Lucian Cook presentating 'Market Focus' at RESI Thursday 12 September 2013

1. savills.com
Market Focus
Lucian Cook

2. The real story
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Loans for House Purchase Transactions NSA Approvals Non SA
Source: CML, HMRC, BoE

3. National trends hiding local variation
Transactions v 10 years pre Crunch 3 year price growth

4. Constrained mortgage availability
-5000
0
5000
10000
15000
20000
25000
30000
35000
Jun-03
Mar-04
Dec-04
Sep-05
Jun-06
Mar-07
Dec-07
Sep-08
Jun-09
Mar-10
Dec-10
Sep-11
Jun-12
Mar-13
Gross Mortgage Lending
Net Mortgage Lending
Source: Bank of England
Gross
Mortgage
Lending
Year to
Q3 2007
£m
Year to
Q2 2013
£m
Q2 2013
v
Q3 2007
75% LTV or
below
180,548 103,012 -43%
75%+ to 90%
LTV
138,572 48,130 -65%
90%+ to 95%
LTV
31,516 2,810 -91%
95%+ LTV 21,126 670 -97%

5. Rising demand for rented accommodation
0
100
200
300
400
500
600
Increase in O/S buy to let mortgages
Increase in UK's private rented stock
Number FTB Mortgage Completions
Source: CML, CLG, Savills
Value of UK
Housing Stock
£ trillion % of Value
2002 2012 2002 2012
Owner Occupied
Un-mortgaged
0.97 1.71 28% 30%
Owner Occupied
Mortgaged
1.29 1.83 37% 32%
Private Rented
Sector
0.35 0.89 12% 17%
Social Rented
Sector
0.18 0.32 19% 17%
Other 0.12 0.24 4% 4%
Total 2.91 5.00 100% 100%
Source: Savills

6. Government Stimuli
Funding for Lending
Equity Loans
Mortgage Guarantees
Build to Rent
Debt Guarantees
National Planning Policy
Framework
 To what extent will they be adopted?
 What will they do for house building?
 Will they create a housing bubble?

7. Equity Loans
£3.5bn of equity loans:
• up to 20% of the purchase price
up to £600,000;
• interest free for first five years;
• fully funded by the government.
Potential to fund 75,000 loans over
3 years.
Available to first time buyers and
home movers.
Levels of owner occupation among
the under 35s down by one third in
10 years
Levels of owner occupation among
the 35-44 year olds down by 17%
Average FTB deposit equivalent to
80% of their income
Two thirds of first time buyers
assisted by the bank of “Mum and
Dad”

8. Mortgage Guarantee
£12 billion of guarantees
£130 billion of potential
lending
Lender & Borrower
Demand
House Purchase
325,000 transactions
Private renters
110,000 transactions
Mortgage prisoners
215,000 transactions
Remortgaging
165,000 loans
Spread over 3 years
across the second hand
and new build market

9. Impact on house building
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
HousingCompletionsinEngland(alltenures)
Unsupported Volumes Previous Government Support Schemes
HTB Equity Loan HTB Mortgage Guarantee
Source: DCLG, Savills

10. The emergence of build to let
Five fold increase in the Build to Rent Fund from £200m to £1 billion

11. The players

12. Size of the investment market
Source: Savills; Bank of England
£0
£500
£1,000
£1,500
£2,000
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Residential Portfolio Investment £m
(Annual)

13. Impact on the growth in PRS
Current Growth in Private Renting (UK)
260,000 households per annum
2014
9,500 FTB equity loans
26,500 additional FTB
mortgage guarantees
224,000 additional PRS
households
2015
19,000 FTB equity loans
37,000 additional FTB
mortgage guarantees
204,000 additional PRS
households
2016
25,500 FTB equity loans
47,500 additional FTB
mortgage guarantees
187,000 additional PRS
households

14. Demand Growth
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
70
Aug-05
Nov-05
Feb-06
May-06
Aug-06
Nov-06
Feb-07
May-07
Aug-07
Nov-07
Feb-08
May-08
Aug-08
Nov-08
Feb-09
May-09
Aug-09
Nov-09
Feb-10
May-10
Aug-10
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Agreed Sales New Buyer Enquiries New Instructions
Source: RICS

15. The underlying affordability issue
0%
5%
10%
15%
20%
25%
30%
35%
Q21980
Q41981
Q21983
Q41984
Q21986
Q41987
Q21989
Q41990
Q21992
Q41993
Q21995
Q41996
Q21998
Q41999
Q22001
Q42002
Q22004
Q42005
Q22007
Q42008
Q22010
Q42011
Q22013
Interest as a % Income
Interest and Capital as a % Income
Source; CML, Savills
Average
Interest Rate
Interest
payments as a
% of income
Total
repayments as
a % of income
Q2 1990
(12.5%)
27.1 29.9
Q4 07
(6.1%)
18.9 27.2
Current
(3.5%)
10.4 20.8
4.00% 11.7 21.5
5.00% 14.6 23.5
6.00% 17.6 25.5
7.00% 20.5 27.6

16. UK mainstream forecasts
5 years
to end
2012
2013 2014 2015 2016 2017
5 years
to end
2017
At the
beginning of
2013
-11% 0.5% 1.5% 2.0% 3.5% 3.5% 11.5%
Revised
-11% 3.5% 4.5% 5.0% 3.0% 1.0% 18.1%

17. 14%
13%
13%
19%
14%
16%
15%
20%
24%
25%
22%
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