countrywide-q4-2014-review

Quarterly Market ReviewWinter 2014

• Stamp Duty: only part of the sale cost

• Every index tells a story• Hamptons International forecasts• How overpaying pays 44

4/5 www.countrywide.co.uk

COUNTRYWIDE QUARTERLY MARKET REVIEW Q4 2014

ContentsCountrywide plc looks in detail at the Chancellor George Osborne’s decision to revise the Stamp Duty system. While the move reduces the cost of Stamp Duty on all property sales under £937,500, Countrywide plc looks at the other transaction costs which are paid by buyers and sellers both in the UK and abroad.

Countrywide plc also examines the differences between the major UK house price indices, the outlook for UK house prices over the next two years and explains why the desire to make mortgage overpayments should be coupled with careful consideration of the terms and conditions of the mortgage.

_ 04 | Countrywide plc’s market barometer

_ 06 | Stamp Duty: only part of the sale cost

_ 08 | Five slide story of the market

| The Long View:

_ 10 | Every index tells a story

_ 12 | Hamptons International forecasts

_ 14 | How mortgage overpayment pays

ABOUT COUNTRYWIDE PLC:

Countrywide plc, the UK’s largest integrated property services Group, including the largest estate agency and lettings network, operates more than 1,300 associated branches across the UK.

Countrywide plc’s network of expertise helps more people move than any other business in the UK and is a leading provider of estate agency, lettings, mortgage services, land and new homes, auctions, surveying, conveyancing, corporate property management services and commercial property.

Countrywide plc’s award-winning service has earned the business over 180 high-profile industry awards in the last six years, with customers voting Countrywide Best Estate and Lettings Agency at the 2014 ESTAS awards. Our Land & New Homes team was named the UK’s Best New Homes Agent for two consecutive years at the Estate Agency of the Year Awards 2012 and 2013 and Countrywide Surveying Services won the award for Best Surveyor/Valuer - Panel Manager at the Mortgage Strategy Awards 2014.


4/5


15

12

9

6

3

0

NU

MB

ER

OF

BU

YE

RS

TO

E

AC

H N

EW

SE

LLE

R Market barometer: A question of supply and demand

The Countrywide plc barometer is based on supply and demand information generated from Countrywide plc’s circa 1,300 estate agency and lettings branches. It provides a solid indicator of current market activity and future sentiment.

RATIO OF BUYERS TO NEW SELLERS AND PROSPECTIVE TENANTS TO NEW LANDLORDS

The final quarter of 2014 saw a cooling of the housing market, perhaps unsurprising following four straight quarters of exceptionally strong demand from buyers. A marked increase in the the number of properties for sale, particularly across London and the South East, has meant buyers find themselves with considerately more choice. Stock levels are now back to 2012 levels, following almost unprecedented falls during 2013.

Rents continued to grow in 2014 on the back of strong tenant demand and falling levels of stock, with the cost of accessing the private rented sector 4.2% higher than in 2013. The average sitting tenant however saw their rent rise 1.8%, more slowly than for those agreeing new lets.

