News Review: CSR


Government must address mortgage funding By Sarah Davidson chancellor george


osborne’s october spending review was based on reform, fairness and growth - not so far from the coalition policy principles of freedom, fairness and responsibility. indeed, after osborne announced £81bn worth of public spending cuts and the loss of half a million public sector jobs, general consensus seemed to be although harsh it was fair. However, the reality of the deepest cuts to the public purse since World War ii has yet to bite. as it stands, reform won’t start until april next year and the question of economic growth remains disconcertingly unanswered. at first glance there was


little in osborne’s review about the mortgage market, but the knock-on effects of those job losses and the axe taken to spending on housing


will be huge. So do osborne’s claims to reform, fairness and growth really hold true? the decision to cap the


tenure of new social tenants to five years is perhaps the biggest reform to social housing since thatcher’s


right-to-Buy


scheme. Similarly, allowing local authorities to charge up to 80% market rate rents to new council tenants will shake up the social housing sector big time. Slashed housing benefit, dramatic cuts in new build housing targets and cuts of 51% to current spending and 74% to capital spending on housing by 2014-15 will put immense pressure on an already struggling housing sector. thousands of people who


would have lived in council housing will now, presumably, have to rent privately. industry pundits have cried out that the private rented sector will


be crippled by a tsunami of demand. rents, already rising steadily, will rocket because the supply of property to let simply won’t keep up with tenant demand. the problem is the same


one lenders, trade bodies and brokers alike have been banging their heads against a brick wall over since 2007. there is insufficient funding in the mortgage market. never mind residential lending which is floundering, funding for buy-to-let investment is worse off still. Buy-to-let gross lending has fallen by 80% over the past three years and despite the entry and re-entry of various lenders into the sector, there remains very little money available to landlords wanting to invest in their portfolios further. combined with the


threat of rising arrears and possessions that could result


when 490,000 people lose their jobs, lenders don’t look likely to stump up the billions needed to support the growth of the private rented sector. there’s no point in muttering the infamous line “it’s not fair” in this situation because the cuts are, as osborne put it, “unavoidable”. But equally, there needs to be serious thought about how the housing sector in this country will cope. Housing minister, grant Shapps, is sanguine about our prospects, pointing to the £6.5bn of taxpayers’ money the government will invest in housing, with £4.5bn to fund new affordable homes over the spending review period. the shape of reform is decided and whether it is fair or not is not really the point. it is growth that we need now. the government must look at the funding situation again. and look at it carefully.


Spending Review will hit house prices and rents will rise that in itself is bad news


by


Robin Johnson, managing director, KFH


the real impact of the cuts has yet to be felt but there is cause for concern as re- gional economies and hous- ing markets will bear the brunt of public sector job losses. Some areas are particular-


ly vulnerable. in parts of the north east such as castle morpeth, the county town of northumberland and home


to the unitary authority, close to half of all employ- ment is in the public sector. this area has already seen a fall of nearly 4% in its residential property pric- es last quarter according to Land registry data and there will be further falls.


the office for national Statistics and office for Budget responsibility this year forecast that cities such as Birmingham, glasgow, Leeds, manchester and Liv- erpool will have all experi- enced huge public sector job losses by 2016.


20 mortgage introducer NOVEMBER 2010


but the problems are even more acute in areas like Wales and the north east where public sector job loss- es as a proportion of overall employment are expected to be particularly severe. the picture becomes bleaker ac- cording to oxford econom- ics research that highlights the additional job losses in the private sector in these areas through the removal of contracts. London is not immune


to this pain, with several boroughs likely to lay off staff, but its comparatively


robust private sector will mean we continue to see a widening gap between the house prices of London and the South east and other ar- eas.


dcLg budget cuts will im-


pact the rental sector which is already struggling to meet de- mand and new homes won’t make a meaningful contribu- tion to supply. already those unable to buy are renting causing London rents to rise 7% this year. equally buy-to- let finance remains scarce so landlords cannot expand their portfolios to meet the demand.


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