Monday, 27 February 2017

Inside edge

All posts from: March 2009

The glad game

Tue, 31 Mar 2009

The pollyannas are beginning to show their faces again after Bank of England figures yesterday showed a surprise 19% rise in new mortgage approvals between January and February. The total was the highest since last May.

The Association of Residential Letting Agents (ARLA) was playing the glad game too yesterday too with a survey showing that more landlords are buying property than selling it for the first time in two years.

But house builder Bellway wins the pollyanna prize with its annual results press release this morning. It said its visitor numbers and reservation levels in the first 11 weeks of 2009 were improved on the last five months of 2008.

But that rather curious comparison - visitor numbers traditionally surge in the spring - reveals a real determination to look on the bright side. The fact that reservations are only running 13% below last year’s levels was seen as good news because it could have been even worse.

And Bellway’s result concealed plenty of other stats to keep any Eeyore out there happily miserable. ‘Virtually every’ private reservation last year relied on sales incentives, the group wrote off £66.3m on the value of land and other assets and house prices are down 25% on their peak and up to 40% depending on the location and site.

The other surveys also had some Eeyore factors. More than one in five ARLA members reported that at least one property on their books was being repossessed each week.

And the February mortgage approvals total was still 44% lower than in February 2008. The most level-headed analysis this week came from Richard Donnell of Hometrack after its monthly survey showed a slowdown in the rate of house price falls plus rises in the number of sales agreed and the percentage of asking price achieved.

‘While market conditions remain extremely tough, and the economic outlook is far from rosy, the net result is that agents are currently marking down prices less aggressively than they were in the autumn when the turmoil in world markets was at its peak,’ he said. ‘This situation could well reverse in the near term as much still depends upon improved consumer confidence, a gradual recovery in mortgage lending and greater stability in the economic outlook.’

Things may have stopped getting worse but it does not follow that they will automatically get better. With forecasts of another million unemployed and another 75,000 repossessions this year, a persistent shortage of lending and continuing expectations that house prices have further to fall, it’s still a struggle to always look on the bright side.

The glad game

Tue, 31 Mar 2009

The pollyannas are beginning to show their faces again after Bank of England figures yesterday showed a surprise 19% rise in new mortgage approvals between January and February. The total was the highest since last May.

The Association of Residential Letting Agents (ARLA) was playing the glad game too yesterday too with a survey showing that more landlords are buying property than selling it for the first time in two years.

But house builder Bellway wins the pollyanna prize with its annual results press release this morning. It said its visitor numbers and reservation levels in the first 11 weeks of 2009 were improved on the last five months of 2008.

But that rather curious comparison - visitor numbers traditionally surge in the spring - reveals a real determination to look on the bright side. The fact that reservations are only running 13% below last year’s levels was seen as good news because it could have been even worse.

And Bellway’s result concealed plenty of other stats to keep any Eeyore out there happily miserable. ‘Virtually every’ private reservation last year relied on sales incentives, the group wrote off £66.3m on the value of land and other assets and house prices are down 25% on their peak and up to 40% depending on the location and site.

The other surveys also had some Eeyore factors. More than one in five ARLA members reported that at least one property on their books was being repossessed each week.

And the February mortgage approvals total was still 44% lower than in February 2008. The most level-headed analysis this week came from Richard Donnell of Hometrack after its monthly survey showed a slowdown in the rate of house price falls plus rises in the number of sales agreed and the percentage of asking price achieved.

‘While market conditions remain extremely tough, and the economic outlook is far from rosy, the net result is that agents are currently marking down prices less aggressively than they were in the autumn when the turmoil in world markets was at its peak,’ he said. ‘This situation could well reverse in the near term as much still depends upon improved consumer confidence, a gradual recovery in mortgage lending and greater stability in the economic outlook.’

Things may have stopped getting worse but it does not follow that they will automatically get better. With forecasts of another million unemployed and another 75,000 repossessions this year, a persistent shortage of lending and continuing expectations that house prices have further to fall, it’s still a struggle to always look on the bright side.

Loan danger

Mon, 30 Mar 2009

It may be small-fry by comparison with Northern Rock and HBOS but the failure of Dunfermline Building Society raises yet more worrying issues about the UK housing finance system.

The first assumption to be blown out of the water is that building societies are more prudent than banks.

Risky commercial loans are thought to have been the major factor in its demise. However, sub-prime mortgage acquired from GMAC and Lehman Brothers are believed to have been another.

Only a year ago its chief executive was claiming: ‘Dunfermline Building Society is a financially robust, profitable and well-capitalised institution and has absolutely no exposure to sub-prime lending.’

The second assumption to go is that when one of them gets in to trobule other building societies will ride to the rescue.

Efforts have been underway for some time to organise the sort of deal that saw the Derbyshire and Cheshire societies bought by the Nationwide just six months ago.

They failed. Under the deal announced this morning, the Nationwide will take over the savings book, the prime mortgage book and the head office.

The commercial loans and the acquired loans, which are thought to be a mixture of buy to let and self-certified mortgages, are being taken over by the taxpayer.

Which is confirmation that a third assumption, already shaky, has now gone too.

This is that the sub-prime crisis is related to the American housing market and not ours.

Last week it emerged that the toxic loans we are insuring for HBOS include not just the dodgy US-linked mortgage securities it bought but all of its buy to let and high loan to value UK loans too.

All that would be bad enough - but the undermining of a fourth assumption looks like even worse news for the housing sector. This is that financing social housing represents a secure, good value business for lenders.

Dunfermline was a leading lender on social housing in Scotland. The Nationwide is one of the biggest social housing lenders in the UK.

And yet Dunfermline’s £500m social housing lending book is being transferred not to the Nationwide but to a new institution called DBS Bridge Bank, a ‘bridge bank’ owned by the Bank of England, pending a sale.