BUYERS TO EACH NEW SELLER

8.4Q4 2014

PROSPECTIVE TENANTS PER NEW INSTRUCTION

5.4Q4 2014

SaleRental

20

08

| Q

1

20

08

| Q

2

20

08

| Q

3

20

08

| Q

4

20

09

| Q

1

20

09

| Q

2

20

09

| Q

3

20

09

| Q

4 2

01

0 |

Q1

20

10

| Q

2

20

10

| Q

3

20

10

| Q

4

20

11 |

Q1

20

11 |

Q2

20

11 |

Q3

20

11 |

Q4

20

12 |

Q1

20

12 |

Q3

20

12 |

Q2

20

12 |

Q4

20

13 |

Q1

20

13 |

Q2

20

13 |

Q3

20

13 |

Q4

20

14 |

Q1

20

14 |

Q2

20

14 |

Q3

20

14 |

Q4

20

08

| Q

2

20

08

| Q

3

20

08

| Q

4

20

09

| Q

1

20

09

| Q

2

20

09

| Q

3 20

09

| Q

4

20

10

| Q

1

20

10

| Q

2

20

10

| Q

3

20

10

| Q

4

20

11 |

Q1

20

11 |

Q2

20

11 |

Q3 2

011

| Q

4

20

12 |

Q1

20

12 |

Q2

20

12 |

Q3

20

12 |

Q4

20

13 |

Q1

20

13 |

Q2

20

13 |

Q3

20

13 |

Q4

20

14 |

Q1

20

14 |

Q2

20

14 |

Q3

20

14 |

Q4

20

08

| Q

1

6.6

8.4

7.7

7.2

6.5

6.4

6.3 6

.6

7.5 7.6

6.6 6.7

7.1

7.1

7.0

7.5

8.4

8.1

7.2 7.3

8.5

8.5 8.6

9.1

9.7

9.2

9.9

12.3

2.5

2.4

5.4

3.4

2.7

2.6 2

.9

5.1

5.0

4.8

4.5 4

.8

4.8

4.1 4

.4

5.0 5.2

4.7

4.6

4.34

.6

3.9 4

.1 4.4 4.6

5.0

3.8

3.5





here are many factors which determine the number of sales which take place, not least the

strength of the economy, sentiment and housing affordability which have a strong impact. There is however a relationship between the cost of a transaction and the number which take place. The chan-cellor’s decision to cut the cost of the average Stamp Duty bill will serve to cut the cost of the average transaction from 6.7% to 5.7% of the sale price. This cut makes the cost of buying or selling prop-erty in the UK look increasingly competi-tive in comparison to the rest of Europe.

The cost of buying and selling across Europe shows that, in countries where the cost of buying and selling are lowest, more transactions tend to take place. Broadly speaking, for every 1% reduction in transaction costs, the total number of sales grows by 2%. Not only is this good for the economy by creat-ing jobs in associated services, but it is also efficient; the government benefits if people can afford to move more easily to follow a job opportunity.

This cut in Stamp Duty represents the first permanent reduction to the cost of moving home for over a decade in the UK after an ever growing number of buy-ers found themselves caught up in high Stamp Duty bands. The UK is one of the few countries where the costs associ-ated with buying and selling are falling. Post downturn, and in a bid to increase tax revenue, a number of Southern European countries imposed a raft of new property taxes. They are payable on the purchase, occupancy and sale of residential property.

Stamp Duty: only part of the sale cost

The change to the Stamp Duty system puts the cost of buying and selling in the UK below much of Europe

Over the last five years Greece has intro-duced a significant number of new prop-erty taxes. A ‘Purchase Tax’, equivalent to Stamp Duty, must be paid prior to legal completion, and works out at around 4% of the average purchase price. An equivalent home in the UK would attract a Stamp Duty Bill of just 0.7%. This has come alongside the introduction of the ‘Yperaxia’ – a capital gains tax which captures 15% of any uplift in value and is payable by homeowners on the sale of the property. Both taxes are on top of a new ‘ENIFA’ tax which was introduced in January 2014, and is calculated on the floor area of the property. If ENIFA payments are not kept up to date, the property cannot legally be sold.

The cost of the average UK transaction as a proportion of the purchase price

Number of Greek homeown-ers moving annually. Repre-sents a fall from 8% in 2007

5.7%BY NUMBERS

1%

T

In Greece, the effect of the vast increase in tax burden on property alongside eco-nomic downturn, has been to depress transaction levels. In 2007 there were a total of 148,000 transactions in Greece, a phenomenal number given its modest population, and equivalent to a turnover of around 8%. By 2010 this number had fallen to 74,000, a fall similar to that experienced by the UK. However, in the last 12 months however, following contin-ued recession and the introduction of a substantial number of property taxes, just 17,000 transactions took place. Today less than 1% of homeowners now move each year.

Over the course of the recession, coun-tries which found themselves in need of revenue have turned to property as a source of much needed tax revenue. In many cases this has been because property taxes have proved particularly difficult to avoid, with the state con-trolling the registration of property every time a home is bought and sold. This has made differentiating between the effect of a downturn and increased property taxes on transaction levels difficult.

