All posts from: August 2009
Repossessions are falling while government rescue and support schemes are floundering. Is the glass half-full or half-empty?
In the wake of the credit crunch and the housing market crash the government was absolutely determined to avoid a repeat of the repossessions crisis of the early 1990s, which saw 300,000 families lose their homes in six years. That determination increased even more when the Council for Mortgage Lenders forecast that this year would see 75,000 repossessions - approaching the peak last time in 1991.
The response was to throw the kitchen sink at the problem. Mortgage rescue would help up to 6,000 families through shared equity and mortgage to rent, lenders’ arms would be twisted to show forebearance, a new pre-action protocol would help in the courts, homeowner mortgage support would enable people to defer payments, cuts in income support for mortgage interest would be restored. All this while the Bank of England cut interest rates to a record low and devised all kinds of ingenious schemes to kickstart mortgage lending.
Taken on an individual basis, the schemes are open to criticism. As Inside Housing reports today, bureaucracy and reluctance by housing associations to get involved mean that the mortgage rescue scheme simply does not have the capacity to help 6,000 families. Meanwhile, lenders that are not owned by the government are steering clear of the homeowner support scheme.
Some of this is not surprising. One of the key lessons of the early 1990s housing market crash was that people prefer help to retain ownership of their homes to mortgage rescue.
Taken as a whole, though, the government schemes do appear to have succeeded in preventing a repeat of 1991. The latest CML figures showed that repossessions fell between the first and second quarter of this year. Given that, mistakes within individual schemes can perhaps be forgiven.
The key thing now is not to become complacent. Repossessions still look set to be up to twice the level seen two years ago and it’s quite possible that all the action taken by the government and Bank so far has delayed rather than prevented the crisis. Unemployment is still rising and a second wave of repossessions could easily follow when interest rates eventually rise.
One crucial issue is that many of the support schemes are time- limited. But at least the government has bought time to get its response right.
Who could have believed that the last three months would have seen construction start on more affordable homes than in any quarter since Labour came to power?
The latest housebuilding stats from Communities and Local Government show that housing associations started 6,210 homes in England in the second quarter. That’s 34% up on the previous quarter and 7% up on a year ago.
More significantly it’s the highest since the 6,640 seen in the second quarter of 1997, when Labour took power committed to sticking to Conservative spending plans that featured big cuts in the housing budget.
That could well be a reflection of the extraordinary investment by the Homes and Communities Agency in the first part of this year but private housebuilding bounced back too with 24,480 starts in the second quarter.
That was double the level seen six months ago and 79% up on the first quarter but before anyone gets too carried away it is still 40% down on the levels seen at the start of the credit crunch.
Starts totalled just 49,000 in the first six months and 87,000 over the last 12. That may not be as low as some of the gloomier predictions but it’s still well down on the peak of 177,000 seen in 2006.
Let alone the 200,000-plus needed to meet the government’s target of 240,000 a year net additional homes. Or the even higher number needed to make up for the slump.
Deflation was meant to keep accelerating to trigger the rent cuts that are so upsetting the National Housing Federation (NHF). Instead, just two months before the all-important September figure, prices are falling less rapidly than before. What gives?
I’m not sure what impact the NHF thinks its campaign against the -2% price floor will have on Gordon Brown but it seemed to have a remarkable effect on the inflation figures released yesterday. Partly thanks to rising house prices the rate of retail price inflation (RPI) slowed from -1.6% to -1.4%. It may just be a blip but a rate of -3% in September no longer seems so certain.
As the comments on Inside Housing’s story show, the arguments are felt passionately on both sides. The NHF contends that a rent cut amounts to discrimination against the poorest people in society because it will limit the resources available to housing associations to build new homes in the interests of cutting the housing benefit bill for the government.
But tenants argue that associations can’t have it both ways - increasing rents when inflation is high but not reducing them when prices are falling. There are no easy solutions when the interests of three different groups of people - working tenants, tenants on benefit and future tenants - have to be balanced against each other.
