All posts from: February 2010
It’s not exactly news to say that the government is falling behind its housebuilding targets but now it’s official.
Attention so far has focussed on the figures for housing completions and the way that the 2009 total for England of 118,000 recorded by Communities and Local Government (CLG) was half the target of 240,000 a year.
However, the targets of 2m by 2016 and 3m by 2020 are more complicated than that and are actually for ‘net additional homes’ rather than just completions. They include conversions and changes of use (minus demolitions) as well as new homes. The figure for new home completions used in the net supply figures is also significantly higher than the one in the housebuilding statistics because it also includes approvals by approved independent inspectors and because the data collection period is longer.
This time last year those differences enabled ministers to claim that they were on track to meet the targets. Total net additional homes provided in 2007/08 were 207,400 (compared to a CLG completions total of 167,620).
However, the 2008/09 figures for net additional homes put an end to six years to growth. Total net supply fell 20% to 166,600 in 2008/09 (33,000 more than the CLG completions total).
Given the continuing fall in completions in the rest of 2009 that total is almost certain to fall further in 2009/10, leaving those targets for 2016 and 2020 vanishing into the distance.
Net additional supply fell in eight out of nine regions last year, with only London seeing an increase. However, half of the total net new supply of 28,300 homes in the capital came from just nine of the 33 boroughs.
New stats confirming that the number of private tenants increased by more than 50 per cent in the noughties raise some pretty fundamental questions about the future of the sector.
The headline results from the English Housing Survey 2008/09 reveal just how much the balance between the tenures has shifted. There are a million more private tenants than in 2001 and 900,000 more outright owners, but 100,000 fewer social renters and 600,000 fewer households buying with a mortgage.
On current trends, private renting will overtake social renting some time before the end of this decade,
The survey also reveals that 59% of private renters and 27% of social renters believe they will eventually buy their own home. In years gone by, that shift would have been regarded as automatic but there are good reasons to question whether that will really happen.
Estimates suggest that only about 20% of private renters can afford to buy without help from their families. The rest of the sector is made up of tenants on housing benefit and tenants who are working but who cannot get a mortgage on their current income.
The financial crisis should in theory have been good news for tenants wanting to buy because house prices fell. Instead restrictions on mortgage lending mean that the amount a first-time buyer has to raise for a deposit has risen even faster than prices have fallen. The average deposit needed to buy an average lower quartile home in the UK is now more than a year’s salary. And now prices are rising again.
In the absence of a genuine correction in house prices relative to incomes, private renting can only continue to grow, and access to homeownership will become ever more dependent on inherited wealth.
All of that sounds like very good news for private landlords and existing homeowners and very bad news for millions of others..
Suppose the Conservatives are right and the way to generate the homes we need really is to give power over planning back to local communities and then trust them to deliver.
On the surface it sounds much more attractive than being told what to do by central government - and it comes with a presumption in favour of sustainable development, incentives through the council tax for local people to approve it and a range of welcome measures to encourage local housing trusts and self-build.
Except that the clue that something is not quite right comes from the name for the new policy: Open Source Planning. Borrowed from the software industry, it sounds shiny, contemporary and the antithesis of Labour’s top-down bureaucracy.
But open source software is collectively developed, owned by nobody and free for anyone to use. Real open source planning would be based on the crucial ingredient for new homes (land) being equally free to anyone. It isn’t, which is why we don’t get enough affordable homes built and why we need a planning system in the first place.
At a national level, the effects of Conservatives’ plans to abolish regional spatial strategies and housebuilding targets are clear from Jamie Obertelli’s feature in this week’s Inside Housing. The option one figures promoted by local authorities that will be accepted by a Conservative government are more than 30,000 homes a year below regional spatial strategy targets.
Better to meet all of a local agreed plan than half of a nationally imposed target? Perhaps, but what exactly would be agreed locally?
Local homes for local people - the pledge of Tory candidates around the country - sounds an attractive idea until you examine exactly what it means. Even if local communities can be persuaded to agree the need for homes to meet local need (a big if) why would they favour homes to cater for people moving into the area from other parts of the UK or from other countries? Housing policy would effectively become immigration policy - and what can the Tories do to keep out migrants from elsewhere in the EU?
