Savills Research | The Residential Property Focus May 2009
buyers, however, these are exceptional to those with a 35% deposit), significant
times. Fear of redundancy and credit numbers of such potential buyers can only
constraints are still major factors. watch from the sidelines.
The future
Transaction numbers should begin to Despite some talk of ‘forced lending’
rise, especially in areas and sectors where (whereby lenders benefiting from of the
of mortgage
prices have been quick to adjust and equity Government bailouts would be obliged to
usage is high. The value of gross mortgage hand out higher loan to value ratio), there
regulation…
home lending rose by 16% in March to are few signs of this playing out yet.
£11.5bn (albeit from an extremely low base
Restrictions may have
of £9.9bn in February). A slow recovery
While this can only be good news for We do not expect a bounce, but a slow
a profound impact
the housing market, it has to be return to more normal trading patterns.
remembered that all growth, in values and This underlies the clear distinction between
turnover, is from a relatively low figure in an the market bottoming out imminently, and
historical context. the restoration of both transaction numbers
The prevailing economic uncertainty and sustained house price growth to former T
he ability of mortgage
dependent buyers to
rejoin the market will hinge
on the outcome of the
continues to put a brake on the cheaper, levels, which remains some way off. Financial Services Authority’s paper
mainstream markets. As we go to press, The success or otherwise of on regulating the mortgage markets,
it was announced, not unexpectedly, that quantitative easing – the latest in a line due for publication in September.
unemployment had topped two million with of drastic financial measures designed to The Turner Review, published
a forecast it could rise to three million by arrest the economic downturn – will be in March, raised the prospect of
2010. A significant proportion of potential crucial to a recovery in both economic restrictive maximum Loan to Value
buyers have concerns over their job confidence and the availability of credit. (LTV) or Loan to Income (LTI) caps
security and this is likely to keep them out Only then are the mortgage-dependent being imposed on home loans,
of the market for some time (see graph 1.2). upsizers, who are crucial to restoring either or both of which could have a
Significantly, many would-be buyers high activity, likely to enter the market in profound impact on the accessibility
continue to be excluded from the mortgage significant numbers. of home ownership and in turn be
market, not because they cannot afford the In November, when we last reviewed fundamental to the recovery in the
mortgage repayments but because they our forecasts, we stated that growth would mainstream market.
hold insufficient equity to meet lenders’ not return to the mainstream until early
loan to value ratios. 2011. For the moment, the continued A blunt instrument
First-time buyers and, to a lesser deterioration in the economic outlook and We believe a LTI cap is a very blunt
extent, mortgage-dependent upsizers, will uncertain employment forecasts suggest instrument that would be seriously
only become active in the market when, that this will be delayed until late 2011 or restricting, particularly for the first
and if, equity becomes available to them. early 2012, irrespective of how soon prices time buyer end of the market. The
Given that many lenders are continuing to stop falling. n ability to service a mortgage at say
apply maximum loan to value ratios of 75% three and a half times income is a
(with more competitive deals available only very different matter for a household
on an income of £20,000 than for a
household on £100,000.
What matters is the cost of
Graph 1.3
servicing debt. At current rates
Transactions and mortgage completions
of interest, a loan at three and a
half times income costs just 14%
Implied number of cash purchases Residential transactions
of total household income, while
Mortgage completions
the long-term average in the past
180
has tended to be around 25% of
169
household income.
Measures to ensure a prudent
140
assessment of risk by lenders are
clearly needed to avoid a repeat
120
of the lax lending criteria, which
100 have been at the heart of the
downturn, but the setting of
(‘000s) 80
arbitrary limits on lending are likely
60
to be counterproductive. n
40
20
0
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
Source: Inland Revenue, CML, Savills
savills 07
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16