being forced to offer a range of innovative and attractive incentives to potential buyers including 75:25 shared equity schemes and rent-to-buy – where the occupier, who is unable to acquire a mortgage or is concerned that the value of the property may fall, rents the property for up to three years before buying at a pre-agreed in price.
Agents also say Birmingham is also seeing so-called 'chain-breaker deals' where the developer will give funds, up to £10,000 in some cases, to a buyer who is threatening to break the buyer-seller chain so that they can complete their purchase and allow all the sales higher up the chain to go through.
However, despite the fall in prices, owner-occupier purchases remain "negligible", according to Savills director Simon Horan. Research from Savills suggests that, prior to the interest rate cut on Thursday, only five lenders were offering mortgages on new-build properties and they have a maximum loan-to-value ratio of 65pc. (AtW's comment: if they were offering such ratio all the time there would not be house price bubble and UK would not be in deep tulip right now) The only acquisitions of apartments have come from so-called "vulture funds", who are able to drive hard bargains because of the lack of interest in the market.
Urban apartments have been at the forefront of the sharp decline in the property market because their boom over the last ten years was founded on the growth of buy-to-let investors, who became one of the first casualties of the credit crisis. Many of the flats were bought off-plan as investors anticipated a rise in value as the property was built and were thus caught out by the dramatic falls in prices.
However, perhaps the most significant factor is that urban apartment blocks have none of the defensive qualities that detached family homes have – it is the one part of the housing market that is over-supplied after years of urban regeneration projects and councils identifying them as the easiest way to meet Government housing targets.
"The city centre flats are just a nightmare," says Mr Francis in Sheffield. "There are far too many of them and I don't know how people are going to sell them. Ten years ago we had no city centre living in Sheffield but it's gone absolutely crazy – they are on every street corner. From nothing we have gone to thousands and there is only a certain type of buyer who wants to live in the city centres. You are not going to get families."
The future for the city centre apartments now appears mixed, with the Northern cities reporting that the respective land values of the sites have fallen by up to 50pc.
David Fenton, a residential development partner at Knight Frank in Birmingham, said land was now finding its "realistic value" with developers realising that trying to squeeze the maximum amount of units from a piece of land was not the most economical approach.
"Will we see flats again? Maybe," he said. "Probably in smaller numbers such as 30 or 40 units rather than 300."
Agents insist that there does remain some demand for city centre accommodation because of continuing rise in rental values. In Manchetser with rents are increasing to such an extent that some landlords are insisting on six month contracts – rather than a year – because they know they can increase the price after that period.
Alistair Humphrey, whose Eadon Lockwood & Riddle estate agency in Sheffield has been one of many forced to downsize and lay off staff, said: "The last downturn we had was in the early 1990s and the difference then was that we saw it coming.
"It took about three years overall – a year to slowdown, a year on the bottom and a year to pull out again – but there weren't any cliffs like there has been with this worldwide banking debacle that we are living with at the moment. It is going to take a long time for confidence to come back."
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Renewed rent for my 4 bedroom "bedsit" for another 6 months.
The 1.5 percentage point cut in interest rates by the Bank of England last week came just hours after the latest house price index by the Halifax showed values had fallen by a record 15pc in the last twelve months.
By Graham Ruddick (AtW's comment: Graham - change name to Riddick, it would sound cooler.)
Confidence and credit have deserted the housing market. The Monetary Policy Committee will be hoping that the lowest borrowing rates for 53 years will help residential property prices to recover from one of their steepest challenges since the Second World War.
However, according to estate agents and consultants out in the field across the UK, the depths of the slump in parts of the market are worse than the research from the various lenders and property websites suggests.
At an auction organised by Allsop last Monday, a flat in an upmarket area of Leeds that was bought for £400,000 in July 2007 sold for just £159,000. A reduction of 60pc. At the same auction a flat in the city centre of nearby Wakefield, bought for £189,000 on October 31 2007, sold for just £69,000. They were not the only bargains on offer. The auction was originally planned to run for two but was extended to four.
"Unfortunately these were someones' dreams and they have been repossessed," said Andrew Wells, a partner at Allsop in Leeds, said. "It has become someone's deal now. "You could argue that this is a forced sale or a fire sale, but its been on the market with an estate agent and no-one has bought it. A property is only worth what someone will pay."
The city centre and urban flats market has taken a pummelling, he added. A recent survey by property website Mouseprice said city centre prices had fallen by up to 17pc but he called this "absolute nonsense".
"I don't know how they did their data," he explained. "City centre flats haven't fallen 17pc – it's much worse than that."
