Monday, 27 February 2017

Inside edge

All posts from: July 2009

Multiple problems

Fri, 31 Jul 2009

It’s been clear for months that licensing of homes in multiple occupation (HMOs) is in deep trouble. Inside Housing’s lead story today lays bare the extent of the failure. But the situation may be even worse than that.

According to the report, landlords of 35,000 HMOs are still not licensed and 25,000 have not even applied. That means that three years after licensing began well over half of the 56,000 estimated to be covered by the scheme are operating illegally.

Landlords have applied for licenses for 31,345 HMOs over those three years - just under 900 a month. And local authorities have issued 21,688 licenses - about 600 a month.

However, a parliamentary answer in December put the totals then at 29,254 applications and 19,208 issued. This is a back of the envelope calculation, but call it six months since then and the rate per month has slowed to 350 per month for applications and 400 per month for licenses issued.

At that rate it will take at least another eight years for the sector to be fully licensed - and it’s not difficult to imagine that the rate will slow down even further as we get down to the dodgiest landlords and the most snail-like councils.

And how reliable are the licenses? Inside Housing’s story does not contain a figure for the number of applications refused but the total for England in December was just 84 - or 0.2%.

New guidance from Communities and Local Government will hopefully help but tenants are rightly calling the system totally ineffective and good landlords who have complied with and paid for it will be rightly be asking what is going on.

Multiple problems

Fri, 31 Jul 2009

It’s been clear for months that licensing of homes in multiple occupation (HMOs) is in deep trouble. Inside Housing’s lead story today lays bare the extent of the failure. But the situation may be even worse than that.

According to the report, landlords of 35,000 HMOs are still not licensed and 25,000 have not even applied. That means that three years after licensing began well over half of the 56,000 estimated to be covered by the scheme are operating illegally.

Landlords have applied for licenses for 31,345 HMOs over those three years - just under 900 a month. And local authorities have issued 21,688 licenses - about 600 a month.

However, a parliamentary answer in December put the totals then at 29,254 applications and 19,208 issued. This is a back of the envelope calculation, but call it six months since then and the rate per month has slowed to 350 per month for applications and 400 per month for licenses issued.

At that rate it will take at least another eight years for the sector to be fully licensed - and it’s not difficult to imagine that the rate will slow down even further as we get down to the dodgiest landlords and the most snail-like councils.

And how reliable are the licenses? Inside Housing’s story does not contain a figure for the number of applications refused but the total for England in December was just 84 - or 0.2%.

New guidance from Communities and Local Government will hopefully help but tenants are rightly calling the system totally ineffective and good landlords who have complied with and paid for it will be rightly be asking what is going on.

Kicking off

Thu, 30 Jul 2009

Does the housing market need a kickstart? The question has to be asked after the Nationwide said today that there is now a good chance of what seemed unthinkable a few months ago: that house prices will end 2009 higher than where they started.

More than a good chance on current trends. As I pointed out three weeks ago, both the Nationwide and Halifax indices showed that prices were up in the first six months of the year. The 1.3% rise revealed by the Nationwide this morning is the third monthly rise in a year and it means the average price is now £158,871. That’s 3.8% higher than in December 2008.

Why has this happened at a time of continuing recession? The Nationwide says it’s down to a combination of pent-up demand - a pool of buyers who held off taking the plunge following the banking crisis - and very low levels of properties coming on to the market. 

However, that ignores the effect of the lowest interest rates in history. There seems little doubt now that the emergency measures taken by the government and Bank of England have not just put a floor under prices but actually sparked a modest improvement. How long will rates stay at 0.5%?

So what about the £925m kickstart programme launched on Monday? Given the improving market - ‘unthinkable’ at the time the programme was being drawn up - is the ‘appetite and capacity’ of the housebuilding industry detected by the Homes and Communities Agency any real surprise? 

Except of course that housebuilders are interested in rising profits, not just rising house prices. Those profits depend on all sort of other factors like their borrowing, the price they paid for the land, the mix of homes they build, their section 106 obligations and so on. Those who over-borrowed at the height of the boom are still ruthlessly holding down costs - and jobs. 

A good case can be made that the kickstart should actually have been bigger - and quicker. Much of the investment will go back to the Treasury in increased tax revenue and reduced spending on benefits. About half of the £925m is in any case loans repayable in five years. 

Housing starts are not going to recover from their lowest level since the 1920s to pre-recession levels - let alone the government’s 240,000 target - any time soon. But leaving the housebuilding market to its own devices would just reinforce the shortage of supply in the wider housing market.