While recessions generally have the effect of reducing the number of prop-erty sales, the UK being no exception, the effect of substantially hiking taxes on housing transactions has undoubtedly contributed to the collapse in transaction levels. This makes moving difficult and and ultimately limits the revenue raising potential of the new tax. The experience of Greece shows that high taxes on homes can and do act as a significant barrier to mobility, imposing additional in-direct costs on the state. While the Chan-cellor put the cost of the Stamp Duty cut in terms of lost revenue to the Treasury at £800 million, its true impact can only be quantified when taking into account the wider benefits to the economy. These include the effect on labour mobility, consumption levels and tax take.

The cost of doing a deal

90

80

70

60

50

40

30

20

10

0

18%

16%

14%

12%

10%

8%

6%

4%t

2%

0%

No

rway

Esto

nia

Un

ite

d K

ing

do

m

Ge

rman

y

Fran

ce

Port

ug

al

Fin

lan

d

Be

lgiu

m

Slo

ven

ia

Hu

ng

ary

Luxe

mb

ou

rg

Ne

the

rlan

ds

Ital

y

Sp

ain

Ire

lan

d

Gre

ece

An

nu

al t

ran

sact

ion

s p

er

100

0 h

om

eo

wn

ers

Transactio

n co

st as a pro

po

rtion

of p

urch

ase p

rice

Annual transactions per 1000 homeowners

Transaction cost as a proportion of purchase price Source: : Countrywide plc

Who pays?

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Be

lgiu

m

Hu

ng

ary

Ne

the

rlan

ds

Gre

ece

Un

ite

d K

ing

do

m

Ge

rman

y

Fran

ce

Ire

lan

d

No

rway

Port

ug

al

Luxe

mb

ou

rg

Fin

lan

d

Esto

nia

Sp

ain

Slo

ven

ia

Ital

y

Buyer proportion of costs

Seller proportion of costs

Source: Countrywide plc

Estate agent fees, capital gains tax, transfer tax, legal fees

Search fees, mortgage fees, valuation fees, survey fees, VAT, property registration fees, stamp duty/transfer tax, legal fees



Stamp Duty reform: a game changer?

Five slide story of the market

November 2014 saw the number of transactions slip below 2013 levels for the first time in 2014. The number of sales still remains above 2012 levels however, and any slowdown must be kept in context. Month-on-month transactions remain 50% above 2008 lows.

The true impact of Stamp Duty reform will take time to become fully apparent. After almost two decades, many of the ‘cliff edges’ are established in the minds of both buyers and sellers. The previous Stamp Duty thresholds have also served to set prices. The price distribution of new listings since 4th December shows the current ‘cliff edges’ are still very much in existence.

1

3

Stamp Duty forms only part of the cost of buying, owning and selling a property. In the UK, Stamp Duty will fall to around a quarter of the cost of the transaction, down from a third prior to the 4th December 2014. Solicitor, estate agent and search fees account for the remaining three quarters of the cost, and by international standards are all relatively low.

4

The Stamp Duty changes announced in the Autumn Statement look set to boost transactions. With all buyers paying between £125,000 and £937,500 finding themselves better off, estimates for the resultant boost in transactions range from 2% to 5%.

2

160000

140000

120000

100000

60000

40000

20000

0

JAN

FEB

MA

R

APR

MA

Y

JUN

JUL

AU

G

SEP

OC

T

NO

V

DEC

Monthly transactions in England and WalesSource:

HMRC/Countrywide plc2007 2012 2013 2014

Stamp duty rates compared

New listings


So

urc

e:

