One has to say that the ‘mood music’ around the UK housing market is not as jaunty and uplifting as we might ordinarily expect it to be; indeed, while that ‘music’ is not exactly Leonard Cohen-esque, it’s perhaps touching on the arch-miserabilism of Morrissey. In that sense, we need to ask why every UK housing market day appears to be like Sunday at the moment, given that the more we ignore it, the closer we get to increasingly poor outcomes.
Just this week, the latest survey from RICS outlined a ‘weakened’ housing market; one which, it said, would continue to ‘flatline’ for some time, amidst a continuation of falling instructions for agents and a subsequent fall in the number of properties being sold.
Understandably, RICS put the blame partially at the door of the EU Referendum vote, the Brexit negotiations and the abject unknowability of how these might play out, what the outcome might be and whether this would be in any way positive for the UK or its economy. When you have David Davis effectively saying the UK is likely to be the first and last to leave the EU because no-one would be willing to follow us down such a route, then you may not be holding out much hope for a ‘strong Brexit’ outcome.
Indeed, as time progresses and the huge complications and implications of that decision to leave the EU unfurl themselves, then we can expect a greater level of uncertainty to develop. This, after all, is a decision that will impact on every single part of our society and economy, and we should not be surprised to find that one of our biggest markets – housing/mortgages – takes its full share of that impact.
The RICS survey seems to show that many homeowners or potential purchasers are effectively opting for the status quo at present, with so much uncertainty around. House price levels have been relatively stable but there appears to be an underlying weakness there, and purchasers might well believe they are buying at the wrong time if they go ahead now. This has not been helped by headlines such as, ‘40% house price crash imminent’, and the like, although it appears the economist credited with such a view has now gone back on those initial thoughts.
Any underlining weakness in the housing market is likely to be picked up by the ‘lifeblood’ borrowers, first-time buyers, as they seek to navigate through these choppy waters. Despite a lot of political intervention in their favour over the past five years, the fact of the matter is that there are some fundamental elements which make getting on the ladder incredibly difficult.
Help to Buy 2 undoubtedly boosted the provision of high LTV mortgages for first-timers but with this scheme now finished, what are we left with? Certainly, not the ‘normality’ we were promised by Chancellor Philip Hammond. The latest Bank of England Credit Conditions Survey of lenders spells this out in quite stark terms with lenders themselves anticipating falls in secured credit availability in quarter three this year, particularly in the 90%-plus LTV band. This was put down to ‘a changing appetite for risk’ but it’s not a new phenomenon by any stretch of the imagination; a number of HTB2 lender members left the scheme and have not offered 95% LTV loans, for example, since leaving.
Now this level of risk-aversion when it comes to higher LTV loans appears to be spreading, particularly within the larger, mainstream operators, although we are finding that building societies are willing and able to maintain their presence and their lending in this sector, utilising risk-mitigants like private mortgage insurance in order do so. That said, as our recent LTV Tracker revealed, the cost of 95% loans continues to rise, far outstripping that paid by 75% LTV borrowers, plus the actual availability of 5% deposit mortgages for first-timers seeking to buy averagely-priced property in the UK is paltry to say the least.
All these elements are combining to make the UK housing market one which might be in ‘treading water’ mode for some time; certainly until we get a far better idea of what ‘Brexit’ actually means, rather than simply ‘Brexit means Brexit’. In that sense, we’re not quite at the ‘Heaven knows I’m miserable now’ stage but the government might well take this summer to look at these developing themes, and use the autumn to show what difference it can make.
Pad Bamford is business development director at AmTrust Mortgage & Credit