It might be an old joke, but it does sum up where I think the housing and mortgage market has ended up today. Cast your mind back to 2008. We had the craziness that followed the credit crunch; lending virtually dried up and the construction industry slumped with house building at 190,000 homes per year against a demand of 230,000.
I believe that as the mortgage market is now picking up we’re ready for our own second opinion to get the property market moving, and yes, it’s a bit ugly for some.
Mortgage availability has been picking up through 2012 and into 2013, with the BSA and CML both reporting year on year increases in lending and a quick scan of a mortgage aggregator site will show you a wider spread of LTV options than there was two to three years ago. Is this change in direction because of government intervention with schemes such as Funding for Lending and Help to Buy?
Whilst the big banks were busy fixing their balance sheets during those crazy post crunch years, many regional building societies continued to offer higher LTVs. Initially at the 80% and 85% level to now where we dominate the 95% LTV space. At Ipswich Building Society 28% of our lending in 2012 was for mortgages with LTVs between 80% – 95%.
These government schemes are not going to change the capital requirements for a bank or building society and thereby will not amend their lending strategy and volumes. Time has been the biggest healer.
So why do we need a second opinion? I believe many of the government schemes are missing the point on ensuring property ownership is accessible.
Instead of focussing solely on making property ownership accessible with low deposits (but yes that remains important) we need to think about deposit values in real pounds and pence. This means ensuring property prices remain accessible by balancing supply and demand.
House building needs to increase, radically and drastically. Existing government schemes are slow to take effect and do not offer a scale solution. Furthermore day to day planning processes remain slow and awkward, local communities are fearful of large scale developments and the appetite of house builders to build appears stifled (although most have announced healthy profits for 2012).
The thought of increasing supply might be ugly for the property owner who wants their house value to only ever increase or for the house builder who wants to maintain a large margin on his portfolio; however both fears are irrelevant if no one in the future can afford them.
Paul Winter is chief executive at Ipswich Building Society
