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The Nationwide House Price Index – The Real Figures v the Seasonally Adjusted OnesMonthAverage price (£)Real ChangeSeasonally Adjusted ChangeDifference2008Jan180,473- 0.9%- 0.6%+ 0.3%Feb179,358- 0.6%- 0.9%- 0.3%Mar179,110- 0.1%- 1.2%- 1.1%Apr178,555- 0.3%- 1.2%- 0.9%May173,583- 2.8%- 2.6%+ 0.2%Jun172,415- 0.7%- 1.1%- 0.4%Jul169,316- 1.8%- 1.7%+ 0.1%Aug164,654- 2.8%- 1.9%+ 0.9%Sept161,797- 1.7%- 1.7%NilOct158,872- 1.8%- 1.5%+ 0.3%Nov158,442- 0.3%- 0.5%- 0.2%Dec153,048- 3.4%- 2.6%+ 0.8%2009Jan150,501- 1.7%- 1.3%+ 0.4%Feb147,746- 1.8%- 1.9%- 0.1%Mar150,946+ 2.2%+ 0.9%- 1.3%Apr151,861+ 0.6%- 0.4%- 1.0%
The Nationwide “Real” House Price Index shows prices up by 0.6% in April, after a rise of 2.2% in March, and this index records a fall of only 0.8% in the first 4 months of 2009. These factual figures paint a rather different picture to the “doctored,” or seasonally adjusted to use the technical term, figures Nationwide focussed on today.
Nationwide and Halifax both always focus on the seasonally adjusted figures in their monthly house price surveys. Their comments are always based on these “doctored” prices, but although their press releases state the figures are seasonally adjusted the media generally ignore those two important words and misleadingly report the figures as gospel.
The table above presents the Nationwide figures since the beginning of last year in such a way as to make it easy to see the real figures and how big an impact the seasonal adjustments makes some months. Based on last year’s seasonal adjustments the following 3 months will not see a significant difference between the percentage change in the real figures and the “doctored” ones, but in August the impact of seasonal adjustment will be to improve the real figure by about 1%, the opposite of what has happened in each of the last 2 months.
Halifax, for some reason best known to itself, refuses to disclose the real figures in its monthly press releases and only belatedly publishes them on a quarterly basis. Nationwide, despite always ignoring the real figures in its comments, does include them every month in its table of historical data. This is helpful to anyone like me who prefers to use real figures rather than “doctored” ones based on someone’s view of the seasonal impact on prices. In current market conditions it is even more difficult than usual to decide how much price changes are influenced by seasonal factors and I would be very surprised if two economists came to the same conclusion on the correct adjustment required.
The housing market is, of course, seasonal, but many other factors also have an important influence on prices, particularly consumer confidence, interest rates and the availability of credit. Until recently the latter factor had not been a significant problem since the mid 1980s and so maybe Halifax and Nationwide should have adjusted house prices over the last 18 months to take account of the restricted mortgage availability.
Perhaps they should also adjust for changes in consumer confidence and interest rates. If they manage to get all these adjustments right, house prices adjusted for all these factors would permanently only change very slowly in line with wage inflation, resulting in “No more Boom and Bust.” In fact, come to think about it, Gordon Brown has missed a trick here in not passing legislation requiring all house price indices to be calculated in this way!
I intend to publish updated figures of the “Real” Nationwide House Price Index every month on this blog.
Abbey announced its results (unaudited) for the first quarter of 2009 today and these confirmed a further increase in the bank’s (now also including Alliance & Leicester) market share of gross lending, pushing the figure back up to an estimated 15%, compared to only 11.0% in the previous quarter.
During the quarter the company (including Bradford & Bingley) took in net deposits of £800m and lent a net £800m in mortgages, thus demonstrating very clearly how much new mortgage lending depends on success in attracting deposits. This net lending figure compares with £2bn in the first quarter of 2008 and minus £1.2bn in the previous quarter.
Gross mortgage lending in the first quarter was £5.2bn, compared with £10.2bn in the first quarter of 2008 and £5.1bn in the previous quarter.
Abbey has offered a competitive range of mortgages throughout the year so far and current indications are that this will continue. In addition the Alliance & Leicester mortgage portfolio has been considerably strengthened and Group strategy is to achieve the major increase in lending through the A&L brand this year.
Abbey has suffered some service issues recently as a result of its success in attracting business and the acquisition of the A&L brand gives it the same advantage HBOS has had in that it can channel business through whichever brand has the greatest spare processing capacity. This no doubt accounts, at least in part, for the recent increase in the A&L product range.
One of the key differences between the brands used to be that many A&L mortgages had a percentage arrangement fee, whereas Abbey mortgages had a flat rate fee. However, with the increase in the A&L range that brand now has a mixture of percentage and flat rate fee mortgages.
Both brands currently offer very competitive fixed and tracker products for most periods, including a market leading 4 year fix from A&L and new market leading 7 and 15 year fixed rates from Abbey.
Abbey recently reintroduced its lifetime tracker offset mortgage for loans up to 75% LTV with a rate of Bank Rate + 3.25%. Prior to the credit crunch this product was available at Bank Rate + 0.49% but in the current market their new rate is the market leading offset at 75%. In addition it only has a nominal early repayment charge of £250, although the arrangement fee is relatively high at £1,495.
