Iwrite this in the wake of Budget Day 2008, with all indications showing we are facing the most difficult stage in the mortgage market slowdown. I started the day by waiting for an hour for a train to Birmingham that had been delayed by fallen tree in the New Forest. The announcment informed me that my train had actually hit the tree, which was now resting under the train, and declared the service cancelled.
Once I eventually reached my appointment in Birmingham – being the eternal optimist – I listened to Chancellor of the Exchequer Alistair Darling’s Budget, which I hoped might create a positive balance in my day, with good news for the beleaguered housing and mortgage-backed securities market.
All provider and distributor trade bodies have been calling for a correction at least to entry-level Stamp Duty to stimulate first-time buyers, which would bring a tonic to the rest of the market.
The same trade bodies were cautiously waiting for detail on the Gold Standard for mortgage-backed securities, the idea being that if positioned correctly, it might start the desperately needed liquidity flowing again.
But no, the day had already been disappointing – why should the Budget announcement be any different?
The main initiative to stimulate the market was the stale old chestnut of long-term fixed rates. Flog that dead horse, Alistair, but I think you need a swifter steed to attract the punter’s money.
I thought I would not have to repeat this, but here goes: not only are long-term fixed rates expensive to price because of the uncertainty of long-term forecasts, but they are also difficult to advise as suitable unless a client’s only wish is to keep the cost of mortgage repayment exactly the same for up to 25 years.
This is nonsense in itself as the only factor that is constant for all borrowers is that discretionary income and affordability will change. Is the Government’s income tax take going to be the same for the next 25 years?
Few people, including the Chancellor, know what their circumstances will be in five years, let alone 25 years.
What sort of advice would it be to lock a client in for an extended period at a time when lenders are publicly claiming they are not interested in volume lending, instead building increased margin?
Sure, if you could secure a long-term fixed rate at a discount to the shorter-term yield curve, then this could be a compelling argument, but this is totally counter-intuitive to the way longer-term risk is priced.
The Association of Mortgage Intermediaries is calling for detailed public consultation about the issue of long-term fixed rates to put them into the context of a niche product where they belong.
So what about the Gold Standard? Well, all we got is the suggestion of further consultation from FSA, the Bank of England and HM Treasury. Reporting in June – very decisive.
I hope industry solutions to raising new liquidity are listened to and implemented quickly before further lenders have to shut their doors to new business as their lending caps are reached.
And then there is the glimmer of hope about key workers. I welcome the initiative to extend the key worker scheme from the current 25% Government share to a 50% share and the abolishment of stamp duty to those buying less than an 80%.
However, surely more could have done to stimulate the market by removing barriers to more first-time buyers, and giving the Government the chance to meet its own objective of a 75% home ownership rate?
Predictions at the end of last year said it had to get worse before it gets better. Well, at least we are currently in the thick of it and a step closer to it getting better.
You might be surprised at this sentiment after the day that I had, but then I told you I am an optimist. n