Kicking off

Thu, 30 Jul 2009

Does the housing market need a kickstart? The question has to be asked after the Nationwide said today that there is now a good chance of what seemed unthinkable a few months ago: that house prices will end 2009 higher than where they started.

More than a good chance on current trends. As I pointed out three weeks ago, both the Nationwide and Halifax indices showed that prices were up in the first six months of the year. The 1.3% rise revealed by the Nationwide this morning is the third monthly rise in a year and it means the average price is now £158,871. That’s 3.8% higher than in December 2008.

Why has this happened at a time of continuing recession? The Nationwide says it’s down to a combination of pent-up demand - a pool of buyers who held off taking the plunge following the banking crisis - and very low levels of properties coming on to the market. 

However, that ignores the effect of the lowest interest rates in history. There seems little doubt now that the emergency measures taken by the government and Bank of England have not just put a floor under prices but actually sparked a modest improvement. How long will rates stay at 0.5%?

So what about the £925m kickstart programme launched on Monday? Given the improving market - ‘unthinkable’ at the time the programme was being drawn up - is the ‘appetite and capacity’ of the housebuilding industry detected by the Homes and Communities Agency any real surprise? 

Except of course that housebuilders are interested in rising profits, not just rising house prices. Those profits depend on all sort of other factors like their borrowing, the price they paid for the land, the mix of homes they build, their section 106 obligations and so on. Those who over-borrowed at the height of the boom are still ruthlessly holding down costs - and jobs. 

A good case can be made that the kickstart should actually have been bigger - and quicker. Much of the investment will go back to the Treasury in increased tax revenue and reduced spending on benefits. About half of the £925m is in any case loans repayable in five years. 

Housing starts are not going to recover from their lowest level since the 1920s to pre-recession levels - let alone the government’s 240,000 target - any time soon. But leaving the housebuilding market to its own devices would just reinforce the shortage of supply in the wider housing market.

High fives

Wed, 29 Jul 2009

The banks are rightly facing some tough questions about why they are charging more than 5% for mortgages when interest rates are at a record low of just 0.5%. But what about the loans taken out by the poorest tenants at rates of more than 500%?

A call from Barnardo’s yesterday to call for an OFT investigation into high-interest lenders coincided with the interim results of one of the biggest, Provident Financial. The company reported a 5.3% increase in customers to 2.1m and a 3.5% increase in profits to £53.1m. 

That’s pretty impressive in a recession and little wonder at the rates it charges. Examples from the Barnardo’s report include a £500 loan over 31 weeks with a total amount payable of £775% - an APR of 365.1% - and a £500 loan over 23 weeks that turned into £747.50 at an APR of 545.2%.

In fairness to Provident, it’s not the only high-interest lender, just the best known, and the rates charged for credit by many high street retailers are equally extortionate. The case for stronger regulation of their business practices seems unanswerable but there is also a deeper issue about why people are forced to use them in the first place.

Many of the more progressive social landlords are tackling the problem by setting up credit unions and other financial inclusion initiatives. But the the same major banks - many of them state-owned that were called into the Treasury this week for questioning about their lending to homeowners and small businesses also deserve some scrutiny for their attitude to low-income households. 

But what about the banks? If the major high street banks - many of them state-owned - deserved to be called into the Treasury this week to be criticised about their lending to homeowners and small businesses, what about their attitude to low-income households? 

Despite the government’s best efforts on basic bank accounts, there are still 1.9m people without them in Britain and mounting evidence that the mainstream banks have used red tape to obstruct access and leave them little alternative to those 500% loans.

High fives

Wed, 29 Jul 2009

The banks are rightly facing some tough questions about why they are charging more than 5% for mortgages when interest rates are at a record low of just 0.5%. But what about the loans taken out by the poorest tenants at rates of more than 500%?

A call from Barnardo’s yesterday to call for an OFT investigation into high-interest lenders coincided with the interim results of one of the biggest, Provident Financial. The company reported a 5.3% increase in customers to 2.1m and a 3.5% increase in profits to £53.1m. 

That’s pretty impressive in a recession and little wonder at the rates it charges. Examples from the Barnardo’s report include a £500 loan over 31 weeks with a total amount payable of £775% - an APR of 365.1% - and a £500 loan over 23 weeks that turned into £747.50 at an APR of 545.2%.

