If a week is a long time in politics – and given recent events and changes you could perhaps drop that to 24 hours – then a decade is certainly a long time in the housing/mortgage market.
10 years ago of course the world was experiencing the first throes of the Credit Crunch, and we were all wondering what new kind of hell would be discovered next, and just what the full impact would be. Little did we know just how deep the problems ran or that for some economies – and I count the UK amongst them – the road to recovery would be incredibly long. Indeed, following years of austerity measures, we might well question whether that recovery has even been achieved here yet.
Back in 2008 however – when we perhaps did not fully understand just how the mortgage/housing markets were going to change – there were plenty of borrower demographics who had benefited greatly from those pre-Credit Crunch days.
Certainly, the previous five to 10 years had seen an expansion of the mortgage market few could have predicted and (ultimately) few foresaw just how those moves up the risk curve would eventually come back to haunt many lenders and borrowers. The less said about the availability of credit to those with adverse credit or the increase in self-certification loans the better, but there other more mainstream borrowers who also benefited from a more competitive and accessible mortgage marketplace.
Take first-timers, for instance. Recent statistics from the Office for National Statistics show how the regulatory, market, and economic changes have impacted on the younger homeowner over the last decade. Back in 2008, the ONS tell us that 37% of those in the 22-29 age bracket owned their own property, while today that figure has dropped by a significant 10% to 27%.
And it would seem that the inability of this younger potential purchaser to get on the ladder is going to severely curtail the number of new households established in the years to come. While it still anticipates that 159,000 new households are going to be formed in the next 25 years, the figure is down from the 210,000 it predicted just four years ago in 2014.
There are two points to make here. Certainly the creation of 159,000 new households is something to worry those in charge of bridging the ‘housing gap’. Where might those new households live, for example? Secondly, the fact that the predicted number has dropped suggests that many who might have formed new households – specifically in the younger age group – are probably going to have to stay put, probably continuing to live in the family home rather than branching out on their own.
Now, there might be an argument to suggest that – given our current housing supply – we actually want fewer households formed as we don’t have the capacity to house them anyway. But, there are deep-rooted problems in all of this because you need new households to be formed in order to meet employment needs, to deliver the benefits of social mobility, to help grow the economy, and to make sure that UK plc is developing as it should, plus that the Government continues to benefit from the extra taxation that these households will pay into the Treasury coffers.
Plus, of course, from a 22-29 year old’s perspective, you want to be able to give them the opportunity to get on the housing ladder. To show them that this is not a closed shop, that they will have the same opportunities as their parents, and they will not have to count on the largesse of Mum and Dad for many, many years to come. It’s therefore vitally important that we create a marketplace where home-ownership at a relatively young age is not simply a ‘pipe dream’ for everyone concerned