What does Shapps and the government need to focus on instead?
Offering their view in this week’s Market Watch are:
Sue Anderson, head of member and external relations at the CML
The first thing to say is that Grant Shapps isn’t necessarily wrong about the concept of long-term fixed rates – it is the practical implementation that makes the idea fall flat.
The industry simply hasn’t got a magic funding wand to be able to offer them cheaply and flexibly enough to make them an attractive choice for borrowers in the face of far lower rates and limited exit costs on shorter-term deals.
What should the housing minister be focusing on?
In our view, the most important issue is the “big picture” of what is going to influence the flow of housing finance – to support all tenures – in the future.
Circumstances are conspiring to make that flow look unpredictable. And without knowing the answer to that question, the issue that is higher up the political agenda – the supply of housing itself – is being tackled in a vacuum.
This isn’t just about mortgage lending or the role of buy-to-let or the optimum level of new social housing or where to allow or encourage new-build.
The really big issue is: how can a stable flow of reliable funding be secured for the future to allow healthy transaction levels, support the economy and, most importantly, help ensure that the UK population has access to housing?
In addition, how can we ensure that there is enough finance across tenures to maintain the housing stock to a good standard?
If we had the answer to this, we would naturally be sending it on a postcard (possibly a very large one) to Mr Shapps.
We do, however, at least feel that we are focusing on the right question.
We hope the government’s forthcoming housing strategy next month will consider it.
Nigel Stockton, financial services director at Countrywide
It is easy to criticise and dismiss ideas, but unless you put options forward, you can get the reputation of defending a status quo that has been pretty much discredited post-credit crunch.
Conceptually, a long-term fix can make sense in relation to budgeting and consumer peace of mind.
However, even the 25-year-long term loans in America usually come with five-year break clauses and the opportunity to change terms.
Break clauses are much more likely to attract customers at present and will help remove some consumer concerns about such a commitment.
To move the housing market forward, we could:
1. Set up a government fund to purchase and take on collection of the main house builders ‘shared equity’ stakes on their balance sheets.
The builders would take 60-70p in the pound, so the government should make money. House builders could then invest these additional funds back into the housing market.
Not only would this be beneficial to the market as house builders can push forward, but it could also be a scheme that is pretty cost efficient for the market.
2. Rule out Stamp Duty for buy-to-let landlords who put their premises into local authority or housing association stock, so that we extend the stock into the lower end of the market without destroying the private rental sector.
We could also raise the Stamp Duty threshold to £150,000 to help attract first-time buyers to properties located outside of the buoyant London and South East regions.
3. Audit available housing stock throughout the local authority and housing association environment.
Then set some guidelines and targets of stock to be in this sector.
Some of the local authorities are chronically short of affordable housing and have few options but to put people up in hotels.
Clear targets would help the sector and may highlight the need to prioritise housing above some other local issues.
Robert Sinclair, director of AMI
The recent interventions by our Housing Minister makes one wonder who is giving him advice.
The recent pronouncements indicate a lack of clear thinking on the real issues and a lack of knowledge of the mortgage market.
There are two core issues that prevail.
Firstly, lenders are constrained by the new regulatory regimes on capital and liquidity, which are making them take difficult decisions on where to invest the scarce resources they have available.
The current commitment to the mortgage market from our larger banks, whilst insufficient to meet real demand, is at least maintaining a housing market.
Committing themselves to a loan that has little prospect of coming off their books for 25 years will impact a lender’s liquidity position.
In addition, due to the funding costs and interest rate uncertainties, the prevailing fees and rates for such loans are liable to be above long-term averages.
Many lenders already offer “mates” mortgages, by allowing multiple applicants, who may not be related. Any good broker knows who provides these and where the best deals exist.
Secondly, consumers in the UK have shown little appetite for such longer-term funding arrangements.
Whilst the certainty of cost is a benefit, whenever such longer-terms products have been brought to market, they have been withdrawn due to lack of take up.
This is irrespective of channel of delivery, advised or non-advised, direct or intermediary, bank or building society.
Accordingly, AMI and its members see limited prospect for such products, but would always welcome their introduction to provide consumer choice.
Perhaps the housing minister might look at how we can increase the number of houses being built in the UK to bring real energy and certainty back to the market.