GMAC-RFC was the only lender invited to speak at the meeting alongside Yvette Cooper, Minister of State for Housing and Planning, ODPM and Bob Pannell, Head of Research and Information for the CML.
Speaking on the vastly increased ratio between average salaries and average UK house prices, Stephen Knight welcomed the Government’s Homebuy initiative, acknowledging that shared equity is certainly a potential solution to this growing problem. However, Knight expressed some concerns about the rigid framework of this scheme:
“I understand that the Government’s Homebuy initiative will be able to help up to 40,000 people, which is a good but modest start. Potential first time buyers need a scheme ten times larger than this – which we think is possible. If the project could be freed up from the current rules as to who qualifies, and what lenders can offer, we could achieve real market impact with shared equity.”
Knight continued: “We have also argued for borrowers of a shared equity product to receive a generic statement at point of sale that demonstrates the equity that they would be giving up in a range of growth scenarios. This would prevent the need for further IT development and allow more lenders to participate in Homebuy.”
Knight also highlighted the advances the lending industry has made in bridging the house price-to-earnings gap through more sophisticated credit profiling and credit scoring. He suggested that in today’s market of low interest rates and towering house prices other lenders and public commentators should support higher income multiple products that use affordability and predictive automated underwriting as the basis for mortgage assessment and allow people to borrow enough to actually move on to the property ladder: “The debate about what is, and what isn’t, responsible lending must also move with the times.”
Knight added to the CML’s calls for a real and robust test for Home Information Packs (HIPs) before they come into force in June 2007: “We just don’t know how the market will react. The only pilot that has been undertaken was in one geographical area and using HIPs that contained a fraction of what they are now due to include, in circumstances where the sellers did not have to pay for it.”
Focusing on the subject of consumer debt and its detrimental effect on first time buyers, Knight referred to GMAC-RFC’s extensive public policy research published last year, entitled ‘First Time Buyers: Understanding New Trends’ which examined the motivations and attitudes of those yet to take a step on to the property ladder. This reveals that renting rather than buying was in many cases a lifestyle choice as opposed to the only option available. In fact only half of the non homeowners questioned said they would buy immediately if financial barriers were removed due to a fear of commitment and a preference for flexibility, freedom and independence.
The fact remains that affordability is the principal deterrent for huge numbers of potential homeowners but GMAC-RFC’s research shows that any initiatives introduced by the government, or the lending industry, are extremely unlikely to bring first time buyer lending back up to the 50% levels of previous years because of the fundamental shift in attitudes.
As part of its corporate social responsibility programme GMAC-RFC runs the worldwide Home Ownership Preservation Foundation, the only charitable foundation in the world dedicated solely to helping mortgage borrowers avoid repossession. In the UK it funds debt counsellors for the Citizens Advice Bureaux.