In the meantime here are some other arguments to stir into the pot:
- Train companies will have to cut their regulated fares by 0.4% from January based on the July RPI figure, reducing what they have to invest in new services. Why should housing associations be any different? Of course the train companies are busily increasing their unregulated fares in anticipation but could associations do the same by increasing their provision for intermediate rent?
- It’s possible that the rents of up to 850,000 housing association tenants will not have to be cut anyway. As I pointed out last month, that’s the estimate by Peter Marsh of the number of properties that are below target rent. The rent formula on those is not the RPI plus 0.5% for normal association properties but RPI plus 0.5% plus £2 - meaning that deflation would have to be -4% before rents would have to fall.
- Deflation and the recession mean that other costs should be lower for associations. That applies especially to construction costs, where tender prices have started to fall. After September, associations will have another six months to see where they can make savings.
Whatever the outcome of the NHF’s campaign, the whole issue highlights yet again the absurdity of all the different inflation rates and the inflation targets and pricing policies linked to them. Almost all of the difference between negative RPI inflation and positive CPI inflation is down to housing. Mortgage costs are determining rents.
Are things about to turn around for buy to let? Thousands of amateur landlords and the banks foolish enough to lend them money have been suffering for the last two years but at least they seemed to have stopped getting worse.
Figures issued by the Council of Mortgage Lenders (CML) on Friday showed that there were 21,600 new buy-to-let loans in the second quarter of 2009. True, that was down 69% on the same period last year. True, it was the seventh consecutive quarter of decline. But the fall on the first quarter was only 4%.
Just as in the rest of the market, there was better news too on buy-to-let arrears. The 29,400 loans in arrears represented 2.49% of all buy-to-let mortgages but that was down from 3.06% in the first quarter. Repossessions were unchanged from the previous quarter at 1,400 and the number of buy-to-let properties with a newly appointed receiver of rent was down slightly.
In a note issued today, the CML also reports anecdotal evidence of landlords being allowed to regain control of their properties from the receiver.
Clearly, the problems in the sector are not going to go away any time soon. A quick glance at the accounts of Bradford & Bingley and Northern Rock shows that arrears and repossessions are much higher than in the market as a whole and that the rate is even higher on buy-to-let mortgages. B&B also made more provision for fraud and professional negligence in the sector.
The CML’s general verdict is not exactly a complete vote of confidence in the sector but it does see encouraging signs of slow growth.
The crucial factor, as ever, is the availability of mortgage finance. In the buy-to-let market that came almost entirely from the securitisation that stopped completely in the credit crunch.
What happens next depends on the mugs who have picked up the pieces from the buy-to-let disaster - you and me and the government.
The CML points out that of the six largest buy-to-let lenders in 2007, two are now totally owned by the British government, two have merged and are heavily state-influenced, one has been bailed out by the Irish government and one has stopped lending completely.
We are now in the ironic situation where the supply of new social rented housing depends on private finance and the supply of new private rented housing depends on public finance.
Few people would have predicted at the start of 2009 that repossessions would be starting to fall halfway through the year.
Back then, the Council of Mortgage Lenders (CML) was predicting that 75,000 families would lost their homes this year. That was revised to 65,000 in June after repossessions rose more slowly than expected in the first three months of the year.
But the 11,400 total recorded in the second quarter stats is actually lower than the 12,700 in the first quarter and only 14% up on the same period last year. The total of 24,100 for the first half suggests the CML will have to revise its forecast downwards again, possibly to not much more than the 40,000 seen last year.
There has even been progress in the buy to let sector, where repossessions had been rising faster than in the market as a whole. The second quarter saw falls both in buy to let repossessions and in the number of properties with a newly appointed receiver of rent.
So it is panic over? A combination of record low interest rates, a range of government schemes and pressure on lenders to show more forebearance certainly seems to have paid off.
The one piece of bad news today comes in Ministry of Justice stats showing a rise in the number of number of possession claims being issued in the courts. Even that may be a distortion falling a big fall in claims following the introduction of the pre-action protocol.