Incentives to approve development sound a great idea too. Why shouldn’t the communities most affected see some benefit and be encouraged to see that new homes are in their best interests?
Except how much money is really involved? How much will it really amount to compared to the house price calculations made by nearby homeowners - especially if the new homes are affordable?
Combine that with the say in new local plans and the extra stress on the objections of immediate neighbours (a proportion yet to be announced will reverse the presumption in favour of sustainable development) and it’s not hard to envisage a situation in which well-heeled communities will be able to organise to stop all new development while poorer ones are unable to resist it. Any idea of mixed communities could go out of the window.
And that’s before I even get to the potential hiatus in new development while we move to the new system that’s feared by housebuilders, the chaos from allowing third-party appeals feared by the British Property Federation, or the damaging effects of Section 106 reform feared by the National Housing Federation.
It’s not just them that’s struggling with the new policy. Mixed in with some positive responses to a blog by shadow communities secretary Caroline Spelman on the conservativehome website are some she won’t find quite so welcome: ‘worrying’, ‘absurd’ and ‘unworkable’ for starters.
I’m still finding it hard not to be a bit cynical about Total Place, the initiative that is meant to deliver big savings in spending on local services through better co-ordination and ending duplication.
It should be an idea whose time has come. With public spending about to be cut, the idea that we can save £20bn by making better use of assets, better co-ordination and ending duplication, as communities secretary John Denham told yesterday’s Observer, sounds a bit like finding an extra set of lifeboats on the Titanic.
‘Total Place is helping identify where blockages exist which prevent change across the board, overcoming the long-standing professional, cultural and funding barriers which have historically proved a big stumbling block to reform,’ he says. ‘It means a much more open debate about the best way to provide services locally.
‘Rather than services protecting their own territory and budgets, it means switching resources between different providers. This cuts out duplication, waste and bureaucracy, saving professionals’ time and services’ money – running into millions of pounds – which can be reinvested.’
Housing should in theory be well placed to benefit from a process like that. Years of lobbying about the effects of housing investment on health, education, crime and jobs could pay off. A classic example came last week with a joint plea by the Chartered Institutes of Housing and Environmental Health on the human and financial costs of poor housing: they quote a new report that says that 4m seriously unhealthy homes in the private sector cost the NHS £600m a year and society as a whole a further £1.5bn.
Denham’s confidence is based on the initial results from the Total Place pilots - such as better co-ordination between the benefits, prison, housing and probation services in Bedfordshire to reduce re-offending; or the housing and regeneration pilot in Durham that identifies 47 different funding streams.
The initiative certainly seems to have enough backing across the political spectrum and in local government to succeed, with the Conservatives saying they would implement it faster than Labour.
I hope I’m wrong but it’s partly that level of cross-party agreement that makes me uneasy. It’s one thing to back a process that appears to offer savings without cuts ahead of an election; quite another to deliver it over the next few years.
It’s partly the jargon that runs through the Total Place reports. Insight workstreams, engagement plans and customer journey mapping offer the depressing possibility that the real ‘deep dive’ is going to be into the budget to pay consultants.
And it’s partly thinking about another programme that drew together different funding streams and apparently saved £2 for every £1 spent before being left to local authorities to decide what’s best: look what’s happening to Supporting People on the Isle of Wight.
One intriguing aspect of yesterday’s announcement of the first round of the public land initiative was the hope that it will encourage non-housebuilders into the sector and generate more competition. Judging from today’s housebuilding figures that can’t happen soon enough.
Estimates suggest that there is enough public sector land in England to build 300,000 homes - 100,000 on council land and 200,000 on old NHS, transport, military and school sites. That’s less than a third of the 1m shortfall against household projections expected by 2016 but still significant. Two of the first three sites are owned by Homes and Communities Agency and the third by One North East and Newcastle City Council.
