According to the latest research from the property adviser, Savills, the competition for developable land has begun to impact positively in development values, affecting housing and mortgage markets alike. There appears still to be, however, a gap between small sites in housing markets that are in high demand. Conversely, the higher costs that come with larger sites in terms of both preparation and promotional aspects is continuing to impact negatively in value growth, with many sites still being curtailed and others remaining impossible to sell, the research shows.

Some developers across the country have re-captitalised, and are creating competition for small, so-called ‘easy sites’ by seeking land in areas with definite housing shortages. Prices have been pushed up by the rarity aspect of sites in prime locations, with prices in certain areas currently within 20% of their levels at 2007’s peak, according to the research.

Modest growth has been seen in the average value of residential development land during the past three months. The values of greenfield sites climbed by an average of 3.2%, with urban land values climbing by 3.8%. The rises saw annual growth stand at 16.6% and 14.1% respectively.

‘Average growth figures disguise huge variations and need to be treated with some caution. The development land market is now polarised on virtually every level: between North and South; high and low value housing markets; large, infrastructure-hungry sites and small easy to develop de-risked sites,’ according to Yolande Barnes, the head of Savills residential research. This is especially true for many places that were once considered risky due to high levels of bad credit mortgages or others with less desirable fixed mortgage rates.

‘More than ever, those in the market need to evaluate sites on a case by case basis, since the value of each site and, ultimately, its ability to generate revenue, will be determined by regional and, in many cases, highly localised factors,’ Ms Barnes added.

According to the research, the divide between the north and the south has become more marked, and more definite. The value of greenfield sites in the south-east are growing at the fastest rate, and currently stand only 37% below their peak levels of 2007. This has largely been as a result of the strong demand for ready-to-build greenfield sites. Ms Barnes commented that the figures reflect the burgeoning confidence of developers based on the residential market’s in-built strength as well as a definite shortage of available land. Conversely, the value of urban, brownfield sites in the north of the country has continued their decline, falling -2.2% for the quarter, and now 71% below peak levels. ‘Such sites require promotional capital beyond the means of a fundamentally cautious and under capitalised market. Urban land values, particularly the larger sites, therefore continue to languish,’  according to Ms Barnes.

According to new research published this week the demand for rented accommodation climbed to new record levels in the second quarter of this year. The research from Britain’s largest lettings agent, Countrywide, indicated that some 50,480 people looking to rent properties registered with them during the three month period up to the end of June. This figure represents the highest recorded by Nationwide since the company began collecting such data back in 2003. The figure is also 16% up on demand during the opening three months of 2010, according to the research.

Demand was especially marked in June, when more than 18,000 new tenants registered in order to rent accommodation. This figure represents the highest ever level recorded in a single month, and is also up 22% on May’s figure. The rise in the number of potential rental tenants contrasts with a drop of 6% in the actual number of properties available for rent during the same period. Due to this, there are currently on average 5.5 tenants in competition for each property, a figure that has risen from 4.9 tenants for each property during the opening quarter of 2010 – boding well for the mortgage rates in the market as well as buy-to-let mortgage rates in particular as the lending shows to be more secure. Even fixed-rate mortgages should show strong promise in some ways for areas with decent growth and interest trends.

In the south-west, two-bedroom properties are the most in demand with more than 23 people competing for every available property.

According to Countrywide, the supply and demand imbalance has resulted in a “slight increase” in rents-especially where houses are concerned-and the average rental cost for a four-bedroom home has climbed by 4% for the quarter to £1,090. The research also shows that properties are currently being taken within a two-week average, which is six days faster than in the last three months of last year.

According to John Hards, the co-managing director of Countrywide Residential Lettings, demand has spiked beyond all expectations and is set to rise still further. "Student demand for private rental accommodation will increase further with university applications at record levels.

"The buy-to-let sector remains a good source of investment, however, the Government needs to do more to incentivise new landlords in order to appease the current shortage of properties.

"If tenant levels continue to rise at the same rate, this will be further exacerbated," he stated.

It appears that new rules set to be implemented by the Financial Services Authority (FSA) will make it more difficult for consumers to obtain mortgages and there are some rumblings that the strict new regulations actually go too far – bad news for many first-time buyers and bad-credit mortgage seekers. The FSA was all set to be axed by a potential in-coming Conservative government, and was only saved due to the fact that a coalition Lib/Con government was actually voted in instead.

In the wake of its reprieve, the FSA has begun to throw its weight around with regards to the mortgage market and regulations. The FSA recently released new proposals intended to cleanse the mortgage market and curtail irresponsible lending practises. They also aim to ensure that borrowers are able to afford the mortgages they sign up for.

Despite the seeming logic behind the proposals, there have been warnings from within the industry that the new proposals will make mortgages more expensive and, as a result, will price many people out of the mortgage market. Among the new FSA proposals is the requirement for income verification on all mortgage applications. This will lead to an end of self-certification mortgages. It may seem incredible that mortgage lenders negated to investigate the income status of their borrowers before approving lending, but FSA figures released at the end of 2008 reveal that an amazing 52% of mortgages were approved without the borrower’s income being fully verified. The FSA also believe that additional affordability tests should be implemented for all mortgage products to make sure that borrowers only take on packages they can afford. This would also ensure that lenders are finally responsible for verifying a borrower’s ability to repay.