Co

untr

ywid

e p

lc

Old rate

New listings prior to 4th December 2014

New listings post 4th December 2014

New rate

6%

5%

4%

3%

2%

1%

0%

5%

4%

3%

2%

1%

0%

£12

5,0

01

£19

0,0

00

£23

5,0

00

£29

0,0

00

£34

5,0

00

£40

0,0

00

£45

5,0

00

£51

0,0

00

£56

5,0

00

£62

0,0

00

£675

,00

0

£73

0,0

00

£78

5,0

00

£84

0,0

00

£89

5,0

00

£93

4,0

00

£975

,00

0

£1,0

30

,00

0

£1,0

85

,00

0

£1,14

0,0

00

£1,1

95

,00

0

£1,2

50

,00

0

£470k - £500k

£500k - £530k

£530k - £560k

£250k - £260k

£260k - £270k

£240k - £250k

£125k - £130k

£130k - £135k

£120k - £125k

FRANCE

UNITED KINGDOM

GREECE

Total five year ownership costs as a proportion of purchase price

Purchase price

Holding costs Sale costs


Estate Agent

Stamp Duty

Purchase Tax

Stamp Duty

Solicitor, Notaire

Land Registry fee

Solicitor, Notaire

Taxe d’Habitation (Occupier)

ENIFA (from 1st Jan). Replaces tax on electricity bills imposed in 2011

ENIFA

Supplementary tax. Property over €300,000

Estate Agent

Capital gains levied on properties bought after Jan 2013

Taxe d’Habitation (Occupier)

Texe Fonciere(Owner)

Texe Fonciere(Owner)

Estate Agent

Searches, and registration feeds

Survey

Searches, and registration feeds

Estate Agent

Solicitor

Survey

Survey

Solicitor

Cost of ownership for residential homeowners

SHEFFIELD

LILLE

LARISSA

WESTMINSTER

PARIS

ATHENS

6.3%

5.1%

11.6%

6%

2.2%

6.6%0.1%

0.1%

0.1%

Survey0.1%

0.1%

0.2%

0.9%1.4%

0.6%

1.2%

1%

1.4%

1.3%

0.5%

2.8%9.4% 9.7%

3% 6%6%

3.2%

2%

2%2%

2.3%

0.4%

Land Registry fee0.3%

1%

1%

15.2% 15.9%

Council Tax4.2%

Council Tax

2.1%

1.4%

1.3%0.6%

0.4%

1.1%

7.7% 8.2%

16.1%

13%

2.8%

5.1%

7%

1%1.2%1.2%

1.6%

Estate Agent

2%

Capital gains levied on properties bought after Jan 2013

1.2%

1%

12.2%

Solicitor SolicitorEstate Agent

Stamp Duty

Stamp Duty

Estate Agent

Estate Agent

www.countrywide.co.uk10/11

Q1 2013COUNTRYWIDE QUARTERLY MARKET REVIEW Q4 2014

www.countrywide.co.uk

he latest ONS house price index tells us that the average UK house price is £273,000 while

data from Halifax puts the average house price at £189,000. How is it possible for them both to be right? The reality is that different house price indices use different measures and data to calculate figures which show very different things. In the UK, house price indices tend to use one of two models; either a ‘repeat sales’ model or a ‘hedonic regression’ model. Both models work very differently and, like any model, both have strengths and weaknesses.

REPEAT SALES MODEL

The ‘repeat sales’ model is the chosen method of the Land Registry, the gov-ernment body responsible for record-ing every sale in England and Wales. It measures the change in price between two sales on the same property. Since 1995 the Land Registry has recorded around 19 million transactions, of which just over seven million are repeat sales. It is only these sales which are used in its house price index. It is based on the principle that if a house sold for £100,000 in 2000 was sold again in 2001 for £110,000, then average annual-house price growth would be 10%.

Every index tells a story

Every house price index in the UK measures something slightly different. Comparisons must be made with caution

T

The main strength of the repeat sales model is that the data required is rela-tively easy to capture. It requires no more than the address of the property, the sale price and the date it was sold. This is data which is routinely recorded for every single residential transaction that takes place in the UK. It captures both wider price trends and any improvement to a property, with both reflected in the sale price.

However, the repeat sales model also has a number of weaknesses, with the largest being the impact of a biased or distorted sample size. Flats, typically with lower transaction costs, are more likely to be the preserve of first time buyers moving up the property ladder. As a result, they are typically sold more frequently than four or five bedroom houses. With no adjustment made for the type of property, a high turnover of lower value flats for example serves to reduce the average price. This is a significant factor in the Land Registry reporting the lowest average house price figure of all the house price indices. At a local level, small sample sizes can become prob-lematic. With just 38% of transactions classed as repeat transactions (i.e. the property has sold at least once since 1995), a large number of transactions (including sales of new homes) are ex-cluded. As more transactions are record-ed over time however, a greater number will be repeat and hence become eligible for inclusion in the index.

