Sunday, 30 April 2017

Inside edge

All posts from: April 2009

Rescue go slow

Thu, 30 Apr 2009

How many families have been helped by the government’s £200m mortgage rescue scheme in its first three months? Would you believe one?

Stats published on the Communities and Local Government (CLG) department’s website show that more than 3,000 householders approached local authorities with mortgage difficulties in January, February and March and 452 applied for mortgage rescue. Just one application - in the Eastern region - was approved.

The scheme offers help either through shared equity or mortgage to rent. The CLG was quick to claim that it has always said it would take at least three months to complete the mortgage rescue registration process and that it still expected the scheme to help up to 6,000 families over the next two years. So it’s maybe a bit early for the Lib Dems to accuse the government of being ‘more interested in headline-grabbing than in helping families through the economic crisis’ but it is not exactly an auspicious start.

The mortgage rescue scheme seems the ideal solution for homeowners like Emma Whitford and her three children. The single mother from Kings Lynn was the first to be helped when Orbit First Step bought her home and rented it back to her under a deal arranged through West Norfolk Council. Orbit said last week that it had previously helped a single father in South Norfolk too - so perhaps the April figures will see an increase.

One reason for the slow start could be that the eligibility criteria are tighter than you might assume. A household has to be both at risk of homelessness as a result of mortgage repossession and be in a priority need category - have dependent children, be pregnant, be vulnerable due to old age, disability or other special reason. They also have to demonstrate a clear need to stay in the area, such as schooling, rather than trade down elsewhere. Their property has to be in reasonable condition. And the value of their home and their income must not exceed regional limits.

Families in negative equity were also initially excluded but this was changed in the Budget and they will be eligible from 1 May. Meanwhile a rescue only counts as approved once a contract between the householder, the lender and the mortgage rescue provider has been signed and finalised.

Complicated eligibility criteria, lack of security for lenders’ loans to housing associations and a reluctance of home owners to participate also dogged a mortgage to rent scheme introduced in the last housing market recession in 1991. The government had hoped for 20,000 rescues but never achieved anything like that target.

Those issues aside the pressure will now be on local authorities, social landlords and mortgage lenders to increase the pace of the rescue scheme - it’s not just homes that are at stake. 

Rescue go slow

Thu, 30 Apr 2009

How many families have been helped by the government’s £200m mortgage rescue scheme in its first three months? Would you believe one?

Stats published on the Communities and Local Government (CLG) department’s website show that more than 3,000 householders approached local authorities with mortgage difficulties in January, February and March and 452 applied for mortgage rescue. Just one application - in the Eastern region - was approved.

The scheme offers help either through shared equity or mortgage to rent. The CLG was quick to claim that it has always said it would take at least three months to complete the mortgage rescue registration process and that it still expected the scheme to help up to 6,000 families over the next two years. So it’s maybe a bit early for the Lib Dems to accuse the government of being ‘more interested in headline-grabbing than in helping families through the economic crisis’ but it is not exactly an auspicious start.

The mortgage rescue scheme seems the ideal solution for homeowners like Emma Whitford and her three children. The single mother from Kings Lynn was the first to be helped when Orbit First Step bought her home and rented it back to her under a deal arranged through West Norfolk Council. Orbit said last week that it had previously helped a single father in South Norfolk too - so perhaps the April figures will see an increase.

One reason for the slow start could be that the eligibility criteria are tighter than you might assume. A household has to be both at risk of homelessness as a result of mortgage repossession and be in a priority need category - have dependent children, be pregnant, be vulnerable due to old age, disability or other special reason. They also have to demonstrate a clear need to stay in the area, such as schooling, rather than trade down elsewhere. Their property has to be in reasonable condition. And the value of their home and their income must not exceed regional limits.

Families in negative equity were also initially excluded but this was changed in the Budget and they will be eligible from 1 May. Meanwhile a rescue only counts as approved once a contract between the householder, the lender and the mortgage rescue provider has been signed and finalised.

Complicated eligibility criteria, lack of security for lenders’ loans to housing associations and a reluctance of home owners to participate also dogged a mortgage to rent scheme introduced in the last housing market recession in 1991. The government had hoped for 20,000 rescues but never achieved anything like that target.

Those issues aside the pressure will now be on local authorities, social landlords and mortgage lenders to increase the pace of the rescue scheme - it’s not just homes that are at stake. 

Jobs and prices

Thu, 30 Apr 2009

It’s the economy, stupid. That was pretty much the message from the Nationwide this morning as it revealed a fresh fall in house prices.

The 0.4% decline in prices recorded by the building society in April followed a 0.9% rise in March that prompted some to conclude that the market was about to recover. The fact that the annual rate of decline is still falling - from 17.6% in February to 15% now - will also be seen as a positive sign.

The Nationwide itself points to the new government guarantees for mortgage-backed securities and an improvement in affordability thanks to low interest rates.

But chief economist Fionnuala Earley says: ‘While affordability is indeed more favourable and there does seem to be some cautious optimism from some quarters, it is still far too soon to say that this is the start of a solid revival in the market.

‘But that ignores the state of an economy in its deepest recession since the Second World War. ‘The housing market is very sensitive to income and, as a result, conditions in the labour market are crucial to its performance.  Even though negative inflation will mean that real earnings will be increasing, it is likely to be some time before this feeds into a strong enough change in sentiment to encourage a full scale revival in the housing market.’