However, lurking in the background is the fear of a second wave of repossessions once interest rates rise again. Rates cannot stay at an artificially low level for ever, just as emergency measures to boost lending cannot carry on for ever. Has the problem been postponed rather than cured?
New figures out this week confirm that housing associations have emerged from the worst of the downturn but they beg the very real question of what happens next.
As Inside Housing reports today, the Homes and Communities Agency has confirmed that a third of the way into 2009/10 it has already earmarked 85% of its £3.29bn budget. Large sums went on helping associations convert unsold shared ownership properties to rent but the days of large cash handouts are coming to an end.
According to Sir Bob Kerslake it now expects fewer requests for help. ‘In some ways we have taken the impact of unsold stock through the system.’
That tallies with the findings from the latest quarterly survey of associations published by the Tenant Services Authority earlier this week that the number of unsold low cost home ownership homes continues to fall and that a third of the 8,173 homes still unsold are reserved for sale. However, the survey also showed that the amount of conversions to rent has fallen significantly in the last three months. Despite impairment charges of £174m and an increase in the number of associations making them, none of the associations affected are in breach of covenants or loan conditions. There seems little room for complacency when that impairment total is up 38% on the previous quarter. But, thanks to the HCA bail-out and the recovery in the housing market, the worst seems to be over. Now for the next set of problems.
TSA they feared lenders’ increased deposit requirements would dampen sales. The time taken to sell shared ownership homes actually increased between the second and third quarters. And the report adds: ‘Another common concern was that funders models still treat shared ownership as “sub prime” and this in turn excludes some potential purchasers.’
Second, funding is about to get much scarcer with so much of this spending review settlement already committed. The HCA is under pressure to cut the cost of delivering affordable homes and has to deliver efficiency savings as part of the £1.5bn Building Britain’s Future programme ‘There is quite rightly a push from government to achieve value for money but no general diktat on grant rates,’ says Sir Bob.
Third, the next spending review period looks certain to see big cuts in the housing budget. The HCA is already preparing for that by using the money it’s got left to get a return on its investment while also seeking new sources of institutional investment. But the ability of associations to continue to deliver affordable homes with little or no grant will be the big test of the financial viability so fiercely protected over the last few months.
Could pay as you save (PAYS) be the solution to the thorny issue of what to do about carbon emissions from existing homes?
The government thinks so, the Conservatives think so and last week the UK Green Building Council (UKGBC) published proposals on how it might work.The key issue they’re trying to address is that the payback period on the technologies they are trying to get existing homeowners to adopt are too long. Spending thousands on a new A-rated boiler or external wall insulation to save hundreds per year makes long-term sense but not if you are planning to move in five years’ time. Under the UKGBC plan a low energy refurbishment provider would use finance from a third party to cover the upfront costs. An obligation to repay - calculated to be less than the savings on fuel bills - would be linked to the property for an extensive period and transfer to the new owner if it is sold.
Subsidy for upfront costs could come from energy suppliers and finance from the loans could come from the private sector but underwritten by the government to keep interest rates down. The PAYS charge could be collected by local authorities.It all sounds like a major step in the right direction. UKGBC envisaged that it would be aimed at the willing (up to 20% of householders) at first but rapidly introduced to the rest of the market with extra incentives - perhaps through stamp duty or the council tax.
But that has to be set against the size of the task involved - more than a quarter of our carbon emissions come from the household sector. To achieve the UK’s target of an 80% cut in emissions by 2050 those from existing homes and buildings will have to be ‘approaching zero’. Sooner or later there will have to be sticks as well as carrots.
The Environmental Change Institute at Oxford University concluded three years ago that the best approach would include demolishing the 3.2m least energy efficient homes by 2050. That may be too much for most people but that is the scale of the problem that has to be addressed.
Three-quarters of people think you have to earn less than £30,000. Half think you have to be a key worker. A third think you have to be on the waiting list.
No prizes for guessing that we are talking about low cost home ownership. The results come from an Ipsos Mori poll for the Mayor of London and Boris says today: ‘This research confirms what I have felt all along, that first time buyers are being overlooked in the current housing market and bamboozled by the intermediate housing deals on offer.’