It would be easy to read the initiative as yet another attempt to accelerate the transfer of public land into the hands of Barratt and Taylor Wimpey but the Communities and Local Government announcement puts the opposite case: ‘Some of the biggest names in the construction industry have not been house-builders before - but [housing minister John] Healey sees this new initiative as a way to inject more innovation and competition into housebuilding by encouraging them to enter the industry.’
Healey added: ‘We have to innovate and test new ways of funding and building the homes we need. So I’m offering a New Deal for public-private housebuilding, with new partnership terms in which companies take a smaller profit because Government takes more of the risk by lowering costs and increasing competition in housebuilding.’
That sort of new model sounds very different from the traditional housebuilding one under which success depends on firms’ ability to buy land and develop it at the right time. That can make housebuilding both very profitable and very risky - as amply illustrated by the results of the biggest firms over the last two years. Real public-private partnerships, involving not just public land but real partnership between local authorities and developers sounds like a good way forward.
So can the initiative really encourage other firms into the market? The developers and contractors who operate in the commercial property sector, for example?
They could certainly do with the work - the downturn in that sector has been even steeper than in residential. But I’ve written about this happening almost as many times as I’ve written about institutional investors moving back into residential property and I’ve seen little tangible evidence of it so far. The reasons for that are not unconnected - excessive volatility in house prices means that the residential market does not offer the sort of returns that commercial developers and investors are looking for - so reducing risks and lowering costs could be attractive.
If anyone doubts that new models of housebuiding are needed, just take a look at the latest stats from the CLG. There were just 118,000 completions in 2009, down 17% on 2009 and 33% on 2007 and the lowest total for any year since 1947. No comparison for starts is available because the figures are going through a major revision.
The Conservatives have upped the election ante on housing with an attack on Labour’s ‘truly shocking’ record.
A new Tory critique of ‘Labour’s Two Nations’ attacks the government for its record on education, health, crime and welfare that goes with all the familiar themes of ‘Broken Britain’. And it adds: ‘If Labour’s failure to reform the welfare system is disappointing, their failure to get to grips with housing is truly shocking.’
The attack starts with Labour’s record on housebuilding (lowest since the war), homeownership (falling), waiting lists (up 80%) and new social housing (output per year was double under the Major government what it’s been under Blair and Brown). And it’s then broadened into an attack on its record in the 10 most disadvantaged areas: people twice as likely to be on waiting lists and four times more likely to be homeless.
That’s quite a case the prosecution even if much of it is vulnerable to cross-examination: the falls in housebuilding and homeownership down to financial policies that were also endorsed by the Conservatives; the increases in waiting lists and fall in new social housing down to the Tory right to buy and Labour’s decision in 1997 to stick to Tory spending plans that slashed funding for housing; and the comparison with the Conservatives not quite as bad if you compare both the Thatcher and Major governments. However, I can’t see anything to compare to the document’s embarrassing mistake on teenage pregnancies.
What’s potentially more interesting in the long term is that the document sets up several benchmarks against which to judge the performance and policies of a future Conservative government.
There’s also an interesting section about social tenants that’s the introduction to Conservative policies like rewarding good behaviour with an equity stake, giving tenants the right to move and widening access to shared ownership.
‘Conservatives recognise the importance of social housing and the security it provides,’ says the document. ‘We will protect and respect the rights of social tenants. Many social tenants have great pride in their homes and the neighbourhood in which they live, and deserve to be encouraged.’
Just warm words ahead of an election? Maybe. But just as the attack on Labour’s record makes will make it a bit harder to take the axe to investment, will statements like that make it that much more difficult to attack security of tenure?
Is Tower Block of Commons in danger of rehabilitating one of the most despised groups in society?
I am of course talking about MPs rather than council tenants, and even worse than that, MPs who agree to take part in reality TV shows like the Channel 4 documentary that’s a bit like Wife Swap without the swap.
Humiliation was always going to be on the agenda given the filming took place in the middle of the expenses scandal. Lib Dem Mark Oaten made the mistake of criticising his host for spending £60 on cigarettes only for her to google his expenses and throw back the £116 he claimed for irons.