Nationwide’s statement on the Dunfermline acquisition this morning said that: ‘This transaction excludes high risk assets: commercial loans and some residential loans were not transferred.’

At first sight, that implies that it now considers the social housing loan book a ‘high-risk asset’. The idea that social housing loans need to go with the bad bits of Dunfermline like buy to let and self-certified mortgages rather than the good bits like prime mortgages would blow yet another assumption out of the water.

The situation is thankfully not that alarming. The BBC’s Robert Peston reports this morning that social housing was not included because it did not fit with Nationwide’s other operations. That seems hard to believe given that it is already one of the biggest lenders to social housing.

The truth seems to be more that Nationwide could not agree a price with the Treasury - but the implications and consequences of that are still worrying.

First, lending on social housing is not worth as much to banks and building societies as we all think. Second, the transfer to DBS means that private finance is now public finance - work that one out. Third, a deal to restore it to the private sector only seems to make sense for an existing lender to social housing - reducing competition in the sector still further.

Loan danger

Mon, 30 Mar 2009

It may be small-fry by comparison with Northern Rock and HBOS but the failure of Dunfermline Building Society raises yet more worrying issues about the UK housing finance system.

The first assumption to be blown out of the water is that building societies are more prudent than banks.

Risky commercial loans are thought to have been the major factor in its demise. However, sub-prime mortgage acquired from GMAC and Lehman Brothers are believed to have been another.

Only a year ago its chief executive was claiming: ‘Dunfermline Building Society is a financially robust, profitable and well-capitalised institution and has absolutely no exposure to sub-prime lending.’

The second assumption to go is that when one of them gets in to trobule other building societies will ride to the rescue.

Efforts have been underway for some time to organise the sort of deal that saw the Derbyshire and Cheshire societies bought by the Nationwide just six months ago.

They failed. Under the deal announced this morning, the Nationwide will take over the savings book, the prime mortgage book and the head office.

The commercial loans and the acquired loans, which are thought to be a mixture of buy to let and self-certified mortgages, are being taken over by the taxpayer.

Which is confirmation that a third assumption, already shaky, has now gone too.

This is that the sub-prime crisis is related to the American housing market and not ours.

Last week it emerged that the toxic loans we are insuring for HBOS include not just the dodgy US-linked mortgage securities it bought but all of its buy to let and high loan to value UK loans too.

All that would be bad enough - but the undermining of a fourth assumption looks like even worse news for the housing sector. This is that financing social housing represents a secure, good value business for lenders.

Dunfermline was a leading lender on social housing in Scotland. The Nationwide is one of the biggest social housing lenders in the UK.

And yet Dunfermline’s £500m social housing lending book is being transferred not to the Nationwide but to a new institution called DBS Bridge Bank, a ‘bridge bank’ owned by the Bank of England, pending a sale.

Nationwide’s statement on the Dunfermline acquisition this morning said that: ‘This transaction excludes high risk assets: commercial loans and some residential loans were not transferred.’

At first sight, that implies that it now considers the social housing loan book a ‘high-risk asset’. The idea that social housing loans need to go with the bad bits of Dunfermline like buy to let and self-certified mortgages rather than the good bits like prime mortgages would blow yet another assumption out of the water.

The situation is thankfully not that alarming. The BBC’s Robert Peston reports this morning that social housing was not included because it did not fit with Nationwide’s other operations. That seems hard to believe given that it is already one of the biggest lenders to social housing.

The truth seems to be more that Nationwide could not agree a price with the Treasury - but the implications and consequences of that are still worrying.

First, lending on social housing is not worth as much to banks and building societies as we all think. Second, the transfer to DBS means that private finance is now public finance - work that one out. Third, a deal to restore it to the private sector only seems to make sense for an existing lender to social housing - reducing competition in the sector still further.

To the occupier

Fri, 27 Mar 2009

Tenants of landlords who get repossessed must feel like they have become characters in a Franz Kafka novel.

Losing your home when you’ve done nothing wrong and paid your rent on time is bad enough. Having to know that any letter that drops through your door addressed to ‘the occupier’ could in effect be an eviction notice is even worse. 

But being aware that up to 8,000 people could be in that situation this year must surely mean that the joint campaign launched today by Citizens Advice, Shelter, Crisis and the Chartered Institute of Housing is pushing at an open door. 

Any of them could face the same situation as a woman who arrived back from holiday with her two kids and tried to get in to the Surrey flat she’d rented for the last 10 months. The locks had been changed and a notice was stuck to the door announcing that a repossession order had been made. She had to wait for two hours for someone from the bank to turn up and was then given ten minutes to collect a few possessions, including her son’s GCSE work. She made repeated visits to the lender asking when she could get in to collect the rest of her belongings only to be told that they were ‘unable to contact the necessary person’.

A tenant in her position will be in a slightly better position from April 6 - but not much better. Rather than a letter addressed to ‘the occupier’ at least 14 days before any court hearing, the lender will have to send a notice within five days of receiving the date of the hearing. But it will still be addressed to ‘the occupier’ and the tenant will still have no rights.

And that’s it - despite everything the government has done to improve the position of owners facing repossession. Housing minister Margaret Beckett seemed badly briefed about the real position through a stinking cold on the Today programme this morning. 

In the second half of 2008 there were 2,300 buy-to-let repossessions. The four organisations estimate that figure could rise to 8,000 in 2009. However, there are also an unknown number of cases where owners have rented out their home without informing their lender or getting its consent - tenants in that situation have even fewer rights. 

The four organisations want changes in the law to give the courts discretion to defer possession for a limited period, taking into account the circumstances of tenants - including whether there are children or vulnerable people in the household and their economic circumstances. There is already a procedure used by lenders who do not want to repossess a home whereby they can ask the court to appoint a receiver of rents. 

They also want improved procedures to make tenants aware of possession cases, including notice from the courts and the lender, information on where to go for advice and marking a message such as ‘your home is at risk’ on the envelope.