Meanwhile, as Hometrack’s Richard Donnell argued earlier this week, the evidence suggests that while investors and families with large deposits are looking for bargains are driving a seasonal rather than broad-based upturn.

During the last recession, unemployment rose from 2m in 1990 to just under 3m in 1993. It took until 1997 to fall back below 2m. House prices fell from 1990 until 1995 and only started to rise significantly from 1996.

This time around unemployment passed 2m in March. Forecasts say it could rise to 3m by this time next year. The morphine of record low interest rates and quantitative easing appears to have slowed the rate of decline in prices for now. But it surely stretches credibility to suggest that an upturn is just around the corner.

Jobs and prices

Thu, 30 Apr 2009

It’s the economy, stupid. That was pretty much the message from the Nationwide this morning as it revealed a fresh fall in house prices.

The 0.4% decline in prices recorded by the building society in April followed a 0.9% rise in March that prompted some to conclude that the market was about to recover. The fact that the annual rate of decline is still falling - from 17.6% in February to 15% now - will also be seen as a positive sign.

The Nationwide itself points to the new government guarantees for mortgage-backed securities and an improvement in affordability thanks to low interest rates.

But chief economist Fionnuala Earley says: ‘While affordability is indeed more favourable and there does seem to be some cautious optimism from some quarters, it is still far too soon to say that this is the start of a solid revival in the market.

‘But that ignores the state of an economy in its deepest recession since the Second World War. ‘The housing market is very sensitive to income and, as a result, conditions in the labour market are crucial to its performance.  Even though negative inflation will mean that real earnings will be increasing, it is likely to be some time before this feeds into a strong enough change in sentiment to encourage a full scale revival in the housing market.’

Meanwhile, as Hometrack’s Richard Donnell argued earlier this week, the evidence suggests that while investors and families with large deposits are looking for bargains are driving a seasonal rather than broad-based upturn.

During the last recession, unemployment rose from 2m in 1990 to just under 3m in 1993. It took until 1997 to fall back below 2m. House prices fell from 1990 until 1995 and only started to rise significantly from 1996.

This time around unemployment passed 2m in March. Forecasts say it could rise to 3m by this time next year. The morphine of record low interest rates and quantitative easing appears to have slowed the rate of decline in prices for now. But it surely stretches credibility to suggest that an upturn is just around the corner.

Doing their duty

Tue, 28 Apr 2009

Can a duty to consider reducing socio-economic inequality result in anything more than a new set of boxes for public authorities to tick?

The sceptical case against the new duty proposed in the Equality Bill is pretty easy to make. Authorities that care about inequality will already be doing what they can - those that don’t will merely cut and paste a new paragraph into their strategies saying they’ve considered it.

The optimistic case is that it will force bodies like local authorities to spend more to offer extra support to disadvantaged communities to make sure they have the same access to services as other residents.  For pundits like Polly Toynbee the Bill may not offer ‘socialism in one clause’ but it does represent a big step forward in its recognition that class matters.

The duty would apply to all public authorities, including local authorities, government departments and presumably housing associations too if the courts ignore their case that they are not public bodies.

The government’s guide to the Bill mentions housing just once in its explanation of how the socio-economic duty would work: ‘A local education authority could evaluate the schools application process and find that some parents in social housing were having difficulty navigating the system and getting their child a place at a school. The authority could then target support at people living on housing estates to help them with the application process.’

But is that really enough when in towns and cities around the country residents of social housing estates are stuck in the catchment areas of the worst-performing schools while well-heeled parents can buy their way into the catchment areas of the best? That seems to demand more fundamental reform of the school system than help with the application process for the disadvantaged - or will estate residents be schooled in how to manipulate their way into religious schools with informal selection policies?

The impact assessment for the Bill also mentions housing once with an analysis of a proposal to require landlords to make adjustments to common parts of let residential properties where reasonable. It estimates that 57,000 disabled people face difficulties because of inaccessible common parts and that half of them could be helped in the first year following a legislative change at a cost of £27m in extra disabled facilities grant. 

The Bill itself also mentions housing once - in the background to the legislation. This reveals that a European draft directive is currently under negotiation. Published nine months ago it would ‘prohibit discrimination on grounds of disability, religion or belief, sexual orientation and age, in access to goods and services, housing, education, social protection, social security and social advantage’. 

A duty to consider reducing socio-economic inequality sounds to me like a watered down version of the same thing. It’s a step in the right direction but only a small step. 

Doing their duty

Tue, 28 Apr 2009

Can a duty to consider reducing socio-economic inequality result in anything more than a new set of boxes for public authorities to tick?

The sceptical case against the new duty proposed in the Equality Bill is pretty easy to make. Authorities that care about inequality will already be doing what they can - those that don’t will merely cut and paste a new paragraph into their strategies saying they’ve considered it.

The optimistic case is that it will force bodies like local authorities to spend more to offer extra support to disadvantaged communities to make sure they have the same access to services as other residents.  For pundits like Polly Toynbee the Bill may not offer ‘socialism in one clause’ but it does represent a big step forward in its recognition that class matters.