The cringe factor was high in a first episode that saw Oaten reminded of his close encounters with the News of the World and Tory minister for Broken Britain Iain Duncan Smith being interrogated about when he lost his virginity while last night’s third episode featured some toe-curlingly embarrassing rapping from shadow children’s minister Tim Loughton.
But the real anti-star was Labour’s Austin Mitchell. The chair of the House of Commons council housing group insisted he would only take part if he did not have to do what his Westminster colleagues did and live on benefits according to rules set by their hosts. Instead he and his wife got their own flat and even sneaked off one night for a dinner party with friends.
It was all faintly reminiscent of the BBC’s Famous, Rich and Homeless and the way that James, Marquess of Blandford sneaked off to sleep in a 5-star hotel rather than on the streets. More than faintly, in fact, since the two programmes were made by the same production company. How fortunate to generate the same publicity all over again!
It’s hard to believe that Mitchell, a former TV journalist, was unaware of how this would play. To add to the coincidences, he once did a famous TV interview with football managers Brian Clough and Don Revie - the one that’s portrayed as a stitch-up in the film The Damned United in which Mitchell is played by….the same actor who does the voiceover on Tower Block of Commons.
‘You’re not making a film about Austin Mitchell, god help you if you were, you’re making a film about the Orchard Park estate,’ he tries telling the film team in episode two.
So far, so embarrassing. Except that last night’s third episode challenged the MPs to do something to help their communities. Oaten organised a petition to get tower blocks in Barking demolished, Loughton set out to find out more about the gangs around his Birmingham estate, Tory MP Nadine Dorries brought estate residents together with worshippers at a nearby mosque for a Barbie. And Mitchell used his political and media nous to campaign against the closure of the estate’s youth centre.
How any of that will turn out will have to wait for next week’s final episode. How much will really change remains to be seen but at least the MPS who seemed on a hiding to nothing are starting to emerge from their ritual humiliation with a little bit of credit. With the expenses supremo saying today that all MPS should have to repay all of the profits they’ve made on taxpayer-funded second homes, that’s something that could be badly needed around Westminster.
EDIT Wednesday Jan 17: In a blog on his website, Austin Mitchell says he 'naively' agreed to appear to 'put the case for council housing'.
'Big mistake,' he goes on. 'Love [the production company] didn’t want to plead for improved conditions for council tenants but to humiliate MPs. It’s easy to show us as greedy (although they didn’t pay us), out of touch (though we knew more about the people than them) and incompetent (almost as much as their production techniques). They duly did so.
If there is such a thing as Broken Britain then the New Deal for Communities must surely have been a total failure.
The truth is rather more complicated than that. The Conservatives have been making the running in public opinion with their claims that Britain is broken, but if anything the evidence suggests the opposite. As The Economist pointed out last week, violent crime and teenage pregnancies are both down since 1997. And despite the horrific Edlington case, child killing has plummeted since the horrific Mary Bell case in 1968.
And it’s also more complicated for the New Deal for Communities, the scheme dreamt up in the salad days of New Labour that was meant to reach in to the poorest communities and bridge the gap between them and more affluent ones; a regeneration programme that would go beyond bricks and mortar.
So much so, in fact that two out of three of the main achievements plucked by Communities and Local Government from a series of evaluations of the programme are actually about bricks and mortar: 19,800 homes built or improved and 95 community buildings brought back into use that would not have been without it.
The problem is defining ‘success’ and ‘failure’. If areas suffering from multiple deprivation are still poor despite all that investment, is that really a big surprise? If things have improved, is that really down to the New Deal or to other factors? As one participant told the academics writing the reports: ‘A lot of has been delivered in the area, but how much of this has the NDC delivered is the $64 question.’
Or as the one of the main reports concludes: ‘The overall assessment of progress made in the housing and physical environment during the NDC Programme underlines the ‘porous’ nature of this domain.’
That’s not just academic speak for ‘we don’t really know’ but a recognition that even in terms of bricks and mortar it’s hard to measure success. How much of the improvement is due to the start of the housing market? What impact do physical improvements have on quality of life, resident satisfaction and their desire to move or stay put?