The Council of Mortgage Lenders responded sympathetically to the campaign, especially to the call for improved procedures. It looked forward to ‘working with the government and advice agencies on effective measures to help the modest number of tenants affected’ but did not comment on the need for changes in the law.

Banks and building societies that chose to give buy-to-let mortgages did so knowing that the homes would be rented out. That means they have a moral responsibility to the tenants who were effectively repaying their loan - and the law should be changed to ensure that they meet it. 

To the occupier

Fri, 27 Mar 2009

Tenants of landlords who get repossessed must feel like they have become characters in a Franz Kafka novel.

Losing your home when you’ve done nothing wrong and paid your rent on time is bad enough. Having to know that any letter that drops through your door addressed to ‘the occupier’ could in effect be an eviction notice is even worse. 

But being aware that up to 8,000 people could be in that situation this year must surely mean that the joint campaign launched today by Citizens Advice, Shelter, Crisis and the Chartered Institute of Housing is pushing at an open door. 

Any of them could face the same situation as a woman who arrived back from holiday with her two kids and tried to get in to the Surrey flat she’d rented for the last 10 months. The locks had been changed and a notice was stuck to the door announcing that a repossession order had been made. She had to wait for two hours for someone from the bank to turn up and was then given ten minutes to collect a few possessions, including her son’s GCSE work. She made repeated visits to the lender asking when she could get in to collect the rest of her belongings only to be told that they were ‘unable to contact the necessary person’.

A tenant in her position will be in a slightly better position from April 6 - but not much better. Rather than a letter addressed to ‘the occupier’ at least 14 days before any court hearing, the lender will have to send a notice within five days of receiving the date of the hearing. But it will still be addressed to ‘the occupier’ and the tenant will still have no rights.

And that’s it - despite everything the government has done to improve the position of owners facing repossession. Housing minister Margaret Beckett seemed badly briefed about the real position through a stinking cold on the Today programme this morning. 

In the second half of 2008 there were 2,300 buy-to-let repossessions. The four organisations estimate that figure could rise to 8,000 in 2009. However, there are also an unknown number of cases where owners have rented out their home without informing their lender or getting its consent - tenants in that situation have even fewer rights. 

The four organisations want changes in the law to give the courts discretion to defer possession for a limited period, taking into account the circumstances of tenants - including whether there are children or vulnerable people in the household and their economic circumstances. There is already a procedure used by lenders who do not want to repossess a home whereby they can ask the court to appoint a receiver of rents. 

They also want improved procedures to make tenants aware of possession cases, including notice from the courts and the lender, information on where to go for advice and marking a message such as ‘your home is at risk’ on the envelope.

The Council of Mortgage Lenders responded sympathetically to the campaign, especially to the call for improved procedures. It looked forward to ‘working with the government and advice agencies on effective measures to help the modest number of tenants affected’ but did not comment on the need for changes in the law.

Banks and building societies that chose to give buy-to-let mortgages did so knowing that the homes would be rented out. That means they have a moral responsibility to the tenants who were effectively repaying their loan - and the law should be changed to ensure that they meet it. 

Hopes dashed?

Thu, 26 Mar 2009

Ever since the credit crunch first hit in September 2007 the case for more government investment in housing has been overwhelming. Now it seems it will never happen.

Reports this morning say that Gordon Brown has all but ruled out the idea of a new fiscal stimulus in next month’s Budget. The best that we can hope for, according to aides quoted in the Financial Times, is ‘targeted measures’ that will not come anywhere near the extra £6bn called for by the 2020 Group.

While investment through the Homes and Communities Agency is set to peak in the next two years, that was according to spending plans set before there was any hint of a credit crunch, let alone a collapse of private house building, a fall in the housing market wrecking housing associations’ finances and a surge in repossessions and social housing waiting lists. An organisation that was meant to deliver growth is instead having to salvage as much as it can from the wreckage.

The contrast with what happened in the last housing market downturn could not be greater. The 1992 housing market package made £577m available to housing associations to buy up 18,000 unsold homes. The equivalent at today’s house prices would be more than £3bn.

This time around the government has announced a series of measures culminating in November’s pre-Budget report. However, none of it was new money - instead £775m was brought forward from 2010/11 to be spent this year and next. 

Without a fiscal stimulus that means investment will start to be cut in just over a year’s time. And forecasts say that, whoever wins the next election, spending will fall off a cliff from 2011 onwards. 

In the meantime, increased grant rates will mean fewer rented homes. The downturn in the property market means fewer low-cost ownership homes and scanty profits available to cross-subsidise the rented programme.

To my mind, a fiscal stimulus still makes obvious sense in housing terms. Depending on how it was designed, it could make perfect financial sense too, since homes built for rent now could later be sold at a profit and buying land and assets in a downturn surely represents long-term value for money. 

But the cavalry is not coming. Which makes reform of the public borrowing rules for local authorities even more important than it was before and devising a way to persuade institutional investors to make a major move into residential property even more urgent.

Hopes dashed?

Thu, 26 Mar 2009

Ever since the credit crunch first hit in September 2007 the case for more government investment in housing has been overwhelming. Now it seems it will never happen.

Reports this morning say that Gordon Brown has all but ruled out the idea of a new fiscal stimulus in next month’s Budget. The best that we can hope for, according to aides quoted in the Financial Times, is ‘targeted measures’ that will not come anywhere near the extra £6bn called for by the 2020 Group.

While investment through the Homes and Communities Agency is set to peak in the next two years, that was according to spending plans set before there was any hint of a credit crunch, let alone a collapse of private house building, a fall in the housing market wrecking housing associations’ finances and a surge in repossessions and social housing waiting lists. An organisation that was meant to deliver growth is instead having to salvage as much as it can from the wreckage.