In fairness to Provident, it’s not the only high-interest lender, just the best known, and the rates charged for credit by many high street retailers are equally extortionate. The case for stronger regulation of their business practices seems unanswerable but there is also a deeper issue about why people are forced to use them in the first place.

Many of the more progressive social landlords are tackling the problem by setting up credit unions and other financial inclusion initiatives. But the the same major banks - many of them state-owned that were called into the Treasury this week for questioning about their lending to homeowners and small businesses also deserve some scrutiny for their attitude to low-income households. 

But what about the banks? If the major high street banks - many of them state-owned - deserved to be called into the Treasury this week to be criticised about their lending to homeowners and small businesses, what about their attitude to low-income households? 

Despite the government’s best efforts on basic bank accounts, there are still 1.9m people without them in Britain and mounting evidence that the mainstream banks have used red tape to obstruct access and leave them little alternative to those 500% loans.

Back to the future

Tue, 28 Jul 2009

It’s been clear for months that major insurers and pension funds are about to re-enter the residential property market but there’s still something deeply symbolic about the news that Aviva is to set up a £1bn fund to do just that.

Companies like Prudential and Norwich Union (as Aviva was called before its vacuous rebranding) were major private landlords but began to run down their stock in the 1950s amid concern about rent control and new rights for tenants.  Nothing, be it the scrapping of fair rent legislation, the 1988 Housing Act and assured shorthold tenancies or various tax wheezes, has persuaded them back - until the housing market crash, the housebuilding slump and he Homes and Communities Agency’s private rented initiative.

Aviva, which is in a consortium with surveyor CB Richard Ellis and an American property firm, is the first to break cover. However, the British Property Federation (BPF) said when the HCA initiative was launched that eight organisations including two institutions, two investors and a big name pension funds were in discussions about it. 

That initiative aside, the state of the housing market must also be a major driver of the institutional interest. As Nick Jopling of CB Richard Ellis explained in Inside Housing in May, one key issue is that institutions want to invest in homes in the same way they do in offices - buying up whole blocks. During the boom, blocks were sold off piecemeal to buy-to-let investors (who would presumably pay higher prices) but the bust has killed off that market and housebuilders will be more prepared to do bulk business. 

And by coincidence, on the same day as news of the Aviva plan emerged, CB Richard Ellis published a survey forecasting that the housing market may have reached the bottom of the trough, which makes now seem like a good time to invest.

Still outstanding is the BPF’s complaint that current rules on stamp duty create a perverse disincentive to large-scale investment. Changes that would have allowed investors to pay the duty at a marginal, per unit basis were dropped from the Budget at the last minute.

Back to the future

Tue, 28 Jul 2009

It’s been clear for months that major insurers and pension funds are about to re-enter the residential property market but there’s still something deeply symbolic about the news that Aviva is to set up a £1bn fund to do just that.

Companies like Prudential and Norwich Union (as Aviva was called before its vacuous rebranding) were major private landlords but began to run down their stock in the 1950s amid concern about rent control and new rights for tenants.  Nothing, be it the scrapping of fair rent legislation, the 1988 Housing Act and assured shorthold tenancies or various tax wheezes, has persuaded them back - until the housing market crash, the housebuilding slump and he Homes and Communities Agency’s private rented initiative.

Aviva, which is in a consortium with surveyor CB Richard Ellis and an American property firm, is the first to break cover. However, the British Property Federation (BPF) said when the HCA initiative was launched that eight organisations including two institutions, two investors and a big name pension funds were in discussions about it. 

That initiative aside, the state of the housing market must also be a major driver of the institutional interest. As Nick Jopling of CB Richard Ellis explained in Inside Housing in May, one key issue is that institutions want to invest in homes in the same way they do in offices - buying up whole blocks. During the boom, blocks were sold off piecemeal to buy-to-let investors (who would presumably pay higher prices) but the bust has killed off that market and housebuilders will be more prepared to do bulk business. 

And by coincidence, on the same day as news of the Aviva plan emerged, CB Richard Ellis published a survey forecasting that the housing market may have reached the bottom of the trough, which makes now seem like a good time to invest.

Still outstanding is the BPF’s complaint that current rules on stamp duty create a perverse disincentive to large-scale investment. Changes that would have allowed investors to pay the duty at a marginal, per unit basis were dropped from the Budget at the last minute.

Going sideways

Mon, 27 Jul 2009

In the last housing market crash it took nine years for house prices to regain their 1989 peak as initial falls were followed by years of stagnation. Will history repeat itself?