Little wonder people are confused when the poll asked them about no fewer than nine different schemes. In descending order of familiarity, they are: new build homebuy (19% say they know what it is, 24% that they have heard of it), first time buyer’s initiative, private developer schemes, social homebuy, mychoice homebuy, open market homebuy, homebuy direct, London-Wide initiative and First Steps (2% and 12%).
Boris understandably sees the results as support for his approach of raising the joint income ceiling for applicants to £75,000 and making an extra 60,000 Londoners eligible. But it hardly bodes well that his own First Steps scheme, a key part of his manifesto and officially launched five months ago, has people scratching their heads in confusion more than any other.
It would help if politicians and housing organisations could agree between themselves what low cost home ownership is for and who it should be aimed at. But, as I’ve argued before, they can’t. The results can be seen in hopes raised and dashed for people like Steve, who commented on my blog at the time.
So, once again, is it to allow social tenants to buy and therefore free up a tenancy? Is it aimed at people who want a social tenancy but would otherwise be languishing on the waiting list for years? Is it a form of mortgage rescue? Is it for key workers in expensive housing areas? Is it a bail-out scheme for housebuilders? Is it about the creation of a genuine intermediate form of tenure? Is it (Boris’s view) for anyone who is a basic rate taxpayer?
Or is it really all about press releases and photo opps for politicians keen to associate themselves with the aspiration to home ownership? With spending cuts looming it’s not good enough any more for it to be all of the above.
A new clutch of stats today confirms that the housing market is on the turn but still nowhere near what could be considered normal.
More estate agents still say prices are falling than rising, according to the July survey by the Royal Institution of Chartered Surveyors, but the negative balance of -8% is the lowest since the start of the credit crunch in August 2007. Perhaps more significantly, the balance of surveyors saying they have more instructions to sell new property is in positive territory for the first time since May 2007.
That impression was confirmed by figures from the Communities and Local Government department showing that house prices rose 1.6% in June and by 2.6% in the second quarter of the year. Those rising prices and slight increase in the supply of homes for sale are being matched by a much bigger increase in the number of mortgages available to buyers, according to the Council of Mortgage Lenders.The 45,000 house purchase loans it recorded in June was 23% up on May and down only 6% on June 2008. The second quarter saw 116,700 house purchase loans - up by half on the first quarter.
There were even hints of mortgages becoming more unaffordable for the first time in two years. Loans are now worth 3.08 times incomes for first-time buyers, edging up from 3.00 four months ago. Thanks to record low interest rates, monthly payments take up 14.9% of the average first-timer’s income compared to a peak of more than 20% at the start of the crunch.
However, CML economist Paul Samter cautioned that ‘there is still some way to go before we reach normal levels of activity’ and no wonder. That quarterly total of 116,700 and 50% increase sounds impressive until you realise that it is still little more than half the quarterly average seen since 1974.
Supporters of reduced VAT on repair and maintenance work must sometimes feel like they are beating their heads against a brick wall and then being taxed for the privilege of rebuilding it. But reports over the weekend that the Conservatives are secretly planning to increase the VAT rate to 20% make it even more vital to keep up the campaign.
The reports were not exactly convincingly denied. Shadow health secretary Andrew Lansley said the party had ‘absolutely no plans’ to increase VAT but that’s pretty much what Margaret Thatcher and Geoffrey Howe said in 1979 before doubling it. Whoever wins the next election will have to consider tax increases as well as spending cuts - and a 20% rate has already been considered by the Treasury to pay for the temporary cut to 15% that expires at the end of the year.
The restoration to 17.5% will still leave our VAT rate lower than in most of the rest of Europe. But that seemingly inevitable increase makes the arguments in favour of a lower rate for repairs and maintenance even stronger.
As Inside Housing’s campaign argues, it could bring thousands of empty homes back into use - potentially saving on new construction or on housing benefit. It would help create jobs in the most labour-intensive parts of the building industry - generating tax receipts.It would help combat the black economy by reducing the incentive to pay builders cash in hand - and therefore not cost as much as it might seem on the surface.It would help tackle one of the main sources of carbon emissions by ensuring that it costs less to make existing homes energy efficient - potentially delivering big savings in future.