The contrast with what happened in the last housing market downturn could not be greater. The 1992 housing market package made £577m available to housing associations to buy up 18,000 unsold homes. The equivalent at today’s house prices would be more than £3bn.

This time around the government has announced a series of measures culminating in November’s pre-Budget report. However, none of it was new money - instead £775m was brought forward from 2010/11 to be spent this year and next. 

Without a fiscal stimulus that means investment will start to be cut in just over a year’s time. And forecasts say that, whoever wins the next election, spending will fall off a cliff from 2011 onwards. 

In the meantime, increased grant rates will mean fewer rented homes. The downturn in the property market means fewer low-cost ownership homes and scanty profits available to cross-subsidise the rented programme.

To my mind, a fiscal stimulus still makes obvious sense in housing terms. Depending on how it was designed, it could make perfect financial sense too, since homes built for rent now could later be sold at a profit and buying land and assets in a downturn surely represents long-term value for money. 

But the cavalry is not coming. Which makes reform of the public borrowing rules for local authorities even more important than it was before and devising a way to persuade institutional investors to make a major move into residential property even more urgent.

Village voice

Wed, 25 Mar 2009

An Englishman’s second home is his castle. That’s the only conclusion that can be drawn from today’s government response to the Taylorreport on rural communities

The report by Liberal Democrat MP Matthew Taylor had recommended a trial of new planning rules in one or more of the National Parks limiting change of use of full-time homes to part-time occupation as second homes or holiday lets. 

It was hardly a radical recommendation - many of the national parks are already doing much the same on new homes - but it was the least that people in scenic areas of England were demanding. Only last week the issue hit the headlines when vandals daubed slogans on new luxury homes in one Dorset village. 

The government’s own rural advocate, the Commission for Rural Communities, says that lack of affordable housing is ‘the single most pressing issue faced by rural communities’. 

‘In many rural areas it has now become almost impossible for the local postman, farm worker or teacher to be able to buy a home,’ said CRC chairman Stuart Burgess. ‘Despite the recession and falling house prices, tighter lending and a requirement for higher deposits mean that for many rural people an affordable home remains a distant dream.’

The government accepted almost all of Taylor’s recommendations apart from the one on second homes. According to the Communities and Local Government department statement:  ‘The review itself acknowledged the real issues of practicality such a policy may face, and the government believes there are more innovative ways of providing the affordable homes that rural communities need without interfering with the legitimate rights of second home owners.’

The report did indeed acknowledge ‘real issues of practicality’ but concluded that there was a case to be made for limiting further conversion of full-time homes into second homes and holiday lets in the most stressed areas. As I read it, that would leave people free to buy properties that are already second homes - just not free to out-bid locals for new ones. 

Seen from Westminster the rejection of that idea may seem to make some kind of sense. But seen from villages where up to half of homes are empty most of the year and which can no longer support basic shops and services, the government’s refusal to even consider a trial looks like craven surrender to the leader writers of the right-wing press. 

Village voice

Wed, 25 Mar 2009

An Englishman’s second home is his castle. That’s the only conclusion that can be drawn from today’s government response to the Taylorreport on rural communities

The report by Liberal Democrat MP Matthew Taylor had recommended a trial of new planning rules in one or more of the National Parks limiting change of use of full-time homes to part-time occupation as second homes or holiday lets. 

It was hardly a radical recommendation - many of the national parks are already doing much the same on new homes - but it was the least that people in scenic areas of England were demanding. Only last week the issue hit the headlines when vandals daubed slogans on new luxury homes in one Dorset village. 

The government’s own rural advocate, the Commission for Rural Communities, says that lack of affordable housing is ‘the single most pressing issue faced by rural communities’. 

‘In many rural areas it has now become almost impossible for the local postman, farm worker or teacher to be able to buy a home,’ said CRC chairman Stuart Burgess. ‘Despite the recession and falling house prices, tighter lending and a requirement for higher deposits mean that for many rural people an affordable home remains a distant dream.’

The government accepted almost all of Taylor’s recommendations apart from the one on second homes. According to the Communities and Local Government department statement:  ‘The review itself acknowledged the real issues of practicality such a policy may face, and the government believes there are more innovative ways of providing the affordable homes that rural communities need without interfering with the legitimate rights of second home owners.’

The report did indeed acknowledge ‘real issues of practicality’ but concluded that there was a case to be made for limiting further conversion of full-time homes into second homes and holiday lets in the most stressed areas. As I read it, that would leave people free to buy properties that are already second homes - just not free to out-bid locals for new ones. 

Seen from Westminster the rejection of that idea may seem to make some kind of sense. But seen from villages where up to half of homes are empty most of the year and which can no longer support basic shops and services, the government’s refusal to even consider a trial looks like craven surrender to the leader writers of the right-wing press. 

Paying the price

Tue, 24 Mar 2009

Depending on which housing costs are included ‘inflation’ either fell to zero last month or it rose to 3.2%. The difference comes down to whether you pay a mortgage or a rent. 

It’s little wonder that people feel confused when they try and relate the official inflation rate to their own circumstances. Mortgage payments fell an astonishing 34% in the year to January - and have fallen again since. Private rents are also falling according to anecdotal surveys. But council rents are still due to go up 3.1% next month even after the government’s u-turn and housing association rents could still rise by 5.6%.

I used the personal inflation calculator on the BBC website to find out the difference, using the same crude estimates of monthly household spending combined with more accurate estimates of average mortgage and rent costs.

The results were startling. The average home mover, with a £117,000 mortgage, had a personal inflation rate of -6.4%. The average first-time buyer, with a £97,000 mortgage, saw a rate of -5.2%.

However, inflation was +3.5% for a local authority or housing association tenant with a rent of £300-£350 a month. That leaves them facing an inflation rate 10% greater than homeowners - and that is before the latest round of mortgage rate cuts.