The latest survey from Hometrack out this morning shows that prices flat-lined for the third month in a row in July. While the market showed improvement in terms of the percentage of the asking price being achieved and the average time to sell, there was also a divide between southern England, where scarcity of supply is pushing up prices, and northern England, where there is more stock but weaker demand.

But director of research Richard Donnell argues that all the talk of green shoots in the first half of this year is likely to prove to be ‘little more than an unsustainable and short-term blip…fed by pent-up demand feeding back into the market from opportunistic cash buyers and households looking for family homes in southern England where supply is most constrained’.

The improvement may be real but off a very low base, he says. The market remains fragile and any increase in the supply of homes for sale could easily undermine the firmer prices seen over the last few months.

It’s hard to argue with his case that any broad-based recovery needs an improving economic outlook availability of mortgages. Instead, unemployment is set to rise to 3m next year and any improvement could easily be choked off by a rise in rock-bottom interest rates. The prospects of a public sector pay freeze and a wave of job cuts to come will only add to that.

And then there’s history. On the Halifax index, prices peaked in July 1989 and did not regain that level until March 1998. But as Donnell points out, it was five years for a sustainable recovery to get underway and we are only two years into this crash. 

Going sideways

Mon, 27 Jul 2009

In the last housing market crash it took nine years for house prices to regain their 1989 peak as initial falls were followed by years of stagnation. Will history repeat itself?

The latest survey from Hometrack out this morning shows that prices flat-lined for the third month in a row in July. While the market showed improvement in terms of the percentage of the asking price being achieved and the average time to sell, there was also a divide between southern England, where scarcity of supply is pushing up prices, and northern England, where there is more stock but weaker demand.

But director of research Richard Donnell argues that all the talk of green shoots in the first half of this year is likely to prove to be ‘little more than an unsustainable and short-term blip…fed by pent-up demand feeding back into the market from opportunistic cash buyers and households looking for family homes in southern England where supply is most constrained’.

The improvement may be real but off a very low base, he says. The market remains fragile and any increase in the supply of homes for sale could easily undermine the firmer prices seen over the last few months.

It’s hard to argue with his case that any broad-based recovery needs an improving economic outlook availability of mortgages. Instead, unemployment is set to rise to 3m next year and any improvement could easily be choked off by a rise in rock-bottom interest rates. The prospects of a public sector pay freeze and a wave of job cuts to come will only add to that.

And then there’s history. On the Halifax index, prices peaked in July 1989 and did not regain that level until March 1998. But as Donnell points out, it was five years for a sustainable recovery to get underway and we are only two years into this crash. 

Facing the axe

Fri, 24 Jul 2009

A week after the government revealed what will be cut to pay for its pledge of  £1.5bn extra for new homes the shock waves are still being felt around the housing world.

As Inside Housing reports today, the losers include ‘stunned’ almos facing cuts in decent homes funding, growth areas who say losing funding amounts to ‘robbing Peter to pay Paul’ and a squeeze on parts of the the Homes and Communities Agency’s budget.

Yesterday, the cuts were the subject of a rare Times leader on social housing. Today London Councils has written to housing minister John Healey warning that 80,000 homes in the capital could miss out on vital improvements. 

In that context it’s easy to forget that £930m out of the £1.5bn is actually coming from cuts in other departments rather than cuts in housing programmes - a rare acknowledgment of housing’s importance in the general scheme of things.

It probably feels worse because, with a few exceptions, this is pretty much the first time in ten years that housing budgets have been cut. Labour took power in 1997 committed to sticking with Conservative spending plans that involved deep cuts in the new homes budget but bolstering investment in the existing stock by releasing accumulated capital receipts.

But it’s just a taste of what lies ahead in what the Institute for Fiscal Studies says could be eight years of pain for the public sector. With both parties pledged to stick to spending plans on health, schools and overseas aid, it says spending on other services will have to fall by 16.3% over the next spending review period between 2011 and 2014. 

Cuts like that could take housing into new territory that not even those old enough to remember the early 1980s have experienced before.

Facing the axe

Fri, 24 Jul 2009

A week after the government revealed what will be cut to pay for its pledge of  £1.5bn extra for new homes the shock waves are still being felt around the housing world.

As Inside Housing reports today, the losers include ‘stunned’ almos facing cuts in decent homes funding, growth areas who say losing funding amounts to ‘robbing Peter to pay Paul’ and a squeeze on parts of the the Homes and Communities Agency’s budget.

