Dr Peter Williams, executive chairman of the trade body, says the new government is facing a complex dilemma over housing supply, mortgage finance supply and whether to stimulate the market. If ignored for too long all could impact on the UK’s economic recovery.
IMLA expects to see £160bn gross lending this year, and around £170bn next year. Williams believes a stable UK long term average market should be lending in the region of £240bn to £280bn gross, below the heady heights of the market in 2006 and 2007, but well above current levels.
Before that can happen there are fundamental supply side pressures in the housing market which the government must solve.
But he warns not only is there no official clarity on housing and mortgage market policy from the coalition, there is also no consensus between officials and the industry on the problems faced.
One area of confusion is that Grant Shapps, newly appointed housing minister, has not been given a place on the cabinet while Eric Pickles, secretary of state for Communities and Local Government, will be the cabinet member responsible for housing.
Williams said: “We face a huge dilemma. There are not enough houses to meet demand, and there is not enough finance available to fund new lending to people who want to own their own home.
“At present there is no agreement on whether that is a problem this government wants to fix, and the delay is putting our economy’s recovery at risk.”
The mortgage market is showing signs of moderate recovery, Williams said. “Funding seems to be stabilising to a degree, LTV appetites are edging upwards and pricing reflects where lenders think we are on the risk curve.”
But he added: “The market doesn’t have the finance to lend at healthy levels. Lenders are still paying off the Special Liquidity Scheme and Credit Guarantee Scheme, rebuilding their balance sheets and Lloyds and RBS are diverting billions to pay off their government debt.”
Williams said the Bank of England has said strongly that there will be no extension on either the SLS or CGS, meaning lenders will have to repay this debt by the end of 2010. This will curb the money available for new mortgage lending.
“The government appears to be of the opinion that the mortgage market will heal itself,” Williams said. “It won’t. Neither will retail deposits fund the mortgage market at reasonable levels. We need to have some form of operational securitisation market, because a stunted mortgage market will damage wider economic recovery.”
Broken Promises
The coalition’s policy agreement disclosed the intention to support the mutual sector. Williams welcomed this in theory but said: “The previous government made the same commitment and the past year saw more rapid contraction in the mutual sector than ever before.”
Williams is also concerned that the mortgage market is “deeply uncompetitive” which is impacting on both choice for the consumer and pricing.
He said: “We need to see support for more new entrants coming into the lending market to foster competition and choice, and help brokers place the whole range of customers they see. That includes support for non-banks.”
Kensington recently announced it was lending again and Aldermore, which is currently road-testing its systems with selected brokers, is expected to announce its residential lending launch later this week.
Williams also suggested that GMAC might be returning to market soon and there are rumours that Portillion, the would-be lender set up by Stephen Knight, and another intermediary-only lender would be coming to market this year.
Housing Supply
Labour had outlined specific housing targets, but Williams said he understands the coalition wants to move away from a targets-based regime.
“The Tories have indicated that they would devolve the decision-making process on housing needs to local government. In principle that makes a lot of sense, but in practice, it slows the entire process of increasing UK housing supply considerably. That’s a problem we don’t need.”
Williams said he believes the government will not give the housing or mortgage market high priority, as, “they have bigger things to worry about, to do with public spending and cutting the deficit.”
The market will see “token gestures” from the government, including policy such as raising the stamp duty threshold to £250,000, which he believes will become permanent.
But this alone will not be enough. He said: “Stamp duty is well and good, but it’s a demand side stimulus. The problem is not demand. It’s supply.
“Leaving the housing market to simmer will create a pressure cooker. As it stands there are upwards of one million frustrated first time buyers unable to get a mortgage and buy a house.
“They’re not on the street though – these are people living at home with parents or renting in the private sector.
“For the moment, the government isn’t having to pay out on those people, and at the moment, those people are tolerating the situation. But that won’t be the case indefinitely.”
Williams said these concerns have already led to a widening of the gap between rich and poor because so many specialist markets’ needs are not being met by supply.
“Around 40% of homes changing hands are funded by cash.
“That is distorting the housing market considerably – the wealthy areas where cash and credit are beginning to recover are seeing strong house price inflation but poorer areas where credit is still a problem are seeing the housing market underperform.”
“The government can put off tackling the housing market and mortgage market but these problems are bubbling away under the surface.
“These things aren’t costless in the end. We’re already seeing a two-tier housing market and the longer the market is underfunded, the wider that gap will get.”