The duty would apply to all public authorities, including local authorities, government departments and presumably housing associations too if the courts ignore their case that they are not public bodies.

The government’s guide to the Bill mentions housing just once in its explanation of how the socio-economic duty would work: ‘A local education authority could evaluate the schools application process and find that some parents in social housing were having difficulty navigating the system and getting their child a place at a school. The authority could then target support at people living on housing estates to help them with the application process.’

But is that really enough when in towns and cities around the country residents of social housing estates are stuck in the catchment areas of the worst-performing schools while well-heeled parents can buy their way into the catchment areas of the best? That seems to demand more fundamental reform of the school system than help with the application process for the disadvantaged - or will estate residents be schooled in how to manipulate their way into religious schools with informal selection policies?

The impact assessment for the Bill also mentions housing once with an analysis of a proposal to require landlords to make adjustments to common parts of let residential properties where reasonable. It estimates that 57,000 disabled people face difficulties because of inaccessible common parts and that half of them could be helped in the first year following a legislative change at a cost of £27m in extra disabled facilities grant. 

The Bill itself also mentions housing once - in the background to the legislation. This reveals that a European draft directive is currently under negotiation. Published nine months ago it would ‘prohibit discrimination on grounds of disability, religion or belief, sexual orientation and age, in access to goods and services, housing, education, social protection, social security and social advantage’. 

A duty to consider reducing socio-economic inequality sounds to me like a watered down version of the same thing. It’s a step in the right direction but only a small step. 

Has Spring sprung?

Mon, 27 Apr 2009

Those housing market green shoots are not looking so healthy today after a new clutch of new surveys cast doubt on the prospects of a recovery.

Mortgage approvals for house purchase - a key early indicator of activity - fell in March after rising in the previous three months, according to the British Bankers Association

On a seasonally adjusted basis, the 26,097 loans approved were down almost 7% on February, 2% on a year ago and 58% on two years ago. 

If figures like those do not exactly sound like much of a recovery two other surveys agree. Over the weekend, the International Monetary Fund named the UK alongside Spain and Ireland as countries going through major housing market corrections ‘that most likely still have a considerable distance to run’. 

The IMF estimates that prices here are significantly more out of alignment - higher than can be explained by economic fundamentals - than in the United States, where prices are still falling. Download the relevant chapter of the report here

On Monday, Hometrack’s latest market survey showed that prices fell 0.3% in April and 10.1% over the last year. This was the lowest monthly decline in three months and there were also improvements in other indicators such as average time on the market and percentage of the asking price being achieved.

But Richard Donnell, Hometrack’s director of research, believes the improvements are more due to seasonal factors than anything fundamental. He highlighted the fact that 2009 is likely to see only 600,000 open market sales - about half of what would constitute a normal market.

He says the recovery seen so far is due to buyers of family housing at low loan to value and cash investors looking to pick up bargains. ‘The market can not operate indefinitely with just one sub-set of active buyers.  In the rush to seek out the green shoots of recovery, the importance of first time buyers in driving the market is often underestimated.  And the fact remains that the majority remain affordability constrained and unable to access mortgage finance.

‘The reality is that a broad based and sustainable recovery in the housing market needs to be supported by a broad base of buyers.  Only when first time buyers feel confident to enter the market in significant numbers can we really start to claim any ‘real’ green shoots of recovery.  This suggests to us that the recent pick up in demand is largely seasonal and unlikely to be sustained over the rest of the year.’

In the wake of last week’s Budget gloom, that seems only sensible. Housing market activity traditionally rises in the Spring - but it remains to be seen whether those green shoots really take root or just fade and die.

Not that it will stop a fresh round of ‘house prices up - good news’ stories if that’s what the Nationwide and Halifax indices show in the next week.

Has Spring sprung?

Mon, 27 Apr 2009

Those housing market green shoots are not looking so healthy today after a new clutch of new surveys cast doubt on the prospects of a recovery.

Mortgage approvals for house purchase - a key early indicator of activity - fell in March after rising in the previous three months, according to the British Bankers Association

On a seasonally adjusted basis, the 26,097 loans approved were down almost 7% on February, 2% on a year ago and 58% on two years ago. 

If figures like those do not exactly sound like much of a recovery two other surveys agree. Over the weekend, the International Monetary Fund named the UK alongside Spain and Ireland as countries going through major housing market corrections ‘that most likely still have a considerable distance to run’. 

The IMF estimates that prices here are significantly more out of alignment - higher than can be explained by economic fundamentals - than in the United States, where prices are still falling. Download the relevant chapter of the report here

On Monday, Hometrack’s latest market survey showed that prices fell 0.3% in April and 10.1% over the last year. This was the lowest monthly decline in three months and there were also improvements in other indicators such as average time on the market and percentage of the asking price being achieved.

But Richard Donnell, Hometrack’s director of research, believes the improvements are more due to seasonal factors than anything fundamental. He highlighted the fact that 2009 is likely to see only 600,000 open market sales - about half of what would constitute a normal market.

He says the recovery seen so far is due to buyers of family housing at low loan to value and cash investors looking to pick up bargains. ‘The market can not operate indefinitely with just one sub-set of active buyers.  In the rush to seek out the green shoots of recovery, the importance of first time buyers in driving the market is often underestimated.  And the fact remains that the majority remain affordability constrained and unable to access mortgage finance.