Yesterday, the cuts were the subject of a rare Times leader on social housing. Today London Councils has written to housing minister John Healey warning that 80,000 homes in the capital could miss out on vital improvements. 

In that context it’s easy to forget that £930m out of the £1.5bn is actually coming from cuts in other departments rather than cuts in housing programmes - a rare acknowledgment of housing’s importance in the general scheme of things.

It probably feels worse because, with a few exceptions, this is pretty much the first time in ten years that housing budgets have been cut. Labour took power in 1997 committed to sticking with Conservative spending plans that involved deep cuts in the new homes budget but bolstering investment in the existing stock by releasing accumulated capital receipts.

But it’s just a taste of what lies ahead in what the Institute for Fiscal Studies says could be eight years of pain for the public sector. With both parties pledged to stick to spending plans on health, schools and overseas aid, it says spending on other services will have to fall by 16.3% over the next spending review period between 2011 and 2014. 

Cuts like that could take housing into new territory that not even those old enough to remember the early 1980s have experienced before.

Long way back

Thu, 23 Jul 2009

Is mortgage lending really starting to return to normal? Figures from the British Bankers Association (BBA) today showing mortgage approvals at their highest level since March 2008 seem to suggest as much but the overall picture is still dysfunctional.

The BBA says 35,235 loans for house purchase were approved in June. That’s 10% up on May and 65% up on June 2008 by number. Those approvals were worth £4.7bn in June - a rise of 47% on last year. This was the main factor driving ‘modest’ increases in gross and net mortgage lending.

To put that in perspective, the average number of loans for house purchase approved since the BBA started releasing stats in 1997 is 61,073. Even after a substantial increase since last year, the current total is 42% below average. 

The years between 1997 and 2007 saw a continual increase in house prices so it’s possible that total may be distorted a little by the boom. 

However, the lending figures released by the Council of Mortgage Lenders (CML) show a similar picture over a much longer period.  CML members have approved an average of a little over 200,000 loans for house purchase per quarter since 1974. The total for the first quarter of this year was just 78,300. Things are improving, as its figures on gross lending showed on Monday, but the second quarter total will still be little more than 100,000.

Lending is improving but we are still a long way from conditions that suggest a boom in house prices to come. 

Long way back

Thu, 23 Jul 2009

Is mortgage lending really starting to return to normal? Figures from the British Bankers Association (BBA) today showing mortgage approvals at their highest level since March 2008 seem to suggest as much but the overall picture is still dysfunctional.

The BBA says 35,235 loans for house purchase were approved in June. That’s 10% up on May and 65% up on June 2008 by number. Those approvals were worth £4.7bn in June - a rise of 47% on last year. This was the main factor driving ‘modest’ increases in gross and net mortgage lending.

To put that in perspective, the average number of loans for house purchase approved since the BBA started releasing stats in 1997 is 61,073. Even after a substantial increase since last year, the current total is 42% below average. 

The years between 1997 and 2007 saw a continual increase in house prices so it’s possible that total may be distorted a little by the boom. 

However, the lending figures released by the Council of Mortgage Lenders (CML) show a similar picture over a much longer period.  CML members have approved an average of a little over 200,000 loans for house purchase per quarter since 1974. The total for the first quarter of this year was just 78,300. Things are improving, as its figures on gross lending showed on Monday, but the second quarter total will still be little more than 100,000.

Lending is improving but we are still a long way from conditions that suggest a boom in house prices to come. 

Free at last

Wed, 22 Jul 2009

Anyone looking for any more things in favour of freeing local authorities from the housing revenue account can find another five billion of them in the detailed consultation just published by the government.

That’s the net benefit of self-financing envisaged over the next 30 years by the impact assessment of the review of council housing. According to the assessment total costs would be £12.3bn plus any cost of rescuing failing local authorities.

However, the benefits are estimated at £17.4bn. That’s made up of £5.2bn efficiency savings from the ability to plan for the long term and optimise the cycle of repairs and replacements planned over 30 years plus £12.2bn from maintaining homes to the Decent Homes standard and saving the need for a large separate capital programme.

And the benefits could be even higher than that. The £12.2bn figure is based on the assumption that a new Decent Homes programme will be needed in 30 years time. If there are more homes to work on, or greater expectations of what a decent home should be, then the benefit will be even greater. In addition, it was impossible to monetise the benefits to health, work and education opportunities for tenants and their families and of councils’ greater ability to build rent-generating new homes.