Even the Treasury’s main get-out clause - that Brussels will not allow it - has now disappeared after votes by the European Parliament and by European finance ministers that allow a 5% rate.All the arguments have been made so many times before that campaigners could be forgiven for giving up nursing a sore head. The prospect of a VAT increase makes their arguments even more powerful and even more important but will they be heard above the clamour for immediate tax increases and spending cuts?
Less than two years ago the talk was all about skills shortages and having to pay premiums to attract the right staff. Now, as Inside Housing reports today, there are more than 90 applicants for every post as a housing graduate trainee.It’s not hard to imagine the situation will be even worse next year, when public spending cuts start to hit the sector and another year of graduates leaves college.
The warning signs were there two years ago when the Homes and Communities Agency said that capacity issues in key professions and acute skills shortages would be obstacles to delivering sustainable communities. The professions in the most demand were all related to a construction market that has since nosedived.
However, the report also forecast there would be a significant over-supply of housing and welfare and neighbourhood officers by 2012. Add the worst recession since the early 1980s into that mix and it’s not surprising that a majority of the housing graduates from 2008 interviewed by Inside Housing have struggled to find a job.
One reason may be that more graduates are starting housing degrees now - 859 in 2000 compared to 1,360 now. Another is that major housing organisations are cutting back on their graduate training schemes. The number accepting applications has fallen from 12 in 2008 to just six this year. And those are the ones doing the most - 35 out of the top 50 housing associations, local authorities and almos have never run a scheme.
As someone who left college in the depths of the early 1980s recession, anyone trying to enter the jobs market this year has my sympathy. They also surely have a right to expect more from the profession and its leading employers.
The government is set to tackle one of the biggest injustices of this housing recession - the eviction of tenants whose landlords have been repossessed.The problem mostly affects unauthorised tenants, who rent from landlords who have let out their property without the consent of their mortgage lender. In some cases the first time they found out about the repossession is when the bailiffs arrived to evict them. Up to 2,900 tenants a year are believed to be facing this situation. An earlier attempt to solve the problem by giving tenants more notice of repossession hearings never looked like working since it relied on them knowing to open all post addressed to ‘the occupier’. The government’s favoured options in a consultation paper launched yesterday are to require lenders to give more notice and give unauthorised tenants a mechansim to request a two-month stay in the warrant of possession. They would also get the right to be heard at a possession hearing and the courts would get the power to postpone possession for up to two months to allow them a decent time to move.The new formula seems to have the support of housing charities and lenders as well as the government but part of it will need primary legislation and there must be a question about whether that will make it through parliament before the general election.When combined with new guidance to local authorities on intentional homelessness in mortgage repossession cases, the government has been quick to fill any gaps in the safety net for people facing repossession - and their unwitting tenants.But it does make me wonder slightly about the differences between this and the recent crackdown on illegal sub-letting. Take two flats next door to each other on an estate. One has an unauthorised tenant of a landlord who does not have the permission of their lender, the other the tenant of another tenant who is unlawfully sub-letting it. They’re probably both paying the same rent. The unlawful sub-letter may have bought the keys in the pub and know that what they’re doing is dodgy. But they may be equally unaware that their landlord is not meant to be renting it out to them. The unauthorised tenant is about to get extra legal protection while the unlawful one is facing a crackdown by teams of fraud inspectors and can be evicted in as little as seven days. The obvious difference is that the first flat is owned by the mortgage lender while the second is owned by a social landlord that has a duty to allocate it to those most in need and to make the best use of public resources. I’m not sure what the answer is but, as Shelter is arguing, the sub-letting crackdown surely has to address it.
The Halifax house price index published this morning shows a 1.1% increase in prices in July. More significantly, the underlying trend (comparing the last three months with the previous three) is up for the first time since October 2007 and the start of the credit crunch.