HEDONIC REGRESSION MODEL

The second widely used model is ‘hedonic regression’, and is the chosen method of the ONS, Nationwide and Halifax. Using a variety of property attributes, which usually include location, property type, size, age and number of bathrooms and bedrooms, ‘hedonic regression’ calculates the price of a ‘typical’ house. This isn’t necessarily a house which exists in reality, but one which can remain unchanged over time

or can be updated to reflect emerging demographic trends. The data required for such a model is not routinely collect-ed by the Land Registry each time a sale takes place.

Hedonic models do however make particularly efficient use of data. All sales can be used, whether a previous sale had been recorded or not. Equally, such a model can be used to relatively accurately project changes in value in areas where no sales have been recorded, by virtue of a property’s characteristics. These details allow for changes to the mix, or quality of properties sold, to be accounted for.

The downside of the hedonic model is that different hedonic indices attach different weights to property attributes, meaning no two hedonic indices report the same average house price. Equally, using a large number of criteria, the index still cannot account for changes to less easily ob-served attributes. While many attributes are easy to measure, such as the number of bedrooms, many are far less easy to cap-ture. The impact of regeneration schemes or public realm improvements are much harder, if not impossible, to quantify.

TREADING WITH CAUTION

All the indices listed opposite attract attention as they are released throughout each month. While it can be tempting to create an overriding narrative to explain changes in the houseing market as each is released, every index measures some-thing very different. Each index is based on different data which comes from a range of time periods which makes comparisons between them extremely difficult. To really understand how house prices are chang-ing, each index needs to be understood, treated individually and taken purely on its own merits.

The differing data sources and methodologies mean that each house price index gives a slightly different view of the market

Understanding the main indices

Rightmove Average, mix adjusted asking price of a property listed for sale for the first time

Listings from 10,000 estate agency branches

<1 month (from listing)

90% of properties sold in the UK are listed on Rightmove

2002 £267,000

(asking price)

Nationwide Hedonic model where data is adjusted to reflect property characteristics. This gives the average price of a representa-tive UK home

Nationwide lending at ap-proval stage after a mortgage valuation has been carried out. Based solely on owner occupi-er mortgage lending

~2 months 15% share of UK house purchases although some pur-chases are excluded

Quarterly from 1952 and monthly from 1991

£189,000

Halifax Hedonic model where data is adjusted to reflect property characteristics. This gives the average price of a theoretical pre-1983 UK home

Lending by Halifax to owner occupiers at mortgage approval stage

~2 months 12,000 monthly transactions

1984 £186,000

Land Registry

Repeat sales model which tracks all properties sold more than once since 1995. Approximately seven million matched pairs

Land Registry price paid data. Includes all owner occupier, cash and buy to let sales post completion

3-4 months All homes which have been sold at least once since 1995

1995 £177,000

(England and Wales)

ONS Hedonic model where data is adjusted to reflect property characteristics. This gives the average price of a theoretical UK home. Methodology is under review.

Regulated Mortgage Survey completions which account for ~80% of mortgage market. Cash sales are not included

5-6 months Average of 27,000 monthly transactions

2002 in its current form

£273,000

Index Measure What data? Lag from date property is sold

Market coverage

Year started

Average UK price

So

urc

e:

Co

untr

ywid

e p

lc

Proportion of homes sold during 2014 which had already been sold at least once since 1995.

38%

BY NUMBERS

2007

1995 2015

The two main types of index

Measures the change in price of a standardised home.

Tracks the change in value between two sales of the same property.

Hedonic model

Repeat sales model

1995 2015

£25k

£13k

£18k



entiment shifted sharply in 2014, particularly in London. This was due to deteriorating afforda-

bility, new mortgage market regulation and growing talk of ‘concerns’ about the housing market from the Bank of England. On top of this, worries that the UK’s re-covery may be vulnerable, has moderated expectations of how much further prices can rise. Most of the concern is focused on London, but the change in mood is affecting the rest of the country too. But the shock reform of Stamp Duty Land Tax (SDLT) will give a boost to both transac-tions and prices in the short term, as the majority of transactions (72 per cent) will pay less tax than before the reforms.