On most other measures the evidence is mixed: the number of people saying they are in poor health was down but the number with a healthy eating and exercise regime was down; educational attainment was up in NDC areas but it was in other deprived areas too. As for the much-vaunted claims for the effect of mixed tenure: ‘The evidence would seem to suggest that all that encouraging mixed tenure will do is dilute the concentrations of worklessness in a particular area not improve the life chances of the workless or disadvantaged individual themselves.’
However, there were plenty of successes at a local level and plenty of evidence about the positive impacts the New Deal had on individual lives and 74% of residents were satisfied with their areas and those who had got involved in running them were especially satisfied.
The lessons of a programme whose success is so hard to evaluate are likely to struggle to be heard over the simplistic claim that Britain is broken but they deserve to be.
Glass half-full: repossessions figures are again lower than lenders expected. Glass half-empty: repossessions are up 15% to their highest level for 15 years.
For a year now it’s been impossible not to take a twin-track approach when the Council of Mortgage Lenders releases its figures. At the end of 2008 it forecast that 75,000 families would lose their homes. That was political dynamite since it would mean repossessions in 2009 (the year before an election) would match the worst year of the early 1990s crash.
By June it was clear that estimate was too high. A combination of ultra-low interest rates, ministerial arm-twisting, lender forbearance, mortgage rescue schemes and hundreds of billions of pounds worth of government support schemes for the financial and mortgage markets meant the CML revised its forecast down to 65,000.
Lower than expected third quarter figures meant it was revised down again to 48,000 in November. And this morning the CML not only revealed a full year total that was 2,000 lower than that, but added that its 53,000 forecast for 2010 was looking too high as well.
The same was true for arrears and the 188,300 families behind with their mortgage by more than 2.5% of the balance. That was lower than the CML forecast and compares with more than 400,000 in 1994, the earliest year for which figures are available on that basis.
Yet, as the CML points out, there are two views to take of arrears. Lower levels of arrears - those worth up to 5% of the balance - are actually going down whereas the number of people with arrears of mote than 5% is going up. ‘This suggests that at present some borrowers facing only modest difficulties are being helped by low interest rates to get back out of trouble, whereas those with more severe problems may be stabilising their arrears but not recovering from them, and lender forbearance is likely to be a significant factor keeping them in their homes,’ it comments.
Which brings me neatly back to that twin-track approach. Anecdotal evidence suggests that different kinds of lenders are taking very different approaches to people in arrears and repossessions. For mainstream lenders it makes more financial sense to keep people in their homes, and even to write off some arrears, than to saddle themselves with repossessed property for distressed sale. Meanwhile sub-prime lenders want what they can get and they want it now.
That might part of the explanation for another double-edged comparison. In 1995 there was one repossession for every eight households with arrears of more than 2.5% of their mortgage. In 2009, despite all that apparent lender forbearance, there was one for every four.
Read between the lines of today’s inflation report and it’s clear that the Bank of England believes the house price mini-boom will soon be over.
The report highlights trends in new buyer inquiries, new seller instructions and mortgage approvals. Much of the bounce-back in prices can be explained by increases in the first and the third and lack of increases in the second.
‘In part, the recent strength in house prices may reflect an unusually weak supply of properties available to purchase relative to demand,’ says the report. ‘But the Royal Institution of Chartered Surveyors (RICS) survey suggests that imbalance may have narrowed, as new instructions to sell have increased and new buyer enquiries have risen more slowly.’
That was obviously written before the RICS published its January survey yesterday showing sharp falls in both buyer inquiries and seller instructions. As the RICS was quick to point out, that may just be a blip caused by the cold weather but the imbalance between them still seems to be narrowing.
The inflation report also highlights a key point about the recent rise in mortgage approvals: almost all of the expansion has come from the largest lenders. The big six lenders – Lloyds, Santander, Nationwide, HSBC, RBS and Barclays – currently account for about 95 per cent of approvals for house purchase compared to about 60 per cent just before the credit crunch.