‘Demand for homes has risen, albeit from a very low base, since the start of the year, driven by improvements in affordability and low interest rates,’ says housing economist Martin Ellis. ‘Higher demand has combined with the low levels of property available for sale to boost sales activity from exceptionally low levels and support prices over the past few months.’
Good news, you might think, for existing homeowners and for the biggest lender to them and not a bad start to the second half of 2009.
But Lloyds Banking Group – the Halifax’s parent company since Lloyds TSB took over HBOS – takes a very different view in its results also published this morning.
The bank made a loss of £4bn in the first half of 2009 after taking an impairment charge of £13.4bn of bad loans – most of them by HBOS.
‘Compared to the first half of 2009, we expect to see a moderate increase in the Retail impairment charge in the second half of the year,’ it says. ‘The increase in the second half of 2009 largely reflects the expected impact of rising unemployment levels and further house price falls.’
What Lloyds thinks matters more to housing than any other bank. In addition to being the largest mortgage lender in general, it is also by far the major lender in the shared ownership market. It is the largest lender to housing associations. And, thanks to HBOS, it has stakes in five of the top 20 housebuilders.
If it really believes prices are rising it might become less restrictive in its lending. But the Halifax index only reflects the prices of the low number of homes that have actually sold – and serious questions remain about how long the upward trend can continue thanks to rising unemployment.
The bank’s average loan to value for new mortgages and further advances has fallen from 63% to 58% in the last six months. That caution is hardly surprising when you consider that 20% of its mortgages are in negative equity – up from 16% six months ago and just 0.1% in 2007.
So Boris is thinking of suing the government over the allocation of the cash from the £1.5bn housing pledge. Not much of an advert for the new central-local government concordat on housing and regeneration.
And I doubt this is quite what Sir Bob had in mind when he called for a new brand of civic leadership. As London mayor Boris is also head of the London Homes and Communities Agency (HCA) and he says he will be instrucing it to allocate the almo cash that was raided for the pledge on new homes.
Under the concordat it’s the job of Sir Bob and the HCA to ‘help councils by providing a bridge between national targets and local ambitions’ but that rather assumes that the two are not in conflict.
Local Conservative ambitions are already turning to victory in the general election. If they win their first move will be to scrap those national targets and it is still far from certain whether the HCA itself will survive its cull of quangos.
It remains to be seen just how far the Tories will go with their localism agenda. Official policy says top-down regional planning and housing targets will be replaced by local incentives to build more homes. But work coming out of Tory think-tanks also envisages freeing local authorities from national obligations on things like allocation and tenure and possibly even from the HCA and its entire capital budget.
All of which may make civic leadership and concordats and bridges between central and local government even more important than they are now.
The Met Office has been getting it in the neck all week for its red-faced admission that maybe there will not be a barbecue summer after all.
And today, the Michael Fishes and Suzanne Charltons working for the National Housing Federation get in on the act. House prices, according to figures commissioned from Oxford Economics, will fall 12.2% this year and 4.6% next before rising 1.1% in 2011, 7.5% in 2012, 8.4% in 2013 and 6.8% in 2014. In total prices will rise 20% by 2014.
The NHF sees this as evidence that the problem of the fundamental under-supply of housing has not gone away.
If you think this story sounds familiar you’d be right. In July 2008 the NHF and Oxford Economics were forecasting that prices would rise by 25% over the next five years.
Prices would fall 2.1% in 2009 before rising 1.3% in 2010, 5.2% in 2011, 9.2% in 2012 and 9.3% in 2013.
Confused? How about this forecast from August 2007? Average house prices will rise 40% by 2012 and a housing market crash is ‘unlikely’, it said. No need to mention who made that one.
So, depending on the year you choose, average house prices will reach £302,400 by 2012, £274,700 by 2013 or £227,800 by 2014. And it seems a fair bet that a radically different prediction will emerge this time next year: the Nationwide said last week that there is a good chance that prices will rise this year not fall.
As someone who spent years predicting a housing market crash while prices were still booming, I should point out that the NHF and Oxford Economics are far from the only ones to get things wrong.
But, put it this way - if they invited me round to a barbie I’d make sure to bring an umbrella.