Uncertainty about the election, mansion tax and the pace of economic recovery will all dampen the prospects for the housing market in 2015, but some of this will be neutralised at the beginning of the year as the reform of SDLT provides an incentive to move sooner before price growth erodes the benefit of the tax cut. Further ahead we expect conditions to improve in 2016 as economic recovery becomes more established. However the availability of credit is a crucial factor for performance. While the prospect of interest rates remaining low until at least the autumn of 2015 has pulled mortgage rates down (making some affordability tests easier to pass), Bank of England surveys of Credit Conditions suggest that lenders remain cautious about the future and that will limit the pace of price (and mortgage debt) growth - just as the regu-lator intended.

This background inevitably affects activity. We do expect transaction growth, but actual levels will remain far from those we got used to before the financial crash.

Hamptons International Forecasts

The next two years look set to be charactered by the rest of the UK playing catchup with London and the South East

2015 is likely to be subdued, but the risks are to the upside as a result of the SDLT reform. 2016 should see some further growth as economic recovery spreads. Indeed with higher levels of stock for sale, and slower price growth, there are clearly prospects for higher activity.

SECOND AND THIRD TIME BUYERS

Much of the focus so far has been on first time buyers especially given Help to Buy, but we also expect a pick-up in movers. This is partly due to the SDLT reforms but also because we expect greater use of transitional arrangements to offer ‘softer’ affordability tests to allow buyers who are managing payments now but may not pass new, more stringent, affordabil-ity tests to move. That is driven by the experience of arrears and possessions, which have continued to fall to record lows and the Bank of England’s research that reveals that borrowers are better able to withstand a two per cent increase in rates than expected. However, uncertainty about the regulator’s approach to transi-tional arrangements in the future will keep lenders a little cautious.

Overall we expect house price and transactions growth to be fairly modest for the next two years, but there are both up and downside risks. On the upside a SDLT reforms and a stronger economic recovery would boost confidence, but on the downside, lower expectations about future price growth, low wage growth and continued caution on the part of lenders could lead to a weaker outturn. In addition, uncertainties around the general election and housing market policies, including mansion tax, may continue to unsettle the markets.

The South East and West CountryS

Hamptons International Housing Market Forecasts

20

15

10

5

0

-5

8.6

%

5.3

%

5.3

%

6.2

%

4.5

%

2.9

%

10.0

%

5.4

%

3.6

%

0.5

%

0.7

%

2.8

%

2.7

%

1.5

%

4.0

%

-1.5

%

4.0

%

4.0

%

3.5

%

3.5

%

3.5

%

2.5

%

4.0

%

2.5

%

4.5

%

4.5

%

4.0

%

4.0

%

4.0

%

3.0

%

4.5

%

4.0

%1.

5%

4.2

%

4.0

% 4.5

%

6.8

%

4.5

%4

.0%

2.8

%

11.0

%

9.7

%

0.5

%

3.5

%

13.5

%

10.0

%

12.6

%

19.9

%

16.1

%

2.0

%

3.5

%

3.5

%

England & Wales

North East

North West

Yorkshire & Humber

East Midlands

West Midlands

Wales East London South East Prime Central London

South West

Central London

2013 2015

2014 2016

An

nu

al h

ou

se p

rice

gro

wth

(%)

Source: Hamptons International

In the North the recovery in housing markets has been constrained and prices are still below their pre-crisis peaks. As a result affordability has not rapidly deteriorated. However, this is counterbalanced by weaker economic prospects in the re-gions. The North East already has

the highest unemployment rate in the UK and is further haunted by the spectre of public sector job cuts. Things are most buoyant in the North West which has had huge increases in employment which sets in in a good place for a sustainable, rather than highly volatile, housing market.

