The mortgage world has heard it all before. Repossessions are on the increase, first-time buyers (FTBs) are struggling to get onto the property ladder and houses are being left abandoned while there are not enough affordable new homes being built.
We are all aware of these economic problems, but last week the Joseph Rowntree Foundation published a telling report, which showed us exactly how deep-rooted the UK’s housing problems lie.
Alarming trends in housing supply, availability and affordability were found by the research charity, with over a third of working households under 40 unable to buy; rising repossessions; and evidence that mortgage costs for FTBs are back to levels recorded in 1990.
The good news is that the quality of housing has been steadily and substantially improving. But for those crippled by mortgage repayments or unable to purchase a property at all, this is of little compensation.
Market reactions
Despite reports of a buoyant housing market and strong lending figures, the economic scales continue to slip. Will the industry do anything to rectify these problematic trends in the housing market?
Rod Murdison, proprietor at Murdison & Browning, said that with current market trends, mortgage lenders faced a dilemma.
He said: “What we are seeing in the market is a gradual change with one lender increasing their offerings to four times income then other lenders following suit. The problem for lenders is if there should be a u-turn in the economy that would cause arrears and repossessions, that lender would be pillowed in the press for irresponsible lending.”
Irresponsible lending is becoming an increasingly contentious issue. The level of repossessions has doubled since 2003 and lenders continue to deliver mortgages that allow customers to borrow more than has previously been allowed. But what is the alternative?
The Joseph Rowntree report findings confirmed that only 20 per cent of all mortgage holders have mortgage payment protection insurance (MPPI), compared with a government target of 55 per cent.
Darren Pescod managing director of The Mortgage Broker Ltd, said: “Lenders could help tackle some of the repossession problems by insisting on compulsory monthly insurance such as MPPI or accident, sickness and unemployment insurance (ASU). This would cut down the percentage of repossessions that arise from job losses and misfortune.”
However, Sally Lauder, press manager at Alliance & Leicester, felt the Rowntree report may have given a false impression of the true extent of repossessions. She said: “The report sounds pretty accurate. The points on affordability for FTBs are also pretty much in line with the Council of Mortgage Lenders (CML) data. The only query might be with the pick up in repossessions, as this is still from an extremely low base. Therefore, despite issues over FTB affordability, we have not seen a significant rise in bad debt. Generally the economic background is very favourable.”
Finding a solution
Buying a home has, in many ways, been considered a right of passage by previous generations. Unfortunately while it seems little can be done by the industry to help with housing stock or help with regional price imbalances, private industry can at least continue to come up with innovative products and even work with local housing authorities and the government to initiate home-buying schemes.
Philip Davies, chief executive of Linden Homes, said: “We are constantly finding ways of making property more affordable for FTBs. In October this year we are launching our own scheme selling homes at 25 per cent below market value at our new Water Colour development in Redhill. A total of 47 two-bedroom houses will be available for £187,500 after the 25 per cent discount, but buyers must pass on the discount when they sell. This is a new way of letting people take ownership of a new home at a price they can afford.
“More needs to be done by the government to expand the existing shared ownership scheme, making it accessible to a wider spectrum of people, while also releasing more land for development, enabling builders to tackle the housing shortage.”
Until the government does more to expand shared ownership schemes, the mortgage industry will continue to respond by offering more flexible and innovative products.
Colin Dale, head of lending at Skipton Building Society, said: “We try to have a flexible but positive attitude to lending. We have moved away from basing our criteria on income multiples, instead looking more at affordability, so people with a good credit background and low outgoings can borrow more.
“We have also, for a long time, been known for lending to more than two people at a time, such as where friends are buying together. We have a generous guarantee scheme for parents to help and we welcome equity share applications, so there are many ways in which we’re helping FTBs into the market.”
While the Joesph Rowntree Foundation report paints a gloomy picture for the consumer, the industry is continuing to grow and respond to changing socio-economic demands. It may take a little longer, but FTBs are continuing to take advantage of new products and compromise as they take their first tentative steps up the property ladder.