Freedom for council housing, which is seen as part of much wider freedom for local government, seems so obvious now that it’s easy to forget all those years when ministers were insisting there was no fourth option. All that detailed research and spadework seems to have finally paid off with a case to convince the Treasury.

Not that it will all be plain sailing from here - breaking free of a complex system was never going to be anything but complex, as anyone can see from the incredibly detailed consultation and research published by Communities and Local Government yesterday.

Experts say the key problem remains the distribution of debt. The consultation proposes a one-off redistribution and argues that even debt-free authorities will benefit over time but it’s not at all clear that they will be persuaded to see it that way. If councils can agree among themselves, John Healey has said the change can be introduced quickly; if not, what will be the attitude of a new and probably Conservative government?

And then there is the law of unintended consequences? Could the new settlement end up with cash leaking out of housing rather than flowing into it? That possibility seems to be in mind with the proposed ring-fencing for housing of the 75% of capital receipts that currently go to central government. 

What will it do to stock transfer? Will it really become become a thing of the past, as some experts have claimed, or might the detail give even more encouragement to some councils? Even if ownership is not affected, might self-financing also make  contracting out of housing services more likely in the name of even more efficiency?

All of those questions and more that are certain to emerge will be keeping plenty of people busy until the consultation ends in October. 

Free at last

Wed, 22 Jul 2009

Anyone looking for any more things in favour of freeing local authorities from the housing revenue account can find another five billion of them in the detailed consultation just published by the government.

That’s the net benefit of self-financing envisaged over the next 30 years by the impact assessment of the review of council housing. According to the assessment total costs would be £12.3bn plus any cost of rescuing failing local authorities.

However, the benefits are estimated at £17.4bn. That’s made up of £5.2bn efficiency savings from the ability to plan for the long term and optimise the cycle of repairs and replacements planned over 30 years plus £12.2bn from maintaining homes to the Decent Homes standard and saving the need for a large separate capital programme.

And the benefits could be even higher than that. The £12.2bn figure is based on the assumption that a new Decent Homes programme will be needed in 30 years time. If there are more homes to work on, or greater expectations of what a decent home should be, then the benefit will be even greater. In addition, it was impossible to monetise the benefits to health, work and education opportunities for tenants and their families and of councils’ greater ability to build rent-generating new homes.

Freedom for council housing, which is seen as part of much wider freedom for local government, seems so obvious now that it’s easy to forget all those years when ministers were insisting there was no fourth option. All that detailed research and spadework seems to have finally paid off with a case to convince the Treasury.

Not that it will all be plain sailing from here - breaking free of a complex system was never going to be anything but complex, as anyone can see from the incredibly detailed consultation and research published by Communities and Local Government yesterday.

Experts say the key problem remains the distribution of debt. The consultation proposes a one-off redistribution and argues that even debt-free authorities will benefit over time but it’s not at all clear that they will be persuaded to see it that way. If councils can agree among themselves, John Healey has said the change can be introduced quickly; if not, what will be the attitude of a new and probably Conservative government?

And then there is the law of unintended consequences? Could the new settlement end up with cash leaking out of housing rather than flowing into it? That possibility seems to be in mind with the proposed ring-fencing for housing of the 75% of capital receipts that currently go to central government. 

What will it do to stock transfer? Will it really become become a thing of the past, as some experts have claimed, or might the detail give even more encouragement to some councils? Even if ownership is not affected, might self-financing also make  contracting out of housing services more likely in the name of even more efficiency?

All of those questions and more that are certain to emerge will be keeping plenty of people busy until the consultation ends in October. 

Business as usual

Tue, 21 Jul 2009

Ever so slowly a consensus is starting to emerge about what to do to stop the sub-prime lending disaster and banking crisis from happening again. The signs do not look promising.

Under a plan published yesterday, the Conservatives want to scrap the Financial Services Authority (FSA), handing its regulating role to the Bank of England and its consumer role to a new Consumer Protection Agency (CPA). The party’s Plan for Sound Banking also makes two proposals that ought to make a big difference to the mortgage and housing markets.

First, it will end the ridiculous situation whereby first charge mortgages are regulated by the FSA but second (and subsequent) charge mortgages are regulated by the Office for Fair Trading. Both will instead be covered by the new CPA. 