‘The reality is that a broad based and sustainable recovery in the housing market needs to be supported by a broad base of buyers.  Only when first time buyers feel confident to enter the market in significant numbers can we really start to claim any ‘real’ green shoots of recovery.  This suggests to us that the recent pick up in demand is largely seasonal and unlikely to be sustained over the rest of the year.’

In the wake of last week’s Budget gloom, that seems only sensible. Housing market activity traditionally rises in the Spring - but it remains to be seen whether those green shoots really take root or just fade and die.

Not that it will stop a fresh round of ‘house prices up - good news’ stories if that’s what the Nationwide and Halifax indices show in the next week.

Missing out

Thu, 23 Apr 2009

Yesterday’s Budget was all about missed opportunities - what was not in it rather than what was.

The spin ahead of time was all about a £1 billion package for housing with what seemed even at the time like exaggerated claims that it would lead to ‘thousands of new council houses’.

That just about came to pass provided you substitute hundreds for thousands. It’s hard to see that a three-month extension to the stamp duty holiday will do to stimulate the housing market. The £600m to kickstart new housing,  £100m for council housing and £80m extra for HomeBuy Direct - it’s not clear whether this is new money or if it is just spending brought forward -  looks just as puny as the succession of small packages announced last year. Housing starts will still slump to around 70,000 and the 3m homes target looks further away than ever. 

So what was not in the Budget that could have been?

Missed opportunity one is as much about what did not happen last year as yesterday. For a fraction of what it has poured into the coffers of the banks, the government could have committed billions in extra investment into housing. 

As the National Housing Federation points out, £6.35bn could have delivered 100,000 new social homes over two years. But the government could have gone even further and invested in tens of thousands of homes to rent now and sell later when the market improves, stimulating construction and jobs now and maybe even making a profit in the longer term.

Measures like HomeBuy Direct will do something to help housebuilders and help to create an intermediate market but not much to support housebuilding. Just like car dealers with the £2,000 scrapage offer, what’s to stop housebuilders using it to reduce the discounts that they were already offering?

Missed opportunity two was to back that up with measures to encourage more institutional investment in homes. As the British Property Federation points out, it did not even take steps on REITS and stamp duty that would have cost relatively little yet stimulated investment.

Missed opportunity three was to seize the moment and tackle our national obsession with home ownership - something that is only politically possible during a housing market crash. 

Measures could have been taken to guard against the next boom and bust. Housing is undertaxed compared to other forms of investment and that encourages speculation. The government could have looked at the proposal by Compass for a land tax. It could have looked at the tax subsidies given to buy to let landlords. It could have looked at the exemption from capital gains tax of main residences - still worth £5.3bn in 2008/09 with house prices falling at their fastest ever rate but worth £14.5bn in 2007/08.

Lenders got what they wanted with the introduction of a scheme to guarantee mortgage-backed securities. But is kickstarting the sort of securitisation that led to the crash in the first place really a good idea? And should the government be subsidising home ownership at all? That question is being asked not just by left-wing pressure groups but by The Economist too. 

Missed opportunity four was VAT. Cutting it to 5% on all housing refurbishment work might cost up to £2bn - restricting the cut to empty homes would cost much less. Now cleared by the EU, it would create jobs, it would be better for the environment and it would create thousands of new homes. In contrast new homes are zero-rated for VAT - a concession that cost £5.6bn last year. 

What we got instead was business as usual. Extra investment here, support for homeowners there, with no attempt to use the crisis as a chance to recast our failed housing system. And the clock is ticking on the massive squeeze in investment that seems certain to follow the next election. 

Missing out

Thu, 23 Apr 2009

Yesterday’s Budget was all about missed opportunities - what was not in it rather than what was.

The spin ahead of time was all about a £1 billion package for housing with what seemed even at the time like exaggerated claims that it would lead to ‘thousands of new council houses’.

That just about came to pass provided you substitute hundreds for thousands. It’s hard to see that a three-month extension to the stamp duty holiday will do to stimulate the housing market. The £600m to kickstart new housing,  £100m for council housing and £80m extra for HomeBuy Direct - it’s not clear whether this is new money or if it is just spending brought forward -  looks just as puny as the succession of small packages announced last year. Housing starts will still slump to around 70,000 and the 3m homes target looks further away than ever. 

So what was not in the Budget that could have been?

Missed opportunity one is as much about what did not happen last year as yesterday. For a fraction of what it has poured into the coffers of the banks, the government could have committed billions in extra investment into housing. 

As the National Housing Federation points out, £6.35bn could have delivered 100,000 new social homes over two years. But the government could have gone even further and invested in tens of thousands of homes to rent now and sell later when the market improves, stimulating construction and jobs now and maybe even making a profit in the longer term.

Measures like HomeBuy Direct will do something to help housebuilders and help to create an intermediate market but not much to support housebuilding. Just like car dealers with the £2,000 scrapage offer, what’s to stop housebuilders using it to reduce the discounts that they were already offering?

Missed opportunity two was to back that up with measures to encourage more institutional investment in homes. As the British Property Federation points out, it did not even take steps on REITS and stamp duty that would have cost relatively little yet stimulated investment.

