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The only intervention the market needs is a long-term housing strategy – Marketwatch

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  • 26/05/2021
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The only intervention the market needs is a long-term housing strategy – Marketwatch
Last week, Bank of England policymaker Jon Cunliffe hinted that the Financial Policy Committee (FPC) may introduce measures to curb mortgage lending to restrict household debt, if current market activity accelerates.

 

He said decisions would rely on house price increases continuing to surpass income, favourable interest rates and high levels of transactions. 

However, it was government policy such as the stamp duty holiday which has led to the arguable overstimulation of the sector. 

So, this week Mortgage Solutions is asking: Is there too much intervention in the mortgage and housing market? 

 

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries 

As government has continued to support the housing and mortgage market by retaining Help to Buy, introducing First Homes and providing stamp duty reductions, the Financial Policy Committee (FPC) has retained controls over lenders to ensure the market does not overheat.   

Controls on loan to income (LTI) and stressing shorter-term rates, whilst frustrating to some, do ensure affordability of individual loans and avoid some concentration risk within lenders. 

We are, however, seeing house price inflation defying economic norms as both GDP and employment are constrained.  

Those in work with a feeling of continuity are fuelling a housing market where there is a shortage of supply of decent stock for sale with significant pent-up purchase demand.   

Indeed, with issues in the flats market, house price inflation may not be quite what it seems as only houses are really being transacted in volume.   

What is certain is that with the heat in the current pricing of property it is much less likely that we will see the FPC relax its LTI or stress rate constraints.   

If it did, it would feed more demand into what many see as a stretched market, particularly with the concerns over what might be happening with general inflation. 

The problems created by market interventions the government introduced to stimulate the economy and provide positive consumer sentiment, need balancing controls from the FPC.

Whilst hard to explain to the consumer who wants their dream home with a mortgage that might cost less than their current rent, longer term market stability is important for us all. 

 

Kate Davies, executive director of the Intermediary Mortgage Lenders Association 

The government has provided extensive support to the housing sector since the start of the crisis, which has helped stimulate activity and boost confidence.  

However, while this has been done to prevent the market from stalling, the effect has been to boost what was already quite healthy purchase activity.   

One of the challenges associated with this recent intervention is how it works within the current regulatory framework.  

The affordability and stress testing introduced as part of the regulator’s Mortgage Market Review requires lenders to limit the proportion of lending they conduct at more than 4.5 times an applicant’s income, and the additional three per cent stress test required by the FPC also means those purchasing a home need significant household income to access the funds they need.  

IMLA and other trade associations have long argued that these measures may be too restrictive and are preventing quality borrowers from accessing homeownership.  

We do know these measures are currently under review and only last week the Bank of England published a blog, in its ‘Bank Overground’ series, which suggested the stress test on borrowing could be preventing as many as two per cent of tenants from being able to buy a home.  

It is hard to say whether there has been too much intervention in the market recently, or whether these actions have been a benefit or hindrance.  

It takes time to understand the true impact of new policy and we will need to see how the market develops. However, changes could be made to open the door to borrowers who are perfectly good credit risks.  

Regulatory changes may finetune the benchmarks above and below which borrowing is possible – but the intervention that the market really requires is a long-term housing strategy to ensure the UK builds more, affordable homes. 

 

Richard Campo, managing director of Rose Capital Partners 

Personally, I think the balance on risk and lending at present is about right.  

If you have less than a 25 per cent deposit, it isn’t easy to get the lending you want if it is anything outside the most vanilla of applications.  

Perhaps that isn’t a bad thing as I well remember the run up to 2007 and the lending market is not even close to what it was back then. 

Policymakers need to take into account that we have had five years of suppressed activity in the housing sector largely down to Brexit, and subsequent years of delays and procrastination.  

As a result, if you just look at the last six to nine months, yes it looks like a boom. The stamp duty holiday is also masking what real levels of activity are.  

If you look at activity levels over the last six to nine years, you see a very different picture as house prices and lending, especially in London and the South East have been particularly suppressed.  

This is particularly felt in the high-end market as many properties over £2m are either the same value or less than was the case in 2016. I appreciate that is never going to get any sympathy, but it is a reality.  

So to put brakes on the market now will only hamper future and natural growth, which surely should be the aim of any government and regulator?  

The move to affordability-based lending, which came out of the Mortgage Market Review in 2014 I feel is right. If we make things too tight, it stifles growth. Too loose, you create a bubble.  

So maybe policymakers need to do the hardest thing of all – nothing. 

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