An under-reported aspect of the housing market crash is the extent to which the lending and borrowing binge was fuelled by second charge loans. The results are being played out in repossession hearings around the country and advisers estimate that the total of repossessions could be significantly higher than the widely quoted stats produced by the Council of Mortgage Lenders (CML), which only cover first charge loans. It seems obvious that all lending secured against homes should be regulated by the same agency and to the same standards.

Second, the Tories signalled that they are likely to move away from setting an inflation target based on the consumer prices index (CPI), which does not include any housing costs. They would probably revert to using the RPIX, a version of the retail prices index that does not include mortgage costs but does include other housing costs. That ought to ensure that the Bank of England at least pays some attention to the effect of interest rate decisions on the housing market. 

What they did not say, as they attacked Labour’s tripartitie system of regulation for being responsible for the crisis, was that they were creating a tripartite system of their own. 

Labour published its own white paper on Reforming Financial Markets earlier this month. It was long on identifying the problems caused by the buy-to-let, self-certified, high income multiple, securitised lending bubble and what the government has done to tackle the crisis but a bit shorter on long-term solutions. 

But a number of measures that are crucial for housing are up for review over the summer with decisions due in the next pre-Budget report. These include the case for transferring regulation of second-charge lending the the FSA and for new powers for the agency to regulated buy-to-let lending. 

Meanwhile, the FSA itself is due to publish a paper on mortgage market reform in September. This will cover the crucial issue of lending limits and a ban on loans of over 100% of the value of a home that provoked howls of outrage from estate agents and mortgage brokers when the idea was floated earlier this year. 

With the FSA under a death sentence from the probable next government, the tide seems to have turned against measures to control Britain’s housing market, just as the issue of its tax treatment compared to other forms of investment has not made it beyond a few think-tanks. Without either, it seems to me that borrowers and lenders will always find a way to pump more money into the next housing bubble. 

Welcome though some of the reforms being planned may be, the case for anything more radical appears to have been dropped in favour of business as usual. 

Business as usual

Tue, 21 Jul 2009

Ever so slowly a consensus is starting to emerge about what to do to stop the sub-prime lending disaster and banking crisis from happening again. The signs do not look promising.

Under a plan published yesterday, the Conservatives want to scrap the Financial Services Authority (FSA), handing its regulating role to the Bank of England and its consumer role to a new Consumer Protection Agency (CPA). The party’s Plan for Sound Banking also makes two proposals that ought to make a big difference to the mortgage and housing markets.

First, it will end the ridiculous situation whereby first charge mortgages are regulated by the FSA but second (and subsequent) charge mortgages are regulated by the Office for Fair Trading. Both will instead be covered by the new CPA. 

An under-reported aspect of the housing market crash is the extent to which the lending and borrowing binge was fuelled by second charge loans. The results are being played out in repossession hearings around the country and advisers estimate that the total of repossessions could be significantly higher than the widely quoted stats produced by the Council of Mortgage Lenders (CML), which only cover first charge loans. It seems obvious that all lending secured against homes should be regulated by the same agency and to the same standards.

Second, the Tories signalled that they are likely to move away from setting an inflation target based on the consumer prices index (CPI), which does not include any housing costs. They would probably revert to using the RPIX, a version of the retail prices index that does not include mortgage costs but does include other housing costs. That ought to ensure that the Bank of England at least pays some attention to the effect of interest rate decisions on the housing market. 

What they did not say, as they attacked Labour’s tripartitie system of regulation for being responsible for the crisis, was that they were creating a tripartite system of their own. 

Labour published its own white paper on Reforming Financial Markets earlier this month. It was long on identifying the problems caused by the buy-to-let, self-certified, high income multiple, securitised lending bubble and what the government has done to tackle the crisis but a bit shorter on long-term solutions. 

But a number of measures that are crucial for housing are up for review over the summer with decisions due in the next pre-Budget report. These include the case for transferring regulation of second-charge lending the the FSA and for new powers for the agency to regulated buy-to-let lending. 

Meanwhile, the FSA itself is due to publish a paper on mortgage market reform in September. This will cover the crucial issue of lending limits and a ban on loans of over 100% of the value of a home that provoked howls of outrage from estate agents and mortgage brokers when the idea was floated earlier this year. 

With the FSA under a death sentence from the probable next government, the tide seems to have turned against measures to control Britain’s housing market, just as the issue of its tax treatment compared to other forms of investment has not made it beyond a few think-tanks. Without either, it seems to me that borrowers and lenders will always find a way to pump more money into the next housing bubble. 

