Martijn van der Heijden, Head of Lending at HSBC, kicked off the debate by quoting from the recent HSBC report on first time buyers – 80% of respondents still want to own their own home in spite of the lending restrictions.
The sixth annual question-time style event included an eminent panel of leading industry figures and was chaired by John Wriglesworth. Ian Baker, Group Managing Director of Linden Homes, Simon Embley, Chief Executive of LSL Property Services, Dennis Turner, Chief UK Economist, HSBC and Matthew Wyles, Group Distribution Director of Nationwide Building Society were joined by David Smith, Economics Editor of the Sunday Times to discuss the current issues facing the UK housing market.
Stagnation and sentiment rule
Dennis Turner, HSBC, confessed to being confused by the current state of the housing market. The recession was by many accounts over and yet the market remained “disappointingly sluggish”. To look at the house price to earnings ratio showed house prices to be “hopelessly overvalued”. But he said that affordability was the more important statistic.
Interest rates are at a 300 year low, house prices are down 20% from their peak and yet the market is not responding, he said. Matthew Wyles of Nationwide suggested that sentiment amongst consumers is an important factor.
People are worried about their jobs, particularly if they work in the public sector, and about the burden of rising taxation. Nationwide is bullish on residential property long term, but expects the market to be “dull” during the next three to four years.
Simon Embley of LSL Property Services said generally house prices would be firmer in the South than the North and he could not see prices collapsing because repossessions were low compared to historic recessionary levels and new build and social housing stats are again at historic lows.
The housing market problems we are currently experiencing relate to the lack of mortgage supply rather than depressed consumer demand. While the banks have made good inroads to repay the £160bn owed to Government under the Special Liquidity Scheme, they will remain under pressure until 2014 when the outstanding £140bn is scheduled to be repaid to Government under the Credit Guarantee Scheme.
Ian Baker, of Linden Homes, said the demand for new homes was “significant” but this was effectively a “regulated” market with finance not available and momentum was restrained.
First time buyers, the plight and the famine
Matthew Wyles commented:
“The proportion of first time buyers has remained fairly constant, accounting for around 36% of house purchases in recent months, compared to 40% in 2007 and an average of 36% in the four years before the financial crisis.
"Affordability is the key problem for first time buyers and there is some evidence that young people have been disproportionately affected by the squeeze in the labour market.”
The panellists agreed that Basel lll and tighter FSA regulations make lending to first time buyers unattractive. As a consequence the private rental sector will continue grow in size and profitability.
David Smith, Sunday Times Economics Editor, mentioned that first time buyers are more burdened now with larger student debts and higher rents. He believes that as a society we are moving towards a change in attitudes to a more continental approach to ownership.
Dennis Turner argued that many first time buyers who bought starter homes three or five years ago would ordinarily look to sell now, but they are unable to because they are in negative equity. This is leading to a shortage of suitable property for that end of the market.
Ian Baker agreed, adding that this shortage is being compounded by developers not building starter homes. Although Government schemes like FirstBuy direct are a welcome help, he believes the supply of starter homes will continue to diminish as developers focus on equity rich buyers who can secure finance more easily.
Ian Baker highlighted the Government’s decision to scrap Regional Spatial Strategies and home building targets, without replacing it with anything else except a long period of consultation. The housebuilding industry, which is not building enough houses, cannot afford a period of transition.
New homes bonus confusion
Ian Baker highlighted the Government’s decision to scrap Regional Spatial Strategies and home building targets, without replacing it with anything else except a long period of consultation. The housebuilding industry, which is not building enough houses, cannot afford a period of transition.
He noted:
“The New Homes Bonus is still shrouded in mystery; we can work out exactly how much local communities will get but not how it will be distributed, there isn’t the reward structure in place.”
Political versus Treasury agendas were discussed. Local authorities could be wary of encouraging Speaking from the floor, Sara Garnham, Business Development Director, Hill, applauded the opportunities presented by allowing communities to get involved in making local decisions, but believed nobody understands how to do it.
“At the moment we have this huge vacuum of uncertainty and that’s the hardest thing to move ahead. Nationally, there is a wish to see something happen for local communities, but at the same time as devolving that responsibility the Government has ducked out of all responsibility of making sure it’s delivered.”
Buy-to-let investors could replace first time buyers
Overall the panel was very positive about t