I am not impressed with Halifax’s new 90% maximum LTV First Time Buyer (FTB) mortgage available from tomorrow, although it is an improvement on their current offering, which is 7.49% fixed to 31/7/14 with a £999 fee and no freebies. The new deal pays the 1% stamp duty land tax on properties being bought at any price over the current £175,000 starting threshold for the tax up to £250,000 but is otherwise the same. It thus has a maximum loan size of £225,000 (90% of £250,000).
Assuming a mortgage at the maximum 90% LTV, the benefit of Halifax paying the 1% tax equates to a 1.11% cashback on the mortgage amount, which is equivalent to approximately 0.22% per year, making the effective rate 7.27%, but with the benefit of a cashback, which could be important to anyone struggling to save a big enough deposit.
However, despite Halifax now paying the stamp duty land tax this deal is the second most expensive 90% LTV fixed rate mortgage on the market. The most expensive is Halifax’s similar product for non FTBs, without the cashback!
Only 4 lender groups are currently offering 90% LTV mortgages to new customers, Lloyds banking Group, RBS Group, Abbey and National Australia Bank Group. (Nationwide will go beyond 90% for existing customers moving home.) The cheapest 5 year fix is 5.99% with no arrangement fee from NatWest and Halifax’s sister company, Cheltenham & Gloucester, offers a much cheaper 5 year fixed rate than this new Halifax deal.
There is a tiny loophole in the new Halifax fixed rate which would make this deal excellent value for a very tiny number of people. The mortgage is available for any LTV up to 90%. Thus because the cashback is based on the purchase price, not the mortgage amount, for the very rare FTB who has a massive deposit this deal would be transformed from being a dog to being stupendous value.
For example if someone only wanted to borrow £12,500 to buy a £250,000 property, i.e. a 5% LTV mortgage, the cashback of £2,500 would be 20% of the mortgage amount, equivalent to 4% p.a., thus bringing the effective rate down to a market leading 3.49%. Unfortunately this loophole is more theoretical than real. Any FTB who can find a 95% deposit could probably find 100% and pay for the property in cash!
Halifax has the right idea with this mortgage because finding the stamp duty land tax can be a stretch to far for some FTBs. Pity about the interest rate!
• John Charcol launches a new 3 part Monthly Index tracking split between:(1)Fixed/Capped/Trackers (2)Purchases and Remortgages (3)FTBs/Other PurchasersThe first quarter of 2009 has seen one of the biggest ever changes in the take up of fixed rates according to a new monthly mortgage index from leading UK mortgage broker John Charcol. Based on mortgage business written by John Charcol, the index shows a huge increase in the percentage of fixed rate mortgage applications from 29.1% in December 2008, through 47.8% in January and 67.4% in February to 80.9% in March. The increase comes as a result of a combination of several factors, the most obvious being that with Bank Rate now at 0.5% there is only one way for it to go – the only questions being the timing and the scale and speed of the increase.Another important factor is that the historically huge margins above Bank Rate now being charged by lenders for new tracker mortgages means that the risk of being locked into an expensive tracker mortgage when rates go up outweighs the fact that initially a fixed rate is a little more expensive. A third factor is that until recently there were no trackers available above 75% LTV and so borrowers wanting more than 75% couldn’t have a tracker even if they wanted one.In the first quarter of 2008, as Bank Rate fell towards 5% and it looked as if it wouldn’t fall much further, the take up of fixed rates accelerated rapidly and in the second quarter stabilised at around 60%. However, when by mid year further rate cuts looked on the cards fixed rate take up fell away sharply to 26.5% in July and then fluctuated between 14.2% and 23.4% for the next 4 months, before starting to increase again following the Bank Rate cut to 2% in December.The John Charcol Mortgage Index will be published monthly, tracking three important statistics, based on mortgage business written by John Charcol. The index is a leading indicator of trends being based on mortgage applications submitted to lenders, whereas figures reported by the Council of Mortgage Lenders (CML) and the Bank of England (BofE) are based on completions, which typically take place 2-3 months after the mortgage application is submitted. The three statistics tracked each month are the percentage split:• Between Fixed rates, Capped rates and Tracker/Discount rates*.• Between Purchases and Remortgages.• Of First Time Buyers compared to all Purchasers.
With effect from Thursday 30th they are launching a new variable rate, the Standard Mortgage Rate (SMR). The SMR will be their new revert rate and will launch with a variable rate of 3.99%. The SMR comes with the full range of flexible features including, overpayments, underpayments and borrow back. All products from Thursday will revert to the SMR at the end of the deal period. This new 'revert to' rate no longer has any cap on how high they can set it, unlike the current BMR which is capped at no more than 2% over base. They claim that having this extra scope on their 'follow on rate' to will enable them (at some undisclosed point) to launch more competitive tracker rates. Bearing in mind they are effectively increasing their 'revert to' rate by 1.49% you would certainly hope so, but I wouldn't count on it...
