Newsletter 6
Hot Topics
Housing Market – Budget Comment
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty” Winston Churchill
So, it’s no secret we are in difficult times, however, what are we doing about it and will the plans already put in place work? Again, in many instances, there is nothing more we can do than keep our own affairs in order.
In this section, we get the opinions of two of the leading groups in the housing sector, as well as comment from ij’s Principal, James Carter.
It has been widely acknowledged that a restriction in the availability of lower deposit mortgages is impinging on any chance of a housing market recovery. To this end, in their report on the Budget, the Royal Institution of Chartered Surveyors (RICS) are positive about the funding for mortgage backed securities to encourage higher loan to value lending:
“To help support the availability of mortgage finance the Government said it would establish a guarantee scheme for asset-backed securities. The Budget confirms that this scheme is available, at first until October 2009, for banks and building societies to support their lending in the economy. The scheme extends the funding options open to banks and building societies under the existing CGS to residential mortgage backed securities (RMBS).”
Furthermore…. “Due to a previous reliance on wholesale funding, limited mortgage finance has been a significant impediment to the housing market. This scheme should allow the recent increase in buyer inquiries to translate into an increase in sales and that may help to lift the market out of its depressed state.”
Michael Coogan of The Council of Mortgage Lenders (CML) also praised the new scheme, although he was less than confident about the impact that these could potentially have on housing market as a whole:
"The most important element of this Budget for the mortgage market over the long term may prove to be the new asset backed securities guarantee scheme. This potentially offers an opportunity to restart the capital market funding for mortgages that will be a crucial factor in delivering an adequate supply of mortgage credit.
"Although today's Budget measures will have little short-term impact on the housing and mortgage markets, they do at least remove some of the uncertainties associated with the potential impact of withdrawing stamp duty and ISMI concessions too early, and provide some relief to support the new-build housing market.
"The Chancellor had little room to make substantive interventions, so there are no real surprises in this list. The measures overall are unlikely to significantly improve prospects for higher market activity in the coming months."
RICS were again more positive on the Extension of the stamp duty holiday until December 2009:
“The Chancellor has announced an extension of the stamp duty holiday until 31 December 2009. In September 2008, the Government announced a one year stamp duty holiday for all houses costing up to £175,000. Around 60 per cent of all residential purchases will be exempt from SDLT during the period of the holiday and the extension will cost the Government an additional £90 million.”
If you are based in London, this will not help too many purchasers. However, increased activity in any UK regions should eventually help with the overall market recovery.
“Extending the stamp duty holiday may help some buyers who do now seem to be entering the market but will only have a major impact if steps to increase levels of mortgage lending are also effective. The end of the holiday needs to be well managed and one possibility would be to reform stamp duty from the current slab structure to a marginal system like income tax. Without changes to the system the end of the holiday could cause serious distortions to any upturn in the housing market.”
James Carter, Principal, Independent James
The changes above will doubtless have a positive effect on the flagging housing market. They certainly won’t make it any worse than it is at present, with anecdotal evidence suggesting that property prices have already come off some 30%.
In danger of repeating myself, your home purchasing decision should have underlying long term affordability at the core. The initiatives do not apply to second property holders but will also benefit those people if they allow the market to at least stabilise. Another proposal not to be underestimated is the increase in Individual Savings Account (ISA) limits which will hopefully attract more savers and thus help with the re-capitalisation of banks. Once the banks are securely capitalised, liquidity should improve.
These measures are more on the demand side and there have also been some important proposals with regard to the supply side. There is assistance for the embattled new build sector with £600 million of funding to re-start developments which have stopped due to the lack of funding. This will help those who have bought newly built homes in good faith to find themselves living on a building site.
It will also be of great assistance in starting to increase the number of new homes built. One of the main arguments for the continued increase in house prices was the lack of supply. We now know that this shortfall was wrongly fulfilled with city centre apartments being built when family homes are what are needed but there is a lack of supply. The Government’s targets for houses to be built are shot to bits. Demographic factors are still in favour of the argument of a lack of supply and this too may help support the flagging market.
One economic factor that does not bode well for the housing market recovery is the forecast of rising unemployment. This not only deters those made redundant but will also cause potential buyers to delay their purchasing decisions. The peak in unemployment is forecast at 3 million and this may discourage nearer 5 million people from buying.
On the positive side, I have definitely noticed an upturn in enquiries from first time buyers and also from clients looking to move up the chain. If you fall into either of these categories, now could be a good opportunity to buy. It is notoriously difficult to call the bottom of the market and many people are not trying to do so. Instead, they are taking the attitude that it may not be the bottom but it certainly isn’t the peak.
There are always reasons why some people need to move – personal or family reasons, relocation for work or downsizing. There are also a number of property investors buying at the moment with ‘distressed’ sales where unfortunately people may be forced to sell due to the economic climate.
When the market will turn around is difficult to tell but I would suggest the worst case scenario of 40% peak to trough is correct and that we now have a maximum of 10% further to go. All indicators are time lagged and I have not compiled my own data on this but it is anecdotal from valuations I am seeing returned by mortgage company surveyors and evidence from clients buying.
These figures are of course eschewed by the likes of the aforementioned city centre flats, where there has been significant falls in values, whereas some areas will always stand up much better.
If you are concerned about your current situation, I can obtain desktop Hometrack valuations for you for free and we can also look at your budget and a plan for the future if you are in negative equity.
As always, please do contact me to discuss the issues surrounding the housing market and also the current availability of new mortgage funding.