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Govt’s housing package: Will policies revive market?

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  • 19/09/2012
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Govt’s housing package: Will policies revive market?
The government recently launched its housing and planning package, with the Prime Minister pledging an extra £300m to build up to 15,000 affordable homes and a £280m extension of the FirstBuy scheme.

The government also launched its £80bn Funding for Lending scheme over a month ago. What impact do you expect from the policies and in what timeframe?

 

Examining the issue in this week’s Market Watch include:

 

Andrew Frankish, director of new homes at Mortgage Advice Bureau insists that government incentives and stimulus look good on paper, but flaws are still evident.

Martin Stewart, director, independent mortgage broker, London Money argues that more attention still needs to be paid on the housing shortfall in the UK.

Eric Stoclet, CEO at Crown Mortgage Management adds that the government should steer away from promoting 95% LTV deals to aspiring homeowners. 

Andrew Frankish, director of new homes at Mortgage Advice Bureau

 

The package of measures announced by the government in the last few weeks will have a positive impact on the housing market. There is a huge demand for affordable housing and the extra £300bn will certainly provide a boost to developers. However, they will take time to approve and build, and in the meantime we need more mortgage products made available to enable borrowers to buy these houses once they’ve been built.

The FirstBuy product has been a proven success and the £280m funding extension will help thousands more first-time buyers who might otherwise not have been able to get onto the housing ladder. But if the market is to be helped to recover, then more still needs to be done.

The Funding for Lending scheme looks good on paper but lenders are not just restricted to using it for retail mortgages and can use the funds for commercial lending too.

It’s important that businesses are helped but we need to see a high proportion channelled towards first-time buyers. The danger is that lenders use the funding to compete in the 70% LTV mortgage market rather than to develop products aimed at first-time buyers, and that won’t free up the current log-jam.

Martin Stewart, director, independent mortgage broker, London Money

 

While any form of incentive or stimulus should be welcomed in the housing market, it really needs to be put into perspective before anyone gets too excited. Only last year the Institute for Public Policy Research estimated that there will be a shortfall of 750,000 homes in the UK by 2025. So while 15,000 new homes should be welcomed, in reality that will cover just 4% of the expected shortfall for London and the South East, let alone any other region.

The Funding for Lending scheme had a positive impact immediately with some benchmark two-year fixed rates now hovering around the 2.75% mark. But again it smacks of sticking a plaster on something that didn’t need one in the first place, i.e that sector of the market where people have large tranches of equity in their property.

Until lenders begin to address the issues of the first-time buyer or those second-time buyers whose equity may have been eroded due to a fall in house prices, the market will continue to be divided. That said, competition is finally now creeping into the market, with lenders appearing to price rates in expectation of receiving volume applications — and that is good news for us all.

Eric Stoclet, CEO at Crown Mortgage Management

 

Are the government’s extension to the FirstBuy scheme, launch of Funding for Lending, and £300m pledge to build 15,000 affordable homes a focused, well thought out strategy to restart the ailing mortgage market or a flurry of scatterbrained attempts at grabbing the headlines?

Time will tell though it is hard to see these rather limited measures making much of a difference. Both FirstBuy and Funding for Lending rely on lenders’ willingness to lend. In a recessionary economy, credit departments will inevitably keep lending criteria tight. Add to that increased regulatory capital and lower profitability and it is tough to convince oneself that the government measures will make a meaningful difference to the mortgage market, not to mention any impact at all for those borrowers who are not prime credits.

As for £300m of additional affordable housing, it is certainly needed but a fraction of what is required. Housing costs in the UK are too high and not only in the ‘affordable’ part of the market. Providing buyers with more alternatives (as opposed to incentivising them to take on 95% LTV loans) and renters with an environment promoting long-term stability is what the government needs to focus on.

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