Welcome though some of the reforms being planned may be, the case for anything more radical appears to have been dropped in favour of business as usual. 

Not impressed

Mon, 20 Jul 2009

The final housing debate of this parliamentary session was more interesting for what it said about Conservative plans for housing than Labour ones.

Grant Shapps was the only Tory to speak in a Westminster Hall debate that was ostensibly about the Communities and Local Government committee’s latest report on housing and the credit crunch. But his persistent attacks on the government drew questioning in turn from Labour and Lib Dem MPs. It was too much to expect many policy commitments but what did we find out?

We already knew from April’s housing green paper that the Conservatives want to replace ‘top-down targets’ with ‘a system of incentives that would allow communities to make some of their own decisions in return for money’ and that local authorities would get to keep 100% of the council tax from new homes they approve. 

Shapps gave the example of the new eco-town at North West Bicester. If approved, the town would get £45-£50m ‘for the local area’ over the next six years.  ‘That would be a huge incentive for local communities to develop and get something in return.’

The green paper had hinted at extra incentives for affordable housing and Shapps added that local authorities would get 125% of the council tax for any affordable homes they approve.

So what would happen if his bottom-up local initiatives did not deliver the number of homes needed? Shapps said Labour was obsessed with targets and the Tories would not increase them, but ‘if we find that not enough housing is being built, including affordable housing, we will increase the incentives’.

How will we know if the Tories have been successful if there are no targets? ‘The measure will be whether we have built more homes,’ he said. We will ‘know whether a future Conservative Government have been more successful because we will have built more homes and reduced the housing waiting list—two things that were achieved under previous Conservative governments’.

He was pressed by Nick Raynsford about Tory policy on the Homes and Communities Agency (HCA). Though it was a ‘huge quango’ there would be no ‘barbecue of quangos’, he said. The HCA would have to prove itself between now and the next election by delivering but ‘I am not impressed when I see an agency that has 20 offices and spends £4.5m a month on salaries alone’.

And he had similarly lukewarm support for the Tenant Services Authority (TSA). ‘I am not terribly impressed that the authority has so far spent its time surveying 27,000 tenants to get responses and then writing a draft report about what it might do,’ he said. Ouch. He added that he wanted to get first-class service for almo and council tenants too and ‘I am concerned that it is taking so long to get things going’.

Not impressed

Mon, 20 Jul 2009

The final housing debate of this parliamentary session was more interesting for what it said about Conservative plans for housing than Labour ones.

Grant Shapps was the only Tory to speak in a Westminster Hall debate that was ostensibly about the Communities and Local Government committee’s latest report on housing and the credit crunch. But his persistent attacks on the government drew questioning in turn from Labour and Lib Dem MPs. It was too much to expect many policy commitments but what did we find out?

We already knew from April’s housing green paper that the Conservatives want to replace ‘top-down targets’ with ‘a system of incentives that would allow communities to make some of their own decisions in return for money’ and that local authorities would get to keep 100% of the council tax from new homes they approve. 

Shapps gave the example of the new eco-town at North West Bicester. If approved, the town would get £45-£50m ‘for the local area’ over the next six years.  ‘That would be a huge incentive for local communities to develop and get something in return.’

The green paper had hinted at extra incentives for affordable housing and Shapps added that local authorities would get 125% of the council tax for any affordable homes they approve.

So what would happen if his bottom-up local initiatives did not deliver the number of homes needed? Shapps said Labour was obsessed with targets and the Tories would not increase them, but ‘if we find that not enough housing is being built, including affordable housing, we will increase the incentives’.

How will we know if the Tories have been successful if there are no targets? ‘The measure will be whether we have built more homes,’ he said. We will ‘know whether a future Conservative Government have been more successful because we will have built more homes and reduced the housing waiting list—two things that were achieved under previous Conservative governments’.

He was pressed by Nick Raynsford about Tory policy on the Homes and Communities Agency (HCA). Though it was a ‘huge quango’ there would be no ‘barbecue of quangos’, he said. The HCA would have to prove itself between now and the next election by delivering but ‘I am not impressed when I see an agency that has 20 offices and spends £4.5m a month on salaries alone’.

And he had similarly lukewarm support for the Tenant Services Authority (TSA). ‘I am not terribly impressed that the authority has so far spent its time surveying 27,000 tenants to get responses and then writing a draft report about what it might do,’ he said. Ouch. He added that he wanted to get first-class service for almo and council tenants too and ‘I am concerned that it is taking so long to get things going’.

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