Word reaches Charcol Towers that Nationwide will be introducing a new Standard Variable rate with a new name which will allow them to get round the fact that they have to keep their current one at 2% above base rate. More to follow...
Mortgage lending by the UK's major banks fell for the first time in four months in March, tempering the talk of housing market recovery.
The number of mortgages approved for house purchases fell to 26,097 in March, down 6.8% from February and 25% lower than a year earlier. The British Bankers' Association, which produced the figures, said it expected fluctuations during a recession. And so would we.
Things are not as black and white as they once used to be, they are somewhere firmly in between...you might say there were a shade of grey...charcol?
This is a question that is becoming more and more prevalent in the market, to which we believe the answer is firmly the former - now is indeed the time to fix. At the start of this month there were some fixed rate reductions from a number of key lenders and the general sentiment is that this will now be the floor for fixed rates. Indeed, some have begun to edge up again over the last few days. Waiting for any further significant cuts now looks to be a losing game.The lenders that were able to cut their fixed rates did so because of a fall in longer term swap rates of about 0.3% which came about due to a large fall in gilt yields after the Bank of England announced the details of its Quantitative Easing programme. However, this fall in swap rates has been largely reversed since meaning that the recent trend of fixed rate reductions has now been turned on its head.So why the increase in gilt yields?Put simply, there are three main reasons. Explaining them in detail could easily occupy several pages of A4, but we will keep it brief. Firstly, the shock inflation figures released recently; secondly, last month's comments from the Governor of the Bank of England to the Treasury Select Committee effectively telling Gordon Brown to stop flexing the corporate credit card; and lastly, the failure of the long dated gilt auction with only 93% of the gilts on offer taken up.What does the future hold?After the fall in the best fixed rates it now looks like the right time to take a fix, preferably for at least five years. The need to fix for longer is driven by the fact that interest rates have to go up at some point, only our old friend Walter Mitty would disagree with that. When this will happen is still open to question, but we believe that longer term fixes are much more likely to help most people ride out the storm that is brewing. In fact, the first quarter of 2009 has seen the biggest swing towards the take up of fixed rate applications from 29% in December to 81% in March.One struggle many borrowers have at the moment is that when they are currently paying very little for their mortgage each month having to convince someone who is paying 1-2% on a tracker that they should take a fixed rate of 4-5% is a task of Herculean proportions, but it really could be the best move in the long term. With underlying interest rates easily capable of reaching the 6-7% mark, it is no exaggeration to say that pay rates could be priced at 10%+ in the future. Some basic maths will show that fixing in now will be the winning game. Property ValuesOne final point worth highlighting is that the ratio of the loan against the value of a property (loan to value) is critical in this market and will be an increasing problem so long as property prices continue to fall. Recent reports suggest that house prices are back to their 2006 levels, with 13.4% being wiped off property values in the last year. This could mean your loan-to-value (LTV) could be worse then it was when your mortgage was arranged and in the short term, it will continue to drop.If you are near to a major LTV threshold, particularly 75%, reduced choice and higher rates will absolutely work against you. Due to capital adequacy requirements the margin that lenders will demand, and indeed need, for higher LTVs are highly likely to take many a year to come down. Anyone who has a high loan to value (75% +) ratio and is sitting on their lenders standard variable rate should now be looking at fixing for an absolute minimum of 3 years although we believe 5 year fixed rates to offer more value and stability. Property values will continue to fall this year and lenders will NOT be offering more favourable rates or LTV ratio's meaning it will be harder to come off your SVR the longer it is left. Being stuck on a the SVR in an increasing interest rate environment is not a place you want to be especially as SVR's are traditionally at least 3% - 4% higher than bank base rate and would therefore ask that some serious thought is given around fixing your mortgage.Getting detailed, independent mortgage advice has arguably never been more important. Ensuring you are in the best place for the next few years will prove to be the winning game.
Answer. Both have recently announced an increase of about 30% in their fees and both attempted to justify the increase on the basis that after deciding how much they wanted to spend that was the percentage increase needed to balance the budget. In the private sector it is done the other way round – the costs the business can afford are based on the revenue expected to be generated.
The Land Registry’s excuse for their huge increase in fees is that the smaller number of housing transactions means their income has to be generated from a smaller number of people and so the lazy option is just to impose a huge increase on those hapless people who have no choice but to pay whatever they demand. There is no evidence of any serious consideration of cutting out some of the fat to reflect the lower volume of business, no doubt because as they operate a monopoly and their fees are like taxes they can get away with charging what they like.
Over at the FSA about 10% of this year’s budget is being used to pay staff bonuses. No doubt some of the staff deserve a bonus but so do many people in the private sector. However, many of the latter won’t get one because their employer operates in the real world and thus doesn’t have the luxury of being able to fleece their “customers” by imposing a huge increase in their charges. Indeed, in many cases their employees will be grateful to still have a job, even if it is on a reduced salary.
Maybe the Competition Commission’s time would be better spent investigating monopoly state sponsored organisations like the Land Registry and the FSA rather than their frequent and pointless investigations into our supermarkets, which by and large compete strongly and offer their customers plenty of choice. And talking of monopolies, why is there only one Competition Commission?
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