Smaller building societies and, especially, specialist lenders have still not re-entered the market and the Bank says they are still facing greater funding and liquidity challenges. Meanwhile many specialist lenders focused on higher-risk loans, including self-certified mortgages, and may have reassessed those risks during the recession.
‘It remains uncertain whether the major UK lenders will increase capacity to fill the gap left by other lenders,’ says the Bank, before adding rather unnecessarily: ‘For example, providing higher-risk loans may be less attractive than in the years running up to the financial crisis.’
Elsewhere in the report, the Bank also says that inflation is likely to rise more than it expected. Just to rub it in, housing associations currently wrestling with the rent cuts triggered by October’s negative RPI figure may like to know that the RPI is now surging ahead as the effects of previous interest rate cuts on mortgage costs drop out of the equation.
Wondering what things are going to be like when the axe falls on public spending in England? Just take a quick look at what’s already happening in Scotland.
While housing groups south of the border sharpen their arguments ahead of cuts in the Budget expected in March and - if the Conservatives win the election - an emergency budget to follow that, the talk north of the border is already of actual cuts.
The Scottish Parliament approved a budget for 2010/11 last week that will see spending on housing and regeneration cut by £179m or 29%. That comes before any cuts in the UK government budget and it drew immediate condemnation from groups like Shelter Scotland.
But the axe will fall across the public sector and the cuts will be exacerbated by falls in the revenue local councils get from charges and fees. There are already warnings of job cuts in services like education and social services.
The situation is even more sobering when you realise that all of this comes before any cuts in the UK government budget. The SNP government argues it is the consequence of fund being brought forward to 2009/10 because of the recession - something that also happened in England, especially in housing - but critics also point to its pledge to freeze the council tax.
Officials are warning of cuts of 20% in real terms over the next seven years and the government has set up an independent review to study how to implement them. That in turn has raised uncomfortable parallels with Ireland, where an even deeper banking and financial crisis led to a similar review last summer that recommended not just public sector job cuts but cuts in welfare payments too.
Back in England, with the National Housing Federation highlighting consequences of the slump in housebuilding today, you get the feeling that it’s only a matter of time before we feel the pain too.
Reforming the private rented sector is a bit like spinning plates on the end of sticks. Make sure you get each one right and you will balance the interests of landlords and tenants, tax breaks and tax dodges and new investment and under- and over-regulation. But concentrate too much on one plate and the rest will come crashing down around your ears.
Many of the next steps proposed by John Healey yesterday, including regulation of letting agents and a requirement for written tenancy agreements for all tenancies, are welcome ones. But some of his plates seem to be wobbling too.
Take the concept of ‘light-touch regulation and effective redress’ that was at the heart of the Rugg review and the government’s response to it in May 2009. It carried unfortunate echoes of the light-touch regulation of the banks that proved so successful in 2007 but it was logical and intended to reassure good landlords that they would not be caught in unnecessary red tape designed to catch bad ones.
Light touch is not mentioned in the plans published by Communities and Local Government yesterday but it’s more than just a question of terminology. Rugg had proposed a minimal license to let under which landlords would have to state their name, date of birth and business address. The national register proposed by the government appears to go further by requiring the addresses of the properties they rent out, the condition of those properties and their track record on fixing faults. The National Landlords Association says the plans are unworkable and ‘the likely consequence…would be to penalise the law-abiding while at the same time drive the worst landlords under the radar’.
Or take tax incentives for institutional investment. The Treasury has long been suspicious that calls for tax breaks were really tax dodges - possibly after the unhappy experience of the business expansion scheme in the 1980s. Rugg came out against fiscal incentives and planning changes to encourage build to let lobbied for by the British Property Federation (BPF).
But the industry has long complained that all it wants is tax transparency and a level playing field with other forms of investment. The result of the stand-off has been, well, not much. Real estate investment trusts (REITs) were meant to be the answer but only two of those launched since their introduction in January 2007 have any residential component and there are none that invest solely in residential property.
