Carbon Footprint Goals – Seaside Vs City Living – Credit Conditions – 18/04/2021

Apr 18, 2021

Welcome to the Sunday Supplement – the year is racing by and we rarely have time to catch breath, although a fair few buyers seem to be twiddling their thumbs a little at the moment, as the sellers market that is 2021 continues. As always, I prefer to get a little more granular than “the market” because that has a limited use to any of us as investors, and I will be taking a look at some of the hotspots and coldspots so far. Always remember – even when it seems very hard – there are deals in every market!

When we get out of the data and into the macro, this week I want to look at the overall credit conditions – often underreported, but with massive implications for the property market.

There’s a couple of things of note in the property world this week also that I think need some attention, as the sign of things to come. Firstly, the announcement of a 200-unit £31m retirement village development in Bedfordshire. This involves Legal and General and Willmott Dixon – and is to be their first net-zero carbon retirement project. WD are working towards a net zero supply chain in 2040, which seems to be to be incredibly ambitious, but having had the good fortune to interview the Midlands MD for a business award last year, I am not at all surprised that they would be ambitious – a superb company with a great set of values.

The other is the news that farmland is now nearly at 50/50 when it comes up for sale with only 52% being bought by farmers and the rest being bought by private investors. The reasons cited are biodiversity, lifestyle, and generating carbon credits. It is the third one of these that I think is the most worthy of scrutiny – green has really started to be about money these days, and this is where green will REALLY start to bite. Get on the wagon now, or regret it, is my view!

So over to the “locales of interest” for the moment – and I am sure some will have spotted the odd headline – unsurprisingly, Devon and Cornwall is hot hot hot right now! Newquay has the highest percentage of property sold subject to contract right now, and nudging Plymstock in Devon down to third is Newton-Le-Willows in Merseyside. The larger message is that there are mentions of the largest stock shortage for 30 years, and also that city centres are suffering at the expense of suburban, and more pertinently, seaside and semi-rural locations – a continuation of the trend first observed last year.

On the other side of the coin – the place with the fewest properties sold right now versus what’s on the market is Birmingham city centre! It is very tough to buy in suburban Birmingham right now, so if you are feeling contrarian then there may well be deals to be done in the centre. Not far behind is Liverpool city centre, and Manchester city centre is the fourth slowest.

One other key stat from the data dive this week – Rightmove have reported that stock is down 26% compared to this time last year (at end March). 26%! We have a seriously dysfunctional market right now.

The takeaway here though is that there is an incredible difference between Newquay (82% of everything listed sold subject to contract) versus Birmingham city centre (82% of everything listed UNsold). At the risk of being a broken record – deals in every market.

So to the credit conditions. Often forgotten that the availability of credit is a massive driver of house prices on the demand side of things. It is one of those things where you often “don’t know what you’ve got ‘till it’s gone” – although it was around a year ago where there was a bit of a wobble. Don’t forget that after mortgage holidays were announced, HBOS for a while pulled back to 60% LTV loans only – only for a few days, but for such a big lender to be that conservative looked like a very bad sign.

Overall there was a small rise in the availability of secured credit to households in Q1 2021. The forecast for the next quarter is more bullish, with a larger rise expected by the lenders. Unsecured credit drew back slightly in Q1, but is expected to rise in Q2 by a small amount. In terms of corporate credit, the lenders are hoping to lend more to larger companies, which is never good reading to the SME sector, although debt availability looks stable on the corporate front at the moment at the smaller end.

Perhaps surprisingly, demand for secured credit (so both purchases and remortgaging) fell in Q1 2021 but is expected to increase for Q2. Credit card demand was stable in Q1 with other unsecured debt demand falling, but the expectation with the “unlockdown” is that demand for unsecured debt will rise. Of course, consumers have paid off a large amount of debt as has been reported in the past few months – they are expected to take some of this back from their credit cards and other sources as they can once again spend spend spend!

Corporate lending is also expected to push forwards in Q2 2021 as we enter a tax year with incentives to invest, such as the “super-deduction” from Rishi’s March budget. Dirt cheap rates and tax incentives – seems to add up to a higher demand for credit to me.

Interestingly, interest-only periods on credit cards are lengthening again, and are likely to continue to do so according to the lenders. This may be due to lack of takeup of credit of late compared to a “typical year” (when have we ever had one of those, please?).

Loan pricing has got a tiny bit more expensive in the past quarter, and this might persist – we are not yet seeing the 5 year fix for the limited company at 75% LTV breach the magic 3% resistance level, and may have to wait quite a lot longer for it to happen.

There are no signs of a wobble just yet – but as the pandemic has played out (and with the first mention of the South African Covid variant outside of the South East, in West Birmingham, the uncertainty remains), things have moved very quickly indeed – so don’t count too many chickens!

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