News Review: Property
Every intermediary broker needs to plan for a flat market
by Nigel Stockton, financial services director, Countrywide
the year launched with a bang in the wake of press comments both grant Shapps and david cameron provided on the housing market. the headlines have
been awash with feverish speculation surrounding government
intervention
on key issues like house prices, transaction volumes, mortgage lending and interest rates. the Prime minister has
said that the housing market is ‘stuck’ and apportioned the majority of the blame at the door of banks and building societies for becoming too cautious in their lending regulations. Whilst mr cameron has
vowed to kick-start the market by finding a way to ensure lenders “get proper lending, respectable lending going again,” this is the first year that the nationalised and part- nationalised banks do not have formal lending targets. i was also interested to see
grant Shapps make some candid comments about his own take on the issues facing the property market, during which he admitted the government could not control the housing market. However, he did argue for ‘levers’ to keep house prices controlled and affordable, such as the Homes Bonus, to encourage building. Whilst it’s encouraging to
see politicians speak out about key economic issues, i think
we have to be realistic about how they can intervene in the current property market and how significant these potential changes will be. one area of government
intervention that we can plan for is april’s Stamp duty increase for £1m-plus homes. this is less likely to impact Prime central London given the clientele this market attracts, and we estimate that at least 72% of buyers in this catchment are from overseas. our research suggests that the currency savings alone mean many foreign buyers can stand to benefit from discounts of up to 35% on uK property prices. the fact that London is perceived as a good value investment is not going to change in the short term. in my humble opinion,
i think the government spending issues mean there are a limited number of other areas that the government can intervene. We should assume that lending is likely to stay flat, at broadly similar levels to 2010 (circa £130-135bn).
EU rules recent headlines have suggested that the government has called some of the proposed lending restrictions in the mortgage market review into question. it’s fair to say that the implementation of any mortgage regulation is unlikely to impact the 2011 market. So we should instead be mindful of the impending
european
commission legislation, with cmL’s michael coogan and Pat Bunton from London & country involved in many of these discussions. good luck Pat for putting the right
6 mortgage introducer FEBRUARY 2011
views about advice and choice forward! the government is also said
to be negotiating new lending targets with uK lenders, as part of the “Project merlin” initiative.
this will not be easy. already Santander uK has apparently requested separate talks with the treasury after withdrawing from the programme. all this demonstrates the complexities involved in negotiating with lenders facing tough liquidity and capital allocation constraints in the current funding/wholesale markets. david cameron’s ‘Big
Society Bank’, has also been subject to continued debate and it will be interesting to see how this takes shape over the next 12 months. again, a personal view but i’m discounting this in 2011. on the plus side, 2011
could welcome a number of small niche new lenders, particularly in the buy-to-let sector. i also expect tesco to make a big impact among uK lenders in the medium term starting well this year. in terms of base rates,
John Fisher spoke openly in a press interview before christmas about the ‘bumpy’ road to economic recovery, the coalition government and its austerity measures, quantitative easing and interest rate decisions. His insight as the Bank of england’s executive director of markets and monetary Policy committee member was refreshing in that he freely admitted he could not predict the short term economic direction and said that it was ‘difficult to draw on past experience to forecast
the future’. i read this as “your guess is as good as mine”!!
Volume business in my own experience on the lender side of things, i find it unlikely that remortgage lending volumes will dramatically shift from its current subdued levels in 2011. Standard Variable rates are still attractive to customers and from a lender perspective; the remortgage business is the least profitable and shortest term lending that lenders do. a survey of variable and
tracker customers conducted by SVr in insurance providers, marketguard, suggests that millions of mortgage borrowers would struggle to meet their repayments if rates were to rise by 1%. Homeowners such as these will become effectively ‘trapped’ on their SVr. this will not help property transaction volumes, which still sit woefully low at the half of the market’s long- term running average. if lending stays flat and
house prices dip somewhere in the region of 5% (which takes into account the estimations of those brave enough to make a house price prediction for 2011) every intermediary broker needs to plan for a market of broadly 550,000-600,000 house sales. despite the noise and press
coverage generated in recent weeks by number 10, there’s no doubt in my mind that 2011 will be tough and every intermediary broker will need to implement a strategy of effective cost management, first-class customer service and product innovation. good luck!
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