The East and West Midlands are in a similar position to the North West. Local economic conditions are getting better and this should continue as the UK as a whole gets back on its feet. But these regions are more vulnerable than the South to economic volatility. Prices are still below the pre-crisis

peak; so affordability is better, but wage growth has been very weak. Stamp Duty reforms in the North and Midlands make a much smaller difference than elsewhere. Lower house prices mean that 40 to 55 per cent will see no difference in tax under the new regime

The price gap that has opened up between London and the Country has already led to increased migration away from the capital into commutable areas further out, helping to support prices in these areas. The average price of a property in London is twice that in the south East and two and a half time the average in the South West. Both areas will continue to

see some migration demand as people move out of the centre and cash in – although this will wane. However the East is vulnerable – it is traditionally volatile and while economic prospects should be good here, there are risks – espe-cially beyond the safety of well off Cambridge. Stamp Duty changes will mean most buyers are better off under the new system.

High prices and a lack of available supply in PCL displaced demand to Central London, helping to fuel prices. But demand also comes from the mainstream population, albeit relatively wealthy, but likely to have need of some mortgage fi-nance. As a result tighter affordabil-ity regulations are beginning to bite

as house prices have grown. Stamp Duty reforms will generally mean a higher tax bill for properties over £1million. We expect a significant slowing in price growth in central London. But the strength of the capital’s economy will be a positive factor preventing any significant year on year falls.

The North Midlands

Central London


he 2008 downturn forced many lenders to reassess the way they evaluate risk. As a result many

households that were able to obtain cred-it in 2007 suddenly found they were no longer eligible for finance. The implemen-tations of the recommendations within the Mortgage Market Review during early 2014 also meant that there was more pressure on the borrower to prove that their repayments are, and will continue to be affordable.

There is no single hard and fast rule lend-ers use when assessing affordability. One of the fundamental ways lenders assess affordability is to look at the proportion of a borrower’s income taken up by mort-gage repayments. Borrowers must show that they are capable of comfortably meeting repayments, both at the time the loan is taken out, but also if interest rates were to rise or in the event of income loss. To make repayments more afforda-ble on a monthly basis, many borrowers have chosen to stretch the mortgage

term. Between early 2007 and the end of 2014, the proportion of first time buyers who took out a mortgage with a term in excess of 30 years rose from 24% to 37%. This stretch isn’t simply a product of unaffordability, prices across two thirds of the country remain below where they were in 2007. By stretching the mortgage term, borrowers are able to show lenders they can service repayments today and at higher rates.

Borrowing money for longer periods of time does however increase the total amount repayable. Each additional year added to the mortgage term adds around 4% onto the total amount repayable. Someone borrowing £100,000 over 25 years will pay back the original amount alongside £50,190 interest. Taking the loan on the same terms over 26 years will see the interest payable rise to £52,440. Longer initial mortgage terms however do not necessarily mean that borrowers will end up paying more back. With more mortgages secured on longer terms, for

How mortgage overpayment pays

While overpaying on a mortgage will reduce the total amount repayable, it’s worth reading the small print

www.countrywide.co.uk14/15

TThe amount borrowers are able to overpay without penalty is now at the highest level for over three decades

borrowers the ability to make overpay-ments during the course of a fixed rate deal has become an increasingly impor-tant feature of mortgage deals.

During the 1990s, as interest rates fell, the high cost of exiting many fixed-rate mort-gage contracts left borrowers trapped on expensive mortgage deals. Many lenders calculated the loss they would incur as a result of overpayments or early redemp-tion and passed this cost onto borrowers. With lenders having secured funds at rates that were well above what were available to borrowers on the high street, the cost of getting out of expensive mortgage deals proved substantial.