Lenders and brokers have criticised the proposals, arguing that they are likely to make mortgages too expensive, thereby pushing them out of the reach of many people. Due to the stringency of the new affordability checks, borrowers will need to provide independent proof of income, and lenders will have to take more time to authenticate the documents. Such extra checks will, of course, cost companies more money. As a result, costs will be passed on to customers, thereby paying lenders for doing what they ought to have been doing all along.

Some also feel that the criteria are so stringent that they are likely to limit access to finance. The new FSA rules would lead to lenders assuming that borrowers will take mortgages on a 25-year term capital repayment basis. Many first-time buyers, however, are likely to opt for a longer term for a first mortgage to make sure it is affordable. The new ‘one-size’ regulation may squeeze the margins too far, according to the Council of Mortgage Lenders: “The FSA’s proposed conservative approach may trap struggling households in their existing mortgage, eliminating the possibility of re-mortgaging to a cheaper deal. That option may be the difference between clawing their way out of their money troubles and retaining ownership of the home, or falling deeper and deeper into arrears until the home is repossessed.”

According to the latest figures from the Council of Mortgage Lenders, gross UK property lending for June was up by 15% on May’s figures, although lending remains at an extremely low level and there appears to be no real increase imminent – not highly positive news for many keeping an eye on many fixed-rate mortgages, tracker mortgages and even buy-to-let mortgage offerings. June saw an estimated £13.1 billion loaned as compared to May’s figure of £11.4 billion. June’s figure is also 7% up on the figure for June 2009, although lending for the first half of this year reached a total of £65 billion, a figure  that remains unchanged from figures for the first half of last year.

According to Paul Samter, economist with the Council of Mortgage Lenders, the higher figures, despite being good news, represent a time for cautious optimism.

‘Our gross lending estimate of £13.1 billion in June represents a seasonal pick-up and is higher than June last year, but is still indicative of low levels of activity,’ he said.

‘There are signs of house prices stabilising and more properties coming onto the market following the abolition of home information packs. This may improve liquidity in the market, but transaction levels are subdued and likely to remain so while access to credit remains constrained,’ Mr Samter explained.

It appears, however, that any significant short-terms improvement is unlikely to materialise:  ‘The FSA has outlined a clear direction of travel as part of its mortgage market review. The consultation paper on responsible lending increases the regulatory burden on lenders and could make it harder for borrowers to access credit,’ warned Mr Samter.

Adam Challis, the head of research at Hamptons International, believes that the rescinding of the controversial Home Information Packs has aided the slight improvement in lending figures, along with a greater number of new mortgage products being made available.

Many also feel that practical solutions are also required to stimulate and encourage banks to fund mortgage lending. This problem is particularly acute as the Special Liquidity Scheme is set to reach its repayment phase in early 2011. At this point, banks will face real challenges to their will and ability to fund mortgage lending.

According to figures from the newest Commercial Property Survey from the Royal Institution of Chartered Surveyors, tenant demand in Britain-particularly in London-has dropped for the first time in four quarters – bad news for the buy-to-let market, even with continued positive mortgage rates and favourable fixed-mortgage rates.

It appears that demand fell away especially in the commercial property sector, in which 7% more chartered surveyors recorded a fall rather than a rise in tenant demands during quarter 2. The figure was down from a positive 6%, and represents the first negative figure since 2009’s opening quarter, according to the report.

The demand among tenants for offices fell in all regions, although London witnesses the largest fall in sentiment. Some 38% more chartered surveyors recorded a fall rather than a rise in demand for office. The figure is a fall from the positive figure of 32% seen during the first quarter of this year.

Surveyors have indicated that the uncertainty fuelled by possible budget cuts have adversely affected a range of investment decisions. The industrial and retail markets also saw falling demand across most regions, although it appears that the north is the exception to this trend, with the demand for both industrial and retail properties still strong.

The confidence in the outlook for lettings has dropped for the first time since the second quarter of last year, and the confidence in the future of the letting of industrial and office properties in London dropped also. Confidence in the retail lettings sector, despite staying subdued overall, was up in Central and Greater London, with surveyor confidence rising from -58 to -7.

Oliver Gilmartin, senior economist at the Royal Institution of Chartered Surveyors, has indicated that budget uncertainty as well as a fragile recovery generally are impacting on a variety of sectors.

‘Surveyors have indicated that uncertainty as to the detail of budget cuts are weighing on firms’ investment decisions with respect to their property requirements. As a result, the rental recovery is stalling in its tracks on waning demand. It seems difficult however to reconcile the turnaround in the London market purely on domestic concerns,’ Mr Gilmartin stated.
 
‘Indeed, falling stock markets, worries over both the Euro zone debt crisis and the sustainability of the recovery appear to be weighing on occupational demand from large multinational occupiers. Investment demand has also fallen back for the first time in a year with some indication that prices are declining again outside the Central London office and retail sectors,’ he concluded.