Missed opportunity three was to seize the moment and tackle our national obsession with home ownership - something that is only politically possible during a housing market crash. 

Measures could have been taken to guard against the next boom and bust. Housing is undertaxed compared to other forms of investment and that encourages speculation. The government could have looked at the proposal by Compass for a land tax. It could have looked at the tax subsidies given to buy to let landlords. It could have looked at the exemption from capital gains tax of main residences - still worth £5.3bn in 2008/09 with house prices falling at their fastest ever rate but worth £14.5bn in 2007/08.

Lenders got what they wanted with the introduction of a scheme to guarantee mortgage-backed securities. But is kickstarting the sort of securitisation that led to the crash in the first place really a good idea? And should the government be subsidising home ownership at all? That question is being asked not just by left-wing pressure groups but by The Economist too. 

Missed opportunity four was VAT. Cutting it to 5% on all housing refurbishment work might cost up to £2bn - restricting the cut to empty homes would cost much less. Now cleared by the EU, it would create jobs, it would be better for the environment and it would create thousands of new homes. In contrast new homes are zero-rated for VAT - a concession that cost £5.6bn last year. 

What we got instead was business as usual. Extra investment here, support for homeowners there, with no attempt to use the crisis as a chance to recast our failed housing system. And the clock is ticking on the massive squeeze in investment that seems certain to follow the next election. 

Shutting up shop

Wed, 22 Apr 2009

Remember shopping around? The Budget has just killed the idea stone dead.

The local housing allowance was meant to usher in a brave new world of choice and personal responsibility. Claimants would get a flat-rate allowance and keep any surplus if their rent was cheaper. This would give them an incentive to shop around to get the best deal from local landlords and help to create a true market where housing benefit would not be paid on unreasonably high rents. 

Shopping around was a key part of a plan for radical reform of housing benefit set out in Gordon Brown’s 2002 Budget. As the scheme was piloted, some tenants in the local housing allowance pathfinder areas did very well out of the plan. But once the allowance was introduced on a national basis the surplus was restricted to £15 a week.

Not any more. Papers published alongside today’s Budget say that the government is reforming the local housing allowance ‘so that it is more equitable and promotes work incentives’. 

From April 2010, households will no longer be able to keep any of the surplus if their allowance is higher than their rent although for those already receiving LHA, this reduction will not apply until the anniversary of their claim. 

‘It is essential that the LHA represents good value for money for the taxpayer and as this measure will only affect surpluses, it will not produce rent shortfalls,’ said the press release.

In a Budget dominated by the search for efficiency savings, LHA surpluses must have seemed a tempting target. Budget documents estimate the move will save £145m in 2010/11.

But more equitable and promote work incentives? Really? Shopping incentives were the whole reason the local housing allowance was introduced in the first place. Where is the personal responsibility and choice for tenants now? 

And where does it leave the other main pillar of the local housing allowance: paying it direct to tenants rather than to landlords. What’s the point now?

Shutting up shop

Wed, 22 Apr 2009

Remember shopping around? The Budget has just killed the idea stone dead.

The local housing allowance was meant to usher in a brave new world of choice and personal responsibility. Claimants would get a flat-rate allowance and keep any surplus if their rent was cheaper. This would give them an incentive to shop around to get the best deal from local landlords and help to create a true market where housing benefit would not be paid on unreasonably high rents. 

Shopping around was a key part of a plan for radical reform of housing benefit set out in Gordon Brown’s 2002 Budget. As the scheme was piloted, some tenants in the local housing allowance pathfinder areas did very well out of the plan. But once the allowance was introduced on a national basis the surplus was restricted to £15 a week.

Not any more. Papers published alongside today’s Budget say that the government is reforming the local housing allowance ‘so that it is more equitable and promotes work incentives’. 

From April 2010, households will no longer be able to keep any of the surplus if their allowance is higher than their rent although for those already receiving LHA, this reduction will not apply until the anniversary of their claim. 

‘It is essential that the LHA represents good value for money for the taxpayer and as this measure will only affect surpluses, it will not produce rent shortfalls,’ said the press release.

In a Budget dominated by the search for efficiency savings, LHA surpluses must have seemed a tempting target. Budget documents estimate the move will save £145m in 2010/11.

But more equitable and promote work incentives? Really? Shopping incentives were the whole reason the local housing allowance was introduced in the first place. Where is the personal responsibility and choice for tenants now? 

And where does it leave the other main pillar of the local housing allowance: paying it direct to tenants rather than to landlords. What’s the point now?

Half hearted

Wed, 22 Apr 2009

Helping people who suffer a temporary loss of income to keep their homes sounded like a great idea when the government first proposed the Homeowners Mortgage Support Scheme in December. Not so sure it does now.

The scheme promised to reach the borrowers that other schemes fail to help: households where one earner loses their job; people whose overtime or hours get cut; and people with two or more part-time jobs that lose one of them. Amid all the concern about a million extra unemployed it’s easy to forget about the people who this recession is rendering less employed. The scheme will let them defer some of their payments for up to two years and lender taking part will get a government guarantee.

But the detailed scheme announced yesterday does not exactly live up to that early promise. The response from lenders has been distinctly underwhelming and the Council of Mortgage Lenders says only a few thousand people - those who qualify initially and can expect to be able to resume full payments within two years - will apply.