RISING OVERPAYMENT LIMITS

With the Bank of England base rate held at 0.5% since 2009, the cost of accessing finance for both lenders and borrowers has fallen substantially. As the cost of finance remaining relatively static in historic terms, the cost to lenders of borrowers extracting themselves from mortgages has reduced. The amount borrowers are able to overpay without penalty is now at the highest level for over three decades. While a number of lenders now offer fixed rate products which allow unlimited overpayments pro-vided the mortgage isn’t fully redeemed,

the majority make a charge for payments above a certain level. Most mortgage prod-ucts allow around 10% of the mortgage balance to be overpaid annually, however the detail set out in terms and conditions makes a considerable difference if large overpayments are planned. At first glance both Nationwide and Britannia mortgage products look to have similar overpay-ment allowances. On further investigation however, Nationwide allow a penalty free overpayment equal to 10% of the initial balance, while Britannia allows a sum equal to 10% of the previous year’s closing balance to be made. The table above high-lights the large difference this makes to the level of overpayments permitted.

With little interest offered on savings accounts, making overpayments on a mortgage can make financial sense for many. Despite the most generous penalty- free overpayment allowances in 30 years, for someone who is in a position to make substantial overpayments, it pays to read the small print. The difference between being able to make overpayments based on the initial mortgage balance rather than the previous year’s balance can equate to repaying a mortgage in eight rather than 15 years.

The benefits of overpaying on a 30 year £150,000 mortgage£500

£400

£300

£200

£100

£01 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Term: 13 years 6 months

Interest over term: £38,000




Cost over term: £80,500

Term: 30 years


No overpayment£50 monthly overpayment£100 monthly overpayment£500 monthly overpayment


LENDER STANDARD FIXED RATE PENALTY FREE REPAYMENT

EXAMPLE BASED ON £150,000 SECURED ON SAME TERMS OVER 30 YEARS

Nationwide Post May 2013 repayments of 10% of the original mortgage balance can be made penalty free annually. Prior to May 2013 a maximum of £500 could be made without charge.

Year 1 maximum overpayment:

Year 5 maximum overpayment

Fastest term in which mortgage can be redeemed:

£15,000

£15,000

8 years 1 month

Britannia 10% of the previous year end balance can be repaid without penalty. Ability to overpay declines and mortgage size reduces.




£15,000

£7,588

14 years 11 months

HSBC Overpayments equal to 20% of the standard monthly repayment can be made penalty free.




£1,617

£1,617

24 years 5 months


years

The total interest payable on a 3.5% APR, 25 year, £100,000 mortgage

Time in which a £150,000, 30 year mortgage can by paid off by making £100 monthly overpayments

The typical annual overpay-ment allowed on a fixed rate mortgage

£50,190BY NUMBERS

24

10%Mo

nth

ly m

ort

gag

e in

tere

st

For more information please contact:

Corporate Client Enquiries - 0207 908 1562 [email protected]

www.countrywide.co.uk/insight

Countrywide House

88-103 Caldecotte Lake Drive Caldecotte Milton Keynes Buckinghamshire MK7 8JT

Tel 01908 961000

Conveyancing

Lee House Great Bridgewater Street Manchester M1 5RR

Tel 0161 200 8200 Fax 0161 200 8205

Surveying

2 Boundary Court Willow Farm Business Park Castle Donington Derby DE74 2UD

Tel 01332 813002

Corporate Property Services

Tamar House The Bridges Brants Bridge Bracknell Berkshire RG12 9BG

Tel 01344 389 500

Corporate/Emergency/ Commercial/Social Relocation

Thamesgate House 33 Victoria Avenue Southend on Sea Essex SS2 6DF

Tel 01702 236403 Fax 01702 437119

Estate Management - Leasehold and Residential Lettings

4th Floor Thamesgate house 33-41 Victoria Avenue Southend on Sea SS2 6DF

Tel 01702 221000 Fax 01702 434145

Lettings

Countrywide House Sherwood Court Lake View Drive Annesley Nottingham NG15 0DT

Tel 01623 721222

Property Auctions

80 - 86 New London Road Chelmsford Essex CM2 0PD

Tel 01245 344133

Registered Office

17 Duke Street Chelmsford Essex CM1 1HP

Tel 01245 294000 Fax 01245 294028

Land & New Homes

Countrywide House 88-103 Caldecotte Lake Drive Milton Keynes MK7 8JT

Tel 01908 961109

countrywide-q4-2014-review

Documents

countrywide best estate

countrywide surveying

housing market

new seller market barometer

quarterly market reviewwinter

mortgage services

lettings agency

new sellers