The BPF’s other main complaint is that the stamp duty rules on bulk purchase of property discriminate against institutional investment. It thought it had convinced the government to act in last year’s Budget but the changes were dropped at the last minute.
But a Treasury consultation paper on investment in the private rented sector also published yesterday puts both REIT reform and bulk stamp duty back on the agenda. According to the BPF, that means that ‘the man on the street could soon be investing in a piece of large-scale rented housing developments funded by institutions and listed property firms’.
Or take retaliatory evictions. Neither Rugg not the government consultation paper proposed to do anything about the current situation where a tenant who tries to enforce their rights can be evicted in retaliation and have no recourse against their landlord - although Rugg did envisage a more effective sanctions regime against that kind of landlord. That seems perverse.
As for the ‘effective redress for tenants’, there is no mention of the ideas floated by Rugg and Rhodes of a housing justice network funded by landlord licensing fees or a single property tribunal that would be easier for tenants to access or a specialised housing court.
What there will be instead is a new housing hotline for tenants to get advice and a tripadvisor-style website for them to post their views on their accommodation on new landlord. How well they will work remains to be seen - but at least they can happen now. Anything that needs primary legislation will have to wait until after the general election and for a possible regulation-sceptic Conservative government.
Banning ‘liar loans’ sounds like an obvious starting point for any future regulation of the mortgage market but is there a danger it could completely exclude many people from home ownership?
That’s the case made by the Council of Mortgage Lenders (CML) in its response to the consultation that’s just closed on the Mortgage Market Review by the Financial Services Authority (FSA).
Self-certified mortgages were originally designed to allow people who can afford a home but cannot verify their income to get into the market. That especially applied to the increasing numbers of people in the 90s and noughties who became self-employed but not for long enough to produce three years’ worth of accounts.
But they opened the door to thousands of borrowers to lie about their income to mortgage brokers and lenders who seemed only too happy to turn a blind eye in a rising market. That fed the boom - astonishingly, by 2007 more than half of mortgages were self-cert - and racked up arrears and losses for lenders when that turned to bust.
The self-cert ban was one of the main proposals in a discussion paper published by the FSA in October alongside regulating buy to let and second charge loans, affordability tests for all mortgages, more sophisticated risk tests for loans and new controls on mortgage advisors.
But the CML argues in a response this week that the real problem came when self-cert was lumped together with the fast-tracking of applications - a system that was meant to be used for lower-risk borrowers. New controls could prevent the toxic combination of the two without excluding people who can safely afford a loan.
In the meantime, it says, self-cert mortgages have disappeared, lenders have tightened their approach to electronic underwriting and borrowers are being more responsible.
‘The market has therefore corrected itself, and a shortage of funding and tighter credit assessment mean that there will be no return to past excesses in the foreseeable future,’ it argues. ‘That is re-assuring, and provides some useful breathing space for the FSA. The regulator now has time to make sure it is clear about the real causes of consumer detriment, to test its proposed reforms carefully to make sure they address it, and to deliver the right balance of costs and benefits for lenders and borrowers.’
The CML continues to resist the regulation of buy to let and also warns that the regulation of second charge loans could have an unintended effect on Homebuy Direct as operated by private developers. As with the self-employed, it’s hard to argue with its plea for more work on the details and more rigorous analysis of the reforms.
However, the danger is that further delay could see the case for regulation go by the board. The FSA is due to publish a feedback statement on responses to its plans in March, just weeks before the general election has to be held. If the Conservatives win, they say they will abolish it and hand control to the Bank of England.
The market may have corrected itself for now but only after causing a crisis that will inevitably be repeated if greedy brokers, desperate borrowers and complacent lenders are not saved from themselves.
Today is Groundhog Day, the setting for the film in which Bill Murray gradually realises that the next 24 hours are doomed to repeat themselves endlessly. I’m beginning to know how he must have felt.
For the uninitiated, February 2 marks the exact halfway point between Winter and Spring. According to German folklore imported into North America and adapted to the local wildlife, it’s the day when the humble groundhog turns weather forecaster. If it emerges from its burrow on Groundhog Day and sees its shadow it will retreat back again and winter will carry on for another six weeks. If it sees no shadow it will leave the burrow and winter will soon end.
