This week we have seen the issue of the inability for first-time buyers to drive the housing market due to the high cost of housing. The launch of Abbey’s new income criteria and the treatment of it in the press overshadowed its supporting research that identified over 17 million adults in the UK are unable to step on to the property ladder, as repeated in MI.
The interesting research suggested seven million could not afford to purchase a house due to the price, the same number could not save the amount required for the deposit, while some three and a half million were waiting, anticipating a fall in house prices in the near future.
MI also highlighted that the average first-time buyer property now costs in the region of £152,000, forcing many purchasers to borrow more than the value of their property. The Mortgage Advice Bureau has reported a 25 per cent increase in customers who are seeking a 100 per cent mortgage and 70 per cent who are looking to exceed the 100 per cent LTV figure.
To support Abbey’s research, Hometrack has also been looking at the growth in house prices over the past decade and discovered that in some parts of the country it has grown by almost 275 per cent, with London leading the way at 4.4 times average income. But the conclusion is that this is unlikely to be repeated.
Affordability constraints could mean that future house price growth will be more aligned to earnings growth. The belief from the research is that buy-to-let investors have taken on the traditional role of the first-time buyer in keeping the mover market buoyant, but first-time buyers are required to sustain prices over time.
Copland says:”With the pressure on first-time buyers, Jonathan Cornell, director at Hamptons, writing in MSL makes an interesting point that attractive rates often deflect attention from the heavy early repayment charges, and extended tie-in’s on standard variable rates, coining these as ‘hangover rates’.”
Paul Hunt, in an article in MM, points out that with swap rates approaching 5.5 per cent, many lenders are expecting an end to short-term fixed rate deals, due to the rising costs they are facing to borrow money. This is despite the strong market demand for fixed rates.
Lenders are using extended terms to allow their customers to get on the property ladder and 30 or 40-year terms are becoming commonplace.
It’s good to see the protection industry responding with MM reporting that Bright Grey is extending the term of its life and critical illness cover up to 40 years. Recent research for the life company shows that 40 per cent of people who have bought their first property in the past 12 months have taken out a term longer than 12 months. A third used all their savings buying their property, hence creating a need for protection.
At a Treasury Select Committee, John Tiner told MPs the regulator was considering enforcement action against a further 10 firms (MM). This coincided with a change of emphasis from the FSA as it revealed radical changes to Conduct of Business rules across the industry (FA), now favouring a principles-based approach rather than prescriptive rules, resulting in the rulebook being cut in half. Dan Walters said that more principles-based regulation will not involve relaxing standards but will emphasise the responsibilities of senior management.
Copland says:“In general, this seems to have been welcomed by the industry. Margaret Cole from the FSA gives us all a picture of what this means for the marketplace as she expects the principle of ‘Treating Customers Fairly’ to be embedded in firm’s business models to prevent failings and it is important we all review our systems and controls to reach this standard.
The relevance of this request from the FSA will become ever more important as the changing needs of our customers are placed at the forefront of the sales process.”
MS reported that UK personal debt hit the £1.25 trillion mark and was on the way up, supported by research from the Thomas Charles Consultancy that suggests one-in-five of us now have over £10,000 of unsecured debt. Its research also suggests that more people are struggling to meet their commitments, rising from 1.8 million in April 2006 to 2.5 million in October 2006.
November’s ME report into non-conforming mortgages backs up the ‘buy now, pay later’ culture within the UK, highlighting insolvencies jumping by 66.3 per cent to 26,021 in England and Wales in the second quarter of 2006.
This segment’s increased activity, as a result of poor trends in unemployment, arrears and repossessions is proving attractive to entrants such as Alliance & Leicester, edeus and db mortgages. Datamonitor’s report suggests that the non-conforming sector will account for almost 17 per cent of the market, so it is clear why there are so many new entrants either in or queuing up to enter this arena.
Copland says:“The FSA’s six cornerstone principles in ‘Treating Customers Fairly’ will be key in addressing the nation’s debt challenge.”
