Lucian Cook, RESI 2015, Celtic Manor

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Lucian Cook

RESI Conference 2015, 8th September 2015, Celtic Manor

Market Examination

Understanding the generation

divide

The housing divide

The over 65s

+1.230mOverall+1.358m

Ten year shifts in tenureUn-mortgaged owner occupation

+1.2m

Source: English Housing Survey

The 35-44 year olds

-783kThe under 35s-732k

Ten year shifts in tenureMortgaged owner occupation

-732k


The under 35s

+1.137mOverall+2.436m

Ten year shifts in tenurePrivate renting

2,436,000


The 45-64 year olds

+291kThe under 45s-120k

Ten year shifts in tenureSocial housing

505,000


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Housing Wealth

Occupiers housing equity £bn % of all equity

Equity as a % of value of occupied property

£125 4.7% 13.8%Under 35

35 - 49

50 - 64

Over 65

£493 18.5% 33.8%

£873 32.7% 66.5%

£1,179 44.2% 83.9%

Total £2,669 100.0% 52.6%

Age

Source: Savills research

Reflected in the annual housing cost

Over 65

50-64

35-49

Under 35

£2,000 £ 4,000 £ 6,000 £ 10,000 £ 12,000 £ 14,000 £ 16,000 £ 18,000£ 8,000

England & Wales London

57% in private rent 67% in private rent

Age


Some gross generalisations.....

Frustrated by lack of access to home ownership & social housing

Maturist (pre 1945)

Concerned by elderly housing provision

Baby Boomers(1945–1960)

Generally equity rich with low housing costs

Generation X(1961–1980)

Last on the ladder, extending as much as trading up

Generation Y(1981-1995)

Generation Z(post 1995)

Looking forward to living with their parents for many, many years to comeFears for housing

prospects of Gen Y & Z

Attracted by buy to let & pension freedom

Protective of asset value, reluctant to downsize, NIMBY

Concerned by interest rate rises

Despised by Gen Y

Obsess about costs of renting

Reliant on bank of Mum & Dad to get on or up the ladder, YIMBY


Policy implications

George Osborne 8th July 2015“Mr Deputy Speaker, another key to raising the productivity of our country is building more homes and creating a fairer property market. This is a government that is unwavering in its support for home ownership.”

Policy tension

Help to Buy & Starter Home Incentives

MortgageMarket Review

Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14 Q1 150

40,000

80,000

120,000

160,000

200,000

240,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Housing Transactions LHS All Housing Starts RHSPrivate Housing Starts RHS All Residential Permissions RHS

Annu

al S

tarts

Annu

al tr

ansa

ctio

ns

Is it working?

Is it working in England?Source: HMRC, DCLG

A changing housing agenda

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An additional £175,000 inheritance tax allowance for those leaving their home to their

children or grandchildren

11


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22

Limiting tax relief of mortgage interest for buy to let investors


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33

Help to Buy and Starter Homes

Extension of Right to Buy


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44

Reforming affordable rents


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55

Ongoing reform to the planning system building on the NPPF

5 year land supply

Local plans

Inheritance tax

1.5% 3.14 million

0.7% 7%

of all sales in 2014 were for more than £1m home owners who own their property outright have at least 2 bedrooms per occupant

of estates notified for probate and a net value of £2m* of all sales are by downsizers

Source: HMRC, 2011 census, English Housing Survey

Retirement opportunities

Affl

uenc

e

Luxury care

Adapted home or housing association provision

Equity release? Private care home

Assisted living and retirement

villages

Assisted living and retirement

villages

State funded care home

High quality new build

Level of care

Buy to Let v First Time Buyers

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Increase in O/S mortgages BTL lending for HP Estimated growth in PRS (EHS)Savills Estimate of Growth in PRS (UK)

Cha

nge

in N

umbe

r of

Hou

seho

lds

Source: Savills, CLG, CML (English Housing Survey)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Increase in O/S mortgages BTL lending for HP Estimated growth in PRS Savills Estimate of Growth in PRS (UK)

Axis Title

Axi

s Ti

tle

Buy to Let v First Time BuyersSource: Savills, CLG, CML (English Housing Survey)

30%

of all private rented stock subject to a buy to let mortgage

54%

the average LTV on properties subject to a buy to let mortgage

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Pre budget 2020-21

5.25%

Capital value

Mortgage

Interest rate

Gross rental income £12,900£9,670£5,802

Net surplus £949

Net of running costs

-£6,067£1,213

£115,500£255,300

3.25%£10,700£8,025£4,815

£2,562

-£3,756£1,502

£115,500£214,000

Net of tax at say 40%

Mortgage finance

Tax relief

Restricting mortgage relief

Rationalisation of portfolios

Less ability to expand

Search for higher yield

Avoiding markets dependent on housing benefit

Source: PLEASE ADD

Housing delivery

Equity loan

Mortgage guarantee

Help to buy

27,414

In year to March 2015

47,018In total

82%To FTBs

5.5% In London £1.99bn

Of loans granted out of £3.5bn originally available

39,578

In year to March 2015

46,877In total

78%To FTBs

5.4% In London

£6.9bnHas supported loans of

“capacity” of £130bn

Extended by £6bn to

2020

Release from CIL & s106 affordable housing contributions

No longer to be restricted to underused or unviable industrial & commercial land

Intended to be windfall delivery?

Starter homes

discount to market value

20%Minimum

and £250k £450kin London

Max o/s London

FTB under the age of

40year restriction

on sale or letting

5

What on earth is he going to do next?

Looked at the median income of all employees

Multiplied it by 2 to assume 2 earners

Assumed a 3.5 loan to income mortgage

Compared that to the median house price

Income multiplier < median house price = green

Within 20% = amber

Within 20% and 30% = light red

Less than 70% = dark red

2 x median income @ 3.5 LTI, median house price

Lond

on

South

East

South

Wes

tEas

t

Wes

t Mids

East M

ids

Wale

sY &

H

North W

est

North E

ast

Scotla

nd0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

below zero 0 - 20% 20% to 30% 30% plus

Res

idua

l fun

ding

as

a %

of p

urch

ase

pric

e

Source: Savills, ASHE, Land Reg

Lond

on

South

East

South

Wes

tEas

t

Wes

t Mids

East M

ids

Wale

sY &

H

North W

est

North E

ast

Scotla

nd0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Res

idua

l fun

ding

as

a %

of p

urch

ase

pric

e

2 x median income @ 3.5 LTI, discounted house priceSource: Savills, ASHE, Land Reg

1 x median income @ 4.5 LTI, discounted house price

Lond

on

South

East

South

Wes

tEas

t

Wes

t Mids

East M

ids

Wale

sY &

H

North W

est

North E

ast

Scotla

nd0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Res

idua

l fun

ding

as

a %

of p

urch

ase

pric

e

Source: Savills, ASHE, Land Reg

In conclusion

Conclusions

Thank you

Please note this presentation is for general informative purposes only. While every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.

Disclaimer

Lucian Cook, RESI 2015, Celtic Manor

Real Estate

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