[UPDATE 12:00 Doing the same sums using the updated February inflation figures produces an even greater disparity. Annual inflation is -8.9% for the average home mover and -7.4% for the average first-time buyer but still +3.1% for social tenants.]

The consumer prices index (CPI) is the one the Bank of England uses when it sets interest rates. The CPI should be 2%. When it rises to more than 3% or falls to less than 1% the Bank has to write a letter of explanation to the Treasury.

So, given that the Bank has just cut interest rates by 0.5% for three months in a row, it must be the one close to zero? Er, no actually it’s the one that has just risen from 3.0% to 3.2%.

The retail prices index (RPI) is the one that fell to zero. The difference is  largely explained by the fact that it includes housing costs whereas the CPI does not. 

The September RPI rate is used to set council and housing association rents. In September 2008 it was 5.1%, hence the need for a government u-turn. By this September it could have fallen as low as -4%, leaving housing associations with a huge potential headache.

The contrast between home owners and tenants has arguably never been as stark as it is now. The difference in their personal inflation rates will only grow bigger as further mortgage rate reductions and next month’s rent increases feed through. Little wonder that some tenants are demanding a rent freeze

Home owners in work have seen a dramatic improvement in their financial position in the last six months. Tenants in work are seeing their rents still rising and, as we enter the uncharted territory of deflation, could also see pay freezes and even cuts.

Paying the price

Tue, 24 Mar 2009

Depending on which housing costs are included ‘inflation’ either fell to zero last month or it rose to 3.2%. The difference comes down to whether you pay a mortgage or a rent. 

It’s little wonder that people feel confused when they try and relate the official inflation rate to their own circumstances. Mortgage payments fell an astonishing 34% in the year to January - and have fallen again since. Private rents are also falling according to anecdotal surveys. But council rents are still due to go up 3.1% next month even after the government’s u-turn and housing association rents could still rise by 5.6%.

I used the personal inflation calculator on the BBC website to find out the difference, using the same crude estimates of monthly household spending combined with more accurate estimates of average mortgage and rent costs.

The results were startling. The average home mover, with a £117,000 mortgage, had a personal inflation rate of -6.4%. The average first-time buyer, with a £97,000 mortgage, saw a rate of -5.2%.

However, inflation was +3.5% for a local authority or housing association tenant with a rent of £300-£350 a month. That leaves them facing an inflation rate 10% greater than homeowners - and that is before the latest round of mortgage rate cuts.

[UPDATE 12:00 Doing the same sums using the updated February inflation figures produces an even greater disparity. Annual inflation is -8.9% for the average home mover and -7.4% for the average first-time buyer but still +3.1% for social tenants.]

The consumer prices index (CPI) is the one the Bank of England uses when it sets interest rates. The CPI should be 2%. When it rises to more than 3% or falls to less than 1% the Bank has to write a letter of explanation to the Treasury.

So, given that the Bank has just cut interest rates by 0.5% for three months in a row, it must be the one close to zero? Er, no actually it’s the one that has just risen from 3.0% to 3.2%.

The retail prices index (RPI) is the one that fell to zero. The difference is  largely explained by the fact that it includes housing costs whereas the CPI does not. 

The September RPI rate is used to set council and housing association rents. In September 2008 it was 5.1%, hence the need for a government u-turn. By this September it could have fallen as low as -4%, leaving housing associations with a huge potential headache.

The contrast between home owners and tenants has arguably never been as stark as it is now. The difference in their personal inflation rates will only grow bigger as further mortgage rate reductions and next month’s rent increases feed through. Little wonder that some tenants are demanding a rent freeze

Home owners in work have seen a dramatic improvement in their financial position in the last six months. Tenants in work are seeing their rents still rising and, as we enter the uncharted territory of deflation, could also see pay freezes and even cuts.

Off target

Fri, 20 Mar 2009

One after another cherished government targets are falling by the wayside. Now house builders and surveyors say one of the boldest ones - zero carbon new homes by 2016 - is unrealistic and unviable.

In its response to the consultation paper on zero carbon, the House Builders Association says the costs of that and other initiatives such as lifetime homes are putting too much pressure on the industry and that building rates could remain low for decades - which in turn threatens government supply targets.

And the RICS tells the government that it is not realistic. It says that building zero carbon homes is currently to expensive and ‘it would be unrealistic too expect all homes to achieve these standards’. The government should instead set a new target of building all new homes to 70% less carbon.

While the ultimate aim should still be a 100% reduction in emissions from new homes, its external affairs director Gillian Charlesworth argues: ‘We believe that, given the financial constraints caused by the downturn, Government should be aiming to maximise reductions in carbon emissions in a cost effective manner. RICS wants to see achievable solutions. Resources should be allocated to lower cost measures that will provide maximum insulation to homes. This would be a pragmatic solution towards reducing our carbon footprint, given the current recession.’

Both make some sensible points about technical aspects of the consultation but backtracking on the 2016 target would surely send out all the wrong signals about the government’s policy on climate change in the week that its chief scientist warned that climate change and a rising world population will leave the world facing a ‘perfect storm’ of problems by 2030.

Questions still seem to be resolved about the treatment and generation of renewable energy and the government still needs to tackle the fact bigger problem of carbon emissions from existing homes. However, the government would do far better to listen to the constructive responses of groups like the RIBA and UK Green Building Council

Off target

Fri, 20 Mar 2009

One after another cherished government targets are falling by the wayside. Now house builders and surveyors say one of the boldest ones - zero carbon new homes by 2016 - is unrealistic and unviable.

In its response to the consultation paper on zero carbon, the House Builders Association says the costs of that and other initiatives such as lifetime homes are putting too much pressure on the industry and that building rates could remain low for decades - which in turn threatens government supply targets.

And the RICS tells the government that it is not realistic. It says that building zero carbon homes is currently to expensive and ‘it would be unrealistic too expect all homes to achieve these standards’. The government should instead set a new target of building all new homes to 70% less carbon.

