Annual Report and Accounts 2011

UK Housing

In 2011, we saw significant progress in our operational performance and I am pleased that we reached our double digit operating margin* target ahead of schedule.
Pete Redfern
Chief Executive

UK Housing market

As set out in my Chief Executive’s Review of this Annual Report, the UK housing market is cyclical and we have identified a set of indicators that we monitor on a regular basis to establish the current stage of the cycle and adapt our tactics accordingly.

After the relatively robust market conditions of 2010, market conditions in 2011 also exceeded our expectations. We achieved small price rises in the early part of 2011 on newly opened outlets, with broadly stable conditions throughout the first half of the year. In the second half of 2011, we saw a more normal autumn selling pattern and also a stronger end to the year than had been the case in 2010.

Mortgage availability remains the key constraint on the UK housing market, although we have seen further incremental improvement over the course of 2011. The total value of mortgage approvals for home purchases increased slightly to £82,434 million (2010: £80,058 million) according to Bank of England data. The number of mortgage approvals for home purchases has also increased during 2011, with more than 50,000 approvals per month from August through to December compared to an average of 47,551 approvals per month for the previous six month period.

The Bank of England’s Monetary Policy Committee kept base interest rates at an historic low of 0.5% for another full year, but mortgage lenders continue to charge a significant premium to this especially for higher loan to value mortgages. However, it is the relative scarcity of mortgages available to buyers with a 5% or 10% deposit that remains the biggest hurdle for first time buyers to overcome. Indeed, the Council of Mortgage Lenders reports a fall of 4% in the number of mortgages advanced to first time buyers and a 2% fall in the value of such mortgages compared to 2010.

Compared to our own experiences of mix-adjusted house prices, the national house price indices tend to exaggerate movements. However, as publicly available data sources, they are a widely quoted point of reference. As was the case in 2010, the national indices do not show a consistent trend for 2011. The Nationwide House Price Index shows an annual increase of 1.0% to an average UK house price of £163,822. Meanwhile, the Halifax House Price Index reports a fall of 1.3% to £160,063.

Housebuilding starts for the UK industry as a whole, including housing associations, were broadly flat year on year at around 115,000, maintaining the improvement on the less than 90,000 starts in 2009 according to the National House-Building Council. These volumes remain well below the level of household formations, with the most recent government forecasts showing an average of 232,000 new households per annum from 2008 to 2033 for England alone.

Increasing the current level of housebuilding in the UK remains a focus of the government and its policies fall into two categories. Firstly, the proposed reforms of the planning system continue to progress, with the Localism Act receiving Royal Assent in November 2011 and the draft National Planning Policy Framework being published in July 2011. Secondly, the government is looking to address the difficulties that many people are facing in obtaining a mortgage. The Stamp Duty Land Tax exemption for first time buyers buying a home valued at less than £250,000 remained in force throughout 2011. The FirstBuy scheme, which follows on from the previous HomeBuy Direct scheme, was launched in March 2011 with the intention of helping around 10,000 families to get onto the housing ladder for the first time. The government also announced the NewBuy mortgage guarantee scheme in November 2011, which is intended to provide greater access to 95% mortgages at more competitive interest rates through the use of housebuilder funding and a government-backed guarantee.

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© Taylor Wimpey plc 2012