Some of the detail of the scheme seems worryingly unclear too. A mortgage of no more than £400,000 and savings of less than £16,000 seems clear but consider, for example, people in negative equity. There are already 1m of them and that could rise to 2m if house prices fall another 10%. The scheme FAQs say: ‘If you are already in negative equity you are not automatically excluded from applying. However, you, the money adviser and your lender will need to consider carefully whether HMS is right for you. It will increase your debt and may leave you in a worse position than you are in now.’

Worst of all, borrowers or their advisers will need to be intimately acquainted with the UK mortgage market to be able to work out whether their lender is participating.

The main participants are the ones that have no choice. Lloyds Banking Group (the biggest lender at the height of the boom in 2007), Northern Rock (4th), Royal Bank of Scotland (7th) and Bradford and Bingley (8th) are wholly or mostly owned by the taxpayer. The other two are the relatively obscure Cumberland Building Society and National Australia Bank Group (which owns 17th biggest Clydesdale and Yorkshire Bank). Together they made up 51% of the market in 2007.

A ragbag of other lenders including Bank of Ireland (which owns 12th biggest Bristol & West), GMAC (11th), Kensington (23rd), GE Money (14th), Standard Life Bank (19th) will participate ‘as soon as possible’. They make up another 9%. Even the state-owned Post Office won’t start straight away.

But four big lenders have chosen to offer their own ‘comparable’ scheme instead. Santander now owns the second and ninth biggest 2007 lenders Abbey and Alliance & Leicester. Nationwide was third. Barclays was sixth and HSBC was 10th. Together they made up 32% of the 2007 market. But how will anyone know if they are really comparable in a scheme with so much apparent discretion?

And other lenders in the top 30 including the Britannia, Yorkshire, Coventry, Skipton, West Bromwich and several other building societies making up another 8% are not mentioned.

Half hearted

Wed, 22 Apr 2009

Helping people who suffer a temporary loss of income to keep their homes sounded like a great idea when the government first proposed the Homeowners Mortgage Support Scheme in December. Not so sure it does now.

The scheme promised to reach the borrowers that other schemes fail to help: households where one earner loses their job; people whose overtime or hours get cut; and people with two or more part-time jobs that lose one of them. Amid all the concern about a million extra unemployed it’s easy to forget about the people who this recession is rendering less employed. The scheme will let them defer some of their payments for up to two years and lender taking part will get a government guarantee.

But the detailed scheme announced yesterday does not exactly live up to that early promise. The response from lenders has been distinctly underwhelming and the Council of Mortgage Lenders says only a few thousand people - those who qualify initially and can expect to be able to resume full payments within two years - will apply.

Some of the detail of the scheme seems worryingly unclear too. A mortgage of no more than £400,000 and savings of less than £16,000 seems clear but consider, for example, people in negative equity. There are already 1m of them and that could rise to 2m if house prices fall another 10%. The scheme FAQs say: ‘If you are already in negative equity you are not automatically excluded from applying. However, you, the money adviser and your lender will need to consider carefully whether HMS is right for you. It will increase your debt and may leave you in a worse position than you are in now.’

Worst of all, borrowers or their advisers will need to be intimately acquainted with the UK mortgage market to be able to work out whether their lender is participating.

The main participants are the ones that have no choice. Lloyds Banking Group (the biggest lender at the height of the boom in 2007), Northern Rock (4th), Royal Bank of Scotland (7th) and Bradford and Bingley (8th) are wholly or mostly owned by the taxpayer. The other two are the relatively obscure Cumberland Building Society and National Australia Bank Group (which owns 17th biggest Clydesdale and Yorkshire Bank). Together they made up 51% of the market in 2007.

A ragbag of other lenders including Bank of Ireland (which owns 12th biggest Bristol & West), GMAC (11th), Kensington (23rd), GE Money (14th), Standard Life Bank (19th) will participate ‘as soon as possible’. They make up another 9%. Even the state-owned Post Office won’t start straight away.

But four big lenders have chosen to offer their own ‘comparable’ scheme instead. Santander now owns the second and ninth biggest 2007 lenders Abbey and Alliance & Leicester. Nationwide was third. Barclays was sixth and HSBC was 10th. Together they made up 32% of the 2007 market. But how will anyone know if they are really comparable in a scheme with so much apparent discretion?

And other lenders in the top 30 including the Britannia, Yorkshire, Coventry, Skipton, West Bromwich and several other building societies making up another 8% are not mentioned.

Rented return

Tue, 21 Apr 2009

Ahead of a Budget that could see significant new incentives for institutional investment in rented housing there is good news and bad news about the prospects of it happening.

The bad news is that a closely-watched index shows that anyone who invested last year would have lost 15.3% of their money.

The IPD Residential Investment Index published yesterday showed that average capital values in the sector fell 18% while the income return was just 3.2%. The biggest falls in capital values came in Outer London and the South East (-21%) and Inner London (-19.1%).

The good news is that IPD’s other indices show that two of the main alternative investments fell by even more. Equities fell by 29.9% while commercial property fell 26.3%. Only bonds defied the downturn, with 15% growth. 

Looking at the last eight years, the total return on residential investment (9.9% per year) has been well ahead of commercial property (6.3%), equities (-0.5%) and bonds (6.3%). Even though seven of those eight years were boom years for house prices, those are the sort of figures you would have thought institutional investors would find hard to ignore.