While the ultimate aim should still be a 100% reduction in emissions from new homes, its external affairs director Gillian Charlesworth argues: ‘We believe that, given the financial constraints caused by the downturn, Government should be aiming to maximise reductions in carbon emissions in a cost effective manner. RICS wants to see achievable solutions. Resources should be allocated to lower cost measures that will provide maximum insulation to homes. This would be a pragmatic solution towards reducing our carbon footprint, given the current recession.’

Both make some sensible points about technical aspects of the consultation but backtracking on the 2016 target would surely send out all the wrong signals about the government’s policy on climate change in the week that its chief scientist warned that climate change and a rising world population will leave the world facing a ‘perfect storm’ of problems by 2030.

Questions still seem to be resolved about the treatment and generation of renewable energy and the government still needs to tackle the fact bigger problem of carbon emissions from existing homes. However, the government would do far better to listen to the constructive responses of groups like the RIBA and UK Green Building Council

Seizing the moment

Thu, 19 Mar 2009

Squeals of outrage from estate agents, mortgage brokers and the Daily Telegraph are pretty good arguments in favour of mortgage regulation as far as I’m concerned.

But yesterday’s Turner review put off a decision on the lending limits that were getting them hot under the collar until September, when the Financial Services Authority (FSA) will publish a separate paper on the arguments for mortgage regulation that will also look at second charge and buy to let lending

The review should leave nobody in any doubt about the role that excessive lending played in the boom. Total mortgage debt in the UK rose from 50% of GDP in 1997 to more than 80% in 2007. Although UK sub-prime lending was on nothing like the scale seen in the US, between 2005 and 2008 in particular loans were made to families who would never have qualified before. Buy to let grew from nothing to 26% of lending in 10 years. And the funding came from a massive expansion of securitisation. 

Mortgages of greater than 90% loan to value (LTV) only increased slightly in the peak boom years between 2005 and 2007 but the proportion of loans greater than 100% doubled from 3.9% to 7.4%. Meanwhile, the number of loans worth more than 3.5 times the borrowers’ income grew from 20% to 30%. 

As the review comments: ‘Both some customers and some providers relied imprudently on the assumption that ever rising house prices would reduce the risks otherwise inherent in high LTVs. Some customers assumed that there would always be a supply of new remortgage offers to allow refinancing when initial low interest rate periods ended; and some providers assumed that initial LTVs would fall rapidly over the contract to reduce their risks.’

On the face of it the arguments for regulating high loan to value loans and income multiples seem overwhelming - especially since it does not mention the widespread collusion between buyers, brokers and lenders to accept exaggerated or self-certified incomes. They would protect borrowers and banks alike and put a brake on rapid credit growth and excessive house price rises, which both feed back into bigger booms and bigger busts.

Turner sees two main arguments against restrictions on lending:

  • they would disadvantage first-time buyers who cannot rely on family money to pay initial deposits. ‘In both the UK and the US, rapid growth in mortgage credit was seen as driving a democratisation of home ownership.’
  • people denied high loan to value mortgages might end up relying on more expensive credit cards instead.

Yes, first-time buyers would be disadvantaged in the short term but restrictions on lending would gradually bring house prices back within reach. And, as Turner argues, restrictions on loan to value could even be varied according to the availability of credit and the state of the housing market. 

With no restrictions on lending, government support for home ownership merely adds fuel to the fire of higher house prices until eventually boom turns to bust. ‘Democratisation’ is not much use if the right to vote/own is accompanied by a repossession order. 

In a regulated market, government support for home ownership would make sense. The funding could even come from taxing the inherited wealth of the housing ‘haves’ - and that would simultaneously reduce the gap between first-time buyers with family help and those without. 

The main obstacle in the way of that is political. Is any leading politician brave enough to say that lower house prices are a good thing? That mortgage regulation is a key way of achieving that? And that the low taxation of housing by comparison with other forms of investment was a major cause of the boom and bust?

The time to make those arguments is now - when the electorate can see the consequences of excessive lending all around them. By the time the FSA gets round to acting on the proposals it makes in September and the politicians are focussed on the next election the moment could be gone. 

Seizing the moment

Thu, 19 Mar 2009

Squeals of outrage from estate agents, mortgage brokers and the Daily Telegraph are pretty good arguments in favour of mortgage regulation as far as I’m concerned.

But yesterday’s Turner review put off a decision on the lending limits that were getting them hot under the collar until September, when the Financial Services Authority (FSA) will publish a separate paper on the arguments for mortgage regulation that will also look at second charge and buy to let lending

The review should leave nobody in any doubt about the role that excessive lending played in the boom. Total mortgage debt in the UK rose from 50% of GDP in 1997 to more than 80% in 2007. Although UK sub-prime lending was on nothing like the scale seen in the US, between 2005 and 2008 in particular loans were made to families who would never have qualified before. Buy to let grew from nothing to 26% of lending in 10 years. And the funding came from a massive expansion of securitisation. 

Mortgages of greater than 90% loan to value (LTV) only increased slightly in the peak boom years between 2005 and 2007 but the proportion of loans greater than 100% doubled from 3.9% to 7.4%. Meanwhile, the number of loans worth more than 3.5 times the borrowers’ income grew from 20% to 30%. 

As the review comments: ‘Both some customers and some providers relied imprudently on the assumption that ever rising house prices would reduce the risks otherwise inherent in high LTVs. Some customers assumed that there would always be a supply of new remortgage offers to allow refinancing when initial low interest rate periods ended; and some providers assumed that initial LTVs would fall rapidly over the contract to reduce their risks.’

On the face of it the arguments for regulating high loan to value loans and income multiples seem overwhelming - especially since it does not mention the widespread collusion between buyers, brokers and lenders to accept exaggerated or self-certified incomes. They would protect borrowers and banks alike and put a brake on rapid credit growth and excessive house price rises, which both feed back into bigger booms and bigger busts.