In the film, Murray plays a cynical TV weatherman who gets the assignment he detests - covering the biggest Groundhog Day celebration in Punxsutawney, Pennsylvania - only to find himself stuck by a blizzard he failed to forecast in an endless time loop.
It’s a film with an obvious relevance for bloggers, who have to be constantly vigilant to avoid repeating themselves, but it got me thinking about housing too when I read about the latest plan to regenerate the Aylesbury estate in south London. Southwark Council’s full assembly has just approved a £2.4bn area action plan over the next 15-20 years.
From 2010 I was instantly transported back to 1997 and new prime minister Tony Blair making his first major speech outside parliament at, yes, the Aylesbury estate. ‘For 18 years the poorest people in our country have been forgotten by government,’ he said. ‘There will be no forgotten people in the Britain I want to build.’
Thirteen years, the new deal for communities and a botched stock transfer later and finally that may be about to change. Ironically, of course, the estate has not been totally forgotten, just played on an endless loop of stories about Blair’s failure on the inner cities, just as Margaret Thatcher’s ‘walk in the wilderness’ on Teesside came to symbolise Tory failure. ‘We must do something about the inner cities,’ she said in the wake of her election triumph in not 1997 but 1987.
Back in 2010 and another shiny new party leader looks set to take power promising to heal ‘broken Britain’. And, just when I thought I was stretching the Groundhog Day analogy too far, I found myself perusing the ‘What’s New’ section of the Communities and Local Government department website.
‘Councils are being given more support to help them bring empty homes back in to use in the current economic climate,’ the housing minister announced yesterday.
Empty homes, inner cities, housing ministers, Groundhog Day, it got me thinking. Nothing ever changes. Except that a CLG software gremlin or maybe even the all-knowing rodent has been hard at work. The headline reads ‘Margaret Beckett urges councils to take a stand on empty homes’ and it has somehow transported itself from 2009 to 2010.
So is this a house price boom or not? It all depends whose figures you believe.
On Friday the Nationwide said prices rose by 1.2% in January and added that any sort of increase in February would see the annual rate of house price increases move back above 10% for the first time since May 2007. By any definition a rate of five times the general rate of inflation at a time when average real earnings are shrinking would appear to qualify as a boom.
On the same day the Land Registry announced that prices rose by just 0.1% in December and that the annual rate had moved back into positive territory for the first time since May 2008 with an increase of 2.5%. That doesn’t really sound like a boom - although the figures are a month older than the Nationwide’s.
Except that this morning Hometrack said that house prices had seen a ‘sluggish start to the year’. The increase in January was just 0.1% and prices are still 1% below the level of a year ago. While the market information company said the percentage of the asking price being achieved rose again, other indicators pointed to a slowdown, with falls in the number of new buyers registering with agents and the number of sales being achieved and an increase in the average time homes are on the market. Boom? What boom?
So what’s going on? The obvious explanation lies in the differences between the way the different indices are compiled. Nationwide takes the prices of the properties it gives mortgages on and then applies adjustments to the mix. The Land Registry records the prices of all properties sold and compares the prices of the ones that have sold before to get an accurate comparison. Hometrack starts with a monthly survey of estate agents and surveyors to get their opinion on the achievable selling prices for all homes in their area and applies other weightings to get an index it says can show trends in areas with weak levels of market activity as well as strong.
That’s compounded by the low level of sales at the moment. Transactions in 2009 were down on 2008 and half the level seen in 2006 and 2007. That shortage of supply is one big reason why prices are rising (alot or not much depending on your point of view). However, with far fewer properties selling a strong rise or fall in one part of the market has a bigger effect on the national picture.
Hometrack’s survey shows that prices rose in just 7% of postcodes in January and that most of those were higher-priced areas in southern England. Evidence, says director of research Richard Donnell of a one-dimensional bounce in the market that depends on demand from people with little or no mortgage and has overstated the general health of the market.