IPD started its Residential Investment Index to give investors the hard facts and figures they complained they were missing before - so the arguments look pretty good now. 

However, if I had a pound for every word I’ve written about attracting institutional investors back into the rented sector (firms like Prudential used to be major landlords) I could afford to retire and become an investor myself. Political uncertainty, the prospect of re-regulation, low income returns, volatility in capital values, lack of tax transparent vehicles…somehow there always seems to be a reason why not. 

A well-sourced report in last week’s Financial Times said that the Homes and Communities Agency was in talks with leading fund managers and that a public-private fund could be announced in the Budget tomorrow. Perhaps that HCA involvement could be the last piece in the jigsaw. Let’s hope so.

Rented return

Tue, 21 Apr 2009

Ahead of a Budget that could see significant new incentives for institutional investment in rented housing there is good news and bad news about the prospects of it happening.

The bad news is that a closely-watched index shows that anyone who invested last year would have lost 15.3% of their money.

The IPD Residential Investment Index published yesterday showed that average capital values in the sector fell 18% while the income return was just 3.2%. The biggest falls in capital values came in Outer London and the South East (-21%) and Inner London (-19.1%).

The good news is that IPD’s other indices show that two of the main alternative investments fell by even more. Equities fell by 29.9% while commercial property fell 26.3%. Only bonds defied the downturn, with 15% growth. 

Looking at the last eight years, the total return on residential investment (9.9% per year) has been well ahead of commercial property (6.3%), equities (-0.5%) and bonds (6.3%). Even though seven of those eight years were boom years for house prices, those are the sort of figures you would have thought institutional investors would find hard to ignore.

IPD started its Residential Investment Index to give investors the hard facts and figures they complained they were missing before - so the arguments look pretty good now. 

However, if I had a pound for every word I’ve written about attracting institutional investors back into the rented sector (firms like Prudential used to be major landlords) I could afford to retire and become an investor myself. Political uncertainty, the prospect of re-regulation, low income returns, volatility in capital values, lack of tax transparent vehicles…somehow there always seems to be a reason why not. 

A well-sourced report in last week’s Financial Times said that the Homes and Communities Agency was in talks with leading fund managers and that a public-private fund could be announced in the Budget tomorrow. Perhaps that HCA involvement could be the last piece in the jigsaw. Let’s hope so.

Housing from hell

Mon, 20 Apr 2009

Anyone who watches Casualty knows that council estates are violent places ruled by gangs and populated by junkies, paedophiles and scroungers.

Now in its 23rd series, the BBC Saturday night drama that once raised serious issues about the way the health service is run now panders to all the worst prejudices about council housing and council tenants. 

So far this year (yes, I do still watch but am wondering why as I write this) the fictional Farmead estate has seen riots, paramedics held hostage, disappearing children, murders, drug wars, neo-nazi tenants and a teenager turn one of the blocks into towering inferno. 

Hospital porter and estate resident Big Mac has made a stand against the gangs,  pregnant nurse Jessica has been held at gunpoint in her illegally sub-let flat and nurse manager Tess has been left to die impaled on a metal rod. Oh, and paramedic Curtis has had to dump the woman he loves (nurse Alice) in case she gets kidnapped and tortured by the Farmead’s drug overlord.

Inside Housing’s anti-social behaviour special got me thinking about all of that because perceptions matter. Lives can be blighted by fear of crime and anti-social behaviour as well as by the experience of it. Prejudice about people who live in ‘broken Britain’ increases among people who have never lived on an estate and probably never been to one either. And the perception grows that the only way to tackle the problem is to borrow as much as possible to buy a house as far away as possible from them.

None of that makes the fact that 41% of social housing tenants have experienced anti-social behaviour at some point in the last two years any less alarming. David Blunkett is quite right when he tells us to ‘stop being patronising, stop making excuses and stop putting up with the unacceptable’.

But the fact that 29% of homeowners have also experienced the same thing is a reminder that anti-social behaviour is not confined to council estates. No figure was recorded for private tenants but it seems a fair bet that their experience will be similar and they will be very lucky to find a landlord as prepared to help as most local authorities and housing associations.

Bridging the gap between the two should be a priority for social landlords but there is lots of evidence that they are making progress. As Peter Jackson says, the key seems to be a recognition that tackling anti-social behaviour is not just about enforcement but an integral part of neighbourhood management. 

What won’t help are politicians introducing headline grabbing initiatives and targets rather than giving landlords, local authorities and the police the tools and resources to get on with the jobs. Or TV dramas that reinforce the prejudice that all council estates are like the Farmead in Casualty or the Chatsworth in Shameless.

Housing from hell

Mon, 20 Apr 2009

Anyone who watches Casualty knows that council estates are violent places ruled by gangs and populated by junkies, paedophiles and scroungers.

Now in its 23rd series, the BBC Saturday night drama that once raised serious issues about the way the health service is run now panders to all the worst prejudices about council housing and council tenants. 

So far this year (yes, I do still watch but am wondering why as I write this) the fictional Farmead estate has seen riots, paramedics held hostage, disappearing children, murders, drug wars, neo-nazi tenants and a teenager turn one of the blocks into towering inferno. 