Turner sees two main arguments against restrictions on lending:

  • they would disadvantage first-time buyers who cannot rely on family money to pay initial deposits. ‘In both the UK and the US, rapid growth in mortgage credit was seen as driving a democratisation of home ownership.’
  • people denied high loan to value mortgages might end up relying on more expensive credit cards instead.

Yes, first-time buyers would be disadvantaged in the short term but restrictions on lending would gradually bring house prices back within reach. And, as Turner argues, restrictions on loan to value could even be varied according to the availability of credit and the state of the housing market. 

With no restrictions on lending, government support for home ownership merely adds fuel to the fire of higher house prices until eventually boom turns to bust. ‘Democratisation’ is not much use if the right to vote/own is accompanied by a repossession order. 

In a regulated market, government support for home ownership would make sense. The funding could even come from taxing the inherited wealth of the housing ‘haves’ - and that would simultaneously reduce the gap between first-time buyers with family help and those without. 

The main obstacle in the way of that is political. Is any leading politician brave enough to say that lower house prices are a good thing? That mortgage regulation is a key way of achieving that? And that the low taxation of housing by comparison with other forms of investment was a major cause of the boom and bust?

The time to make those arguments is now - when the electorate can see the consequences of excessive lending all around them. By the time the FSA gets round to acting on the proposals it makes in September and the politicians are focussed on the next election the moment could be gone. 

Linguistic leverage

Wed, 18 Mar 2009

I’m all in favour of cutting down on jargon. My eyes glaze over at the thought of service users, coterminosity and holistic visions. But I wonder if the Local Government Association may have bitten off more than it can chew with the list of banned words it launched today.

The list is the latest stage in the campaign against meaningless terminology that the LGA launched last year. But how, for example, will local authorities be able to work with their ‘stakeholders’, sorry, other organisations with big gaps in their vocabulary?

Will they turn up for a meeting with Sir Bob Kerslake only to tell him that ‘single conversations’ with the Homes and Communities Agency are out. He may be after ‘meaningful dialogue’ but they will only be allowed to give him a ‘talking to’.

How do they expect any ‘leverage’ with poor Hazel Blears when her favourite topics like ‘cohesive communities’ and ‘citizen empowerment’ are off the agenda?

And when the inspectors from the Audit Commission come calling will they be hissed at when they say ‘benchmarking’, ‘baselines’, ‘best practice’, ‘outcomes’ or even ‘inspectorates’?

Much as I sympathise with the campaign (‘horizon scanning’ anyone?) I suspect it’s going to be an uphill struggle - even within the LGA’s own offices. 

Only two days ago, the traitorous members of its safer communities board were raising ‘cross-cutting’ issues about young people and commending ‘a holistic community safety perspective’.

Two weeks ago authorities like Lancashire, Greenwich, Tower Hamlets and Hackney were linguistically betraying their association by accepting ‘beacon’ awards. 

LGA leader Margaret Eaton said today that: ‘The public sector must not hide behind impenetrable jargon and phrases. Why do we have to have ‘coterminous, stakeholder engagement’ when we could just ‘talk to people’ instead? We do not pretend to be perfect, but as this list shows, we are striving to make sure that people get the chance to understand what services we provide.’

But perhaps she should have a word with her speechwriters. Back in November she was telling a conference on preventing violent extremism: ‘The LGA’s ambition is to see an empowered local government sector creating and leading strong, safe and cohesive communities that are resilient to the threat of violent extremism.’

The core message, sorry, main point was that:  ‘We need councillors to lead mainstreaming by setting a broad strategic vision for their council that is not constrained by policy silos.’

Linguistic leverage

Wed, 18 Mar 2009

I’m all in favour of cutting down on jargon. My eyes glaze over at the thought of service users, coterminosity and holistic visions. But I wonder if the Local Government Association may have bitten off more than it can chew with the list of banned words it launched today.

The list is the latest stage in the campaign against meaningless terminology that the LGA launched last year. But how, for example, will local authorities be able to work with their ‘stakeholders’, sorry, other organisations with big gaps in their vocabulary?

Will they turn up for a meeting with Sir Bob Kerslake only to tell him that ‘single conversations’ with the Homes and Communities Agency are out. He may be after ‘meaningful dialogue’ but they will only be allowed to give him a ‘talking to’.

How do they expect any ‘leverage’ with poor Hazel Blears when her favourite topics like ‘cohesive communities’ and ‘citizen empowerment’ are off the agenda?

And when the inspectors from the Audit Commission come calling will they be hissed at when they say ‘benchmarking’, ‘baselines’, ‘best practice’, ‘outcomes’ or even ‘inspectorates’?

Much as I sympathise with the campaign (‘horizon scanning’ anyone?) I suspect it’s going to be an uphill struggle - even within the LGA’s own offices. 

Only two days ago, the traitorous members of its safer communities board were raising ‘cross-cutting’ issues about young people and commending ‘a holistic community safety perspective’.

Two weeks ago authorities like Lancashire, Greenwich, Tower Hamlets and Hackney were linguistically betraying their association by accepting ‘beacon’ awards. 

LGA leader Margaret Eaton said today that: ‘The public sector must not hide behind impenetrable jargon and phrases. Why do we have to have ‘coterminous, stakeholder engagement’ when we could just ‘talk to people’ instead? We do not pretend to be perfect, but as this list shows, we are striving to make sure that people get the chance to understand what services we provide.’

But perhaps she should have a word with her speechwriters. Back in November she was telling a conference on preventing violent extremism: ‘The LGA’s ambition is to see an empowered local government sector creating and leading strong, safe and cohesive communities that are resilient to the threat of violent extremism.’

The core message, sorry, main point was that:  ‘We need councillors to lead mainstreaming by setting a broad strategic vision for their council that is not constrained by policy silos.’