In late September, Alastair Stewart, an analyst at Dresdner Kleinwort, returned from a tour of city centres in the Midlands and the North of England to proclaim that, especially among new-build apartments, the housing market was seeing "carnage beyond even our most bearish expectations" with a massive over-supply of apartments, developers selling at virtually any price to shift stock and almost all forthcoming new developments "mothballed". He also found Barratt Homes were offering 43pc off on bulk deals of five-or-more flats in East Yorkshire.
Over a month on, and following the Government's dramatic bail-out of the banking sector, the cities of Leeds, Sheffield and Birmingham have more troubled tales about the apartment market.
"We've just got a situation at the moment where nobody is buying. You could talk to agents in this street where they have probably sold one dwelling per month each," Mr Wells said. "Any developer will listen to any agent who goes to them with a buyer who wants more than one unit. You can negotiate a very good discount."
Agents in Leeds reported falls in prices of new-build apartments of 30-40pc, pushed down by discounted bulk buys, with similar declines and low levels of transactions in Sheffield
"We are only putting properties on the market with people who will be flexible with their asking price," said John Francis of Crapper & Haigh. "We are being a bit more choosy – we don't want to waste a seller's time or our money."
In England's second city - Birminigham – agents report discounts of 25pc-30pc off bulk purchases with up to 40pc off on purchase of ten or more apartments. Additionally, there have been barely any new starts of apartment blocks in the last two years and, like Sheffield and Leeds, some existing projects have simply ground to a halt.
Amid the declining market, developers are being forced to offer a range of innovative and attractive incentives to potential buyers including 75:25 shared equity schemes and rent-to-buy – where the occupier, who is unable to acquire a mortgage or is concerned that the value of the property may fall, rents the property for up to three years before buying at a pre-agreed in price.
Agents also say Birmingham is also seeing so-called 'chain-breaker deals' where the developer will give funds, up to £10,000 in some cases, to a buyer who is threatening to break the buyer-seller chain so that they can complete their purchase and allow all the sales higher up the chain to go through.
However, despite the fall in prices, owner-occupier purchases remain "negligible", according to Savills director Simon Horan. Research from Savills suggests that, prior to the interest rate cut on Thursday, only five lenders were offering mortgages on new-build properties and they have a maximum loan-to-value ratio of 65pc. (AtW's comment: if they were offering such ratio all the time there would not be house price bubble and UK would not be in deep tulip right now) The only acquisitions of apartments have come from so-called "vulture funds", who are able to drive hard bargains because of the lack of interest in the market.
Urban apartments have been at the forefront of the sharp decline in the property market because their boom over the last ten years was founded on the growth of buy-to-let investors, who became one of the first casualties of the credit crisis. Many of the flats were bought off-plan as investors anticipated a rise in value as the property was built and were thus caught out by the dramatic falls in prices.
However, perhaps the most significant factor is that urban apartment blocks have none of the defensive qualities that detached family homes have – it is the one part of the housing market that is over-supplied after years of urban regeneration projects and councils identifying them as the easiest way to meet Government housing targets.
"The city centre flats are just a nightmare," says Mr Francis in Sheffield. "There are far too many of them and I don't know how people are going to sell them. Ten years ago we had no city centre living in Sheffield but it's gone absolutely crazy – they are on every street corner. From nothing we have gone to thousands and there is only a certain type of buyer who wants to live in the city centres. You are not going to get families."
The future for the city centre apartments now appears mixed, with the Northern cities reporting that the respective land values of the sites have fallen by up to 50pc.
David Fenton, a residential development partner at Knight Frank in Birmingham, said land was now finding its "realistic value" with developers realising that trying to squeeze the maximum amount of units from a piece of land was not the most economical approach.
"Will we see flats again? Maybe," he said. "Probably in smaller numbers such as 30 or 40 units rather than 300."
Agents insist that there does remain some demand for city centre accommodation because of continuing rise in rental values. In Manchetser with rents are increasing to such an extent that some landlords are insisting on six month contracts – rather than a year – because they know they can increase the price after that period.
Alistair Humphrey, whose Eadon Lockwood & Riddle estate agency in Sheffield has been one of many forced to downsize and lay off staff, said: "The last downturn we had was in the early 1990s and the difference then was that we saw it coming.
"It took about three years overall – a year to slowdown, a year on the bottom and a year to pull out again – but there weren't any cliffs like there has been with this worldwide banking debacle that we are living with at the moment. It is going to take a long time for confidence to come back."
--
Renewed rent for my 4 bedroom "bedsit" for another 6 months.
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