Hospital porter and estate resident Big Mac has made a stand against the gangs,  pregnant nurse Jessica has been held at gunpoint in her illegally sub-let flat and nurse manager Tess has been left to die impaled on a metal rod. Oh, and paramedic Curtis has had to dump the woman he loves (nurse Alice) in case she gets kidnapped and tortured by the Farmead’s drug overlord.

Inside Housing’s anti-social behaviour special got me thinking about all of that because perceptions matter. Lives can be blighted by fear of crime and anti-social behaviour as well as by the experience of it. Prejudice about people who live in ‘broken Britain’ increases among people who have never lived on an estate and probably never been to one either. And the perception grows that the only way to tackle the problem is to borrow as much as possible to buy a house as far away as possible from them.

None of that makes the fact that 41% of social housing tenants have experienced anti-social behaviour at some point in the last two years any less alarming. David Blunkett is quite right when he tells us to ‘stop being patronising, stop making excuses and stop putting up with the unacceptable’.

But the fact that 29% of homeowners have also experienced the same thing is a reminder that anti-social behaviour is not confined to council estates. No figure was recorded for private tenants but it seems a fair bet that their experience will be similar and they will be very lucky to find a landlord as prepared to help as most local authorities and housing associations.

Bridging the gap between the two should be a priority for social landlords but there is lots of evidence that they are making progress. As Peter Jackson says, the key seems to be a recognition that tackling anti-social behaviour is not just about enforcement but an integral part of neighbourhood management. 

What won’t help are politicians introducing headline grabbing initiatives and targets rather than giving landlords, local authorities and the police the tools and resources to get on with the jobs. Or TV dramas that reinforce the prejudice that all council estates are like the Farmead in Casualty or the Chatsworth in Shameless.

Negative territory

Fri, 17 Apr 2009

After the quickest ever recorded fall in house prices, research showing that 600,000 fewer homeowners are in negative equity than in the early 1990s sounds like pretty good news.

The research by the Council of Mortgage Lenders estimates that 900,000 households - less than 5% of homeowners - have a home worth less than their mortgage compared to a peak of 1.5m in 1993. It also shows that the problem is more evenly spread rather than concentrated on young first-time buyers and that the size of the negative equity is relatively small - less than £10,000 for two thirds of those with a problem,

But the picture may not be quite so rosy as it seems at first sight - for four key reasons. 

First, there are 8.3m people who own their homes outright and by definition cannot be in negative equity. That 900,000 represents more like 9% of people with a mortgage. 

Second, the total reached 1.5m in 1993 last time - after house prices had been falling for almost four years. Prices have already fallen by as much this time in just 18 months. If prices go in line with the consensus for this year - a big if - all of those owners with low equity will move into negative territory and boost the total to 2m. 

Third, the stats do not include second charge mortgages. There are no reliable stats on these loans that were taken out to finance home improvements or consolidate debt but many people with apparently healthy equity may have them.

Fourth, as the CML points out, there is little practical difference between negative equity and low equity. Another 565,000 owners have less than 5% equity on their homes and another 535,000 have between 5% and 10%.

As happened in the 1990s, the result could be hundreds of thousands of people who are unable to move. ‘The effect of both is to make mortgage credit difficult to obtain, and moves less easy to complete, which is a market feature likely to persist in the short term,’  says the CML. 

Record low interest rates should help owners overpay on their home loans at cheap rates and quickly reduce their negative equity. But rates on high loan to value loans have barely fallen since the start of the credit crunch. 

Negative territory

Fri, 17 Apr 2009

After the quickest ever recorded fall in house prices, research showing that 600,000 fewer homeowners are in negative equity than in the early 1990s sounds like pretty good news.

The research by the Council of Mortgage Lenders estimates that 900,000 households - less than 5% of homeowners - have a home worth less than their mortgage compared to a peak of 1.5m in 1993. It also shows that the problem is more evenly spread rather than concentrated on young first-time buyers and that the size of the negative equity is relatively small - less than £10,000 for two thirds of those with a problem,

But the picture may not be quite so rosy as it seems at first sight - for four key reasons. 

First, there are 8.3m people who own their homes outright and by definition cannot be in negative equity. That 900,000 represents more like 9% of people with a mortgage. 

Second, the total reached 1.5m in 1993 last time - after house prices had been falling for almost four years. Prices have already fallen by as much this time in just 18 months. If prices go in line with the consensus for this year - a big if - all of those owners with low equity will move into negative territory and boost the total to 2m. 

Third, the stats do not include second charge mortgages. There are no reliable stats on these loans that were taken out to finance home improvements or consolidate debt but many people with apparently healthy equity may have them.

Fourth, as the CML points out, there is little practical difference between negative equity and low equity. Another 565,000 owners have less than 5% equity on their homes and another 535,000 have between 5% and 10%.

As happened in the 1990s, the result could be hundreds of thousands of people who are unable to move. ‘The effect of both is to make mortgage credit difficult to obtain, and moves less easy to complete, which is a market feature likely to persist in the short term,’  says the CML. 

Record low interest rates should help owners overpay on their home loans at cheap rates and quickly reduce their negative equity. But rates on high loan to value loans have barely fallen since the start of the credit crunch. 

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