Buy-to-let costs

Tue, 17 Mar 2009

When the Conservatives start pushing for increased rights for private tenants, you know something’s up.

Shadow housing minister Grant Shapps wants a package of measures to protect tenants of repossessed buy-to-let landlords including immediate implementation of an increased notice period of five to seven weeks for repossession hearings. He says tenants are the ‘forgotten victims’ of the recession and says up to 10,000 of this year’s 75,000 repossessions could involve tenants.

The Conservatives would also work with lenders to allow tenants to remain in the property under licence pending sale, ask them to extend the notice period between the repossession order being made and eviction and encouraging the courts to allow tenants to be heard at repossession hearings.

But the practical impact of bringing forward the increase in the notice period by a few weeks and working with lenders would surely be limited. And isn’t easier eviction for private tenants a key tenet of Conservative housing policy? Six-month assured shorthold tenancies introduced under the 1988 Housing Act were a key precondition for the subsequent boom in buy to let.

The Association of Residential Letting Agents (ARLA), which invented buy to let, criticised the Tories for ‘failing to understand how the rental sector works’.

‘Though ARLA, of course, welcomes any additional support for tenants in these tough times, the proposal to bring forward the planned extension of repossession notice to tenants will, in effect, be almost worthless because it comes at the wrong side of the repossession being granted,’ said operations manager Ian Potter.

‘Tenants will receive up to seven weeks’ notice of an order being sought but that assumes that a repossession will be granted – and if it isn’t, and tenants walk away from the property, they will have walked away from a legally binding contract. It would be far more beneficial if the extended notice was granted after a repossession had been granted, which would allow tenants good time to find another property.’

ARLA says it would be better to insist that local authorities make more use of empty dwelling management orders and to encourage more lenders repossessing buy-to-let property to let tenants stay and use the rent in receivership procedure.

Neither of those proposals would do much to help the unknown number of tenants who can be evicted if landlords have rented out their property without telling their lender. 

Tenants need to check whether the landlord really does have the lender’s consent to rent and that check should also be a basic part of a letting agent’s service. However, as ARLA complains today, the recession has led to a flood of unregulated estate agents into the rental sector with little experience of the complex legislation. 

However, the proposals won’t do much to help buy-to-let tenants either. Even after the increased notice period, they will have to know that any letter that drops through their door addressed to ‘the occupier’ could be in effect an eviction notice.

Without getting into the wider debate about security of tenure, this may be an obvious point but any buy-to-let lender made their loan knowing that the property would be rented out. Seems to me that the quid pro quo for that should be that if they repossess it they should have to sell it rented out too - or at a minimum give the same notice that a landlord would have to give under the tenancy.

Such a move be would smack of the sort of regulation that lenders, the Conservatives, and ARLA (apart from mandatory licensing for letting agents of course) oppose. But all of them were perfectly happy to take the credit (and/or the profit) as private renting and buy to let boomed - and they should not be allowed to leave tenants to take the consequences of the bust on their own.

Buy-to-let costs

Tue, 17 Mar 2009

When the Conservatives start pushing for increased rights for private tenants, you know something’s up.

Shadow housing minister Grant Shapps wants a package of measures to protect tenants of repossessed buy-to-let landlords including immediate implementation of an increased notice period of five to seven weeks for repossession hearings. He says tenants are the ‘forgotten victims’ of the recession and says up to 10,000 of this year’s 75,000 repossessions could involve tenants.

The Conservatives would also work with lenders to allow tenants to remain in the property under licence pending sale, ask them to extend the notice period between the repossession order being made and eviction and encouraging the courts to allow tenants to be heard at repossession hearings.

But the practical impact of bringing forward the increase in the notice period by a few weeks and working with lenders would surely be limited. And isn’t easier eviction for private tenants a key tenet of Conservative housing policy? Six-month assured shorthold tenancies introduced under the 1988 Housing Act were a key precondition for the subsequent boom in buy to let.

The Association of Residential Letting Agents (ARLA), which invented buy to let, criticised the Tories for ‘failing to understand how the rental sector works’.

‘Though ARLA, of course, welcomes any additional support for tenants in these tough times, the proposal to bring forward the planned extension of repossession notice to tenants will, in effect, be almost worthless because it comes at the wrong side of the repossession being granted,’ said operations manager Ian Potter.

‘Tenants will receive up to seven weeks’ notice of an order being sought but that assumes that a repossession will be granted – and if it isn’t, and tenants walk away from the property, they will have walked away from a legally binding contract. It would be far more beneficial if the extended notice was granted after a repossession had been granted, which would allow tenants good time to find another property.’

ARLA says it would be better to insist that local authorities make more use of empty dwelling management orders and to encourage more lenders repossessing buy-to-let property to let tenants stay and use the rent in receivership procedure.

Neither of those proposals would do much to help the unknown number of tenants who can be evicted if landlords have rented out their property without telling their lender. 

Tenants need to check whether the landlord really does have the lender’s consent to rent and that check should also be a basic part of a letting agent’s service. However, as ARLA complains today, the recession has led to a flood of unregulated estate agents into the rental sector with little experience of the complex legislation. 

However, the proposals won’t do much to help buy-to-let tenants either. Even after the increased notice period, they will have to know that any letter that drops through their door addressed to ‘the occupier’ could be in effect an eviction notice.

Without getting into the wider debate about security of tenure, this may be an obvious point but any buy-to-let lender made their loan knowing that the property would be rented out. Seems to me that the quid pro quo for that should be that if they repossess it they should have to sell it rented out too - or at a minimum give the same notice that a landlord would have to give under the tenancy.

Such a move be would smack of the sort of regulation that lenders, the Conservatives, and ARLA (apart from mandatory licensing for letting agents of course) oppose. But all of them were perfectly happy to take the credit (and/or the profit) as private renting and buy to let boomed - and they should not be allowed to leave tenants to take the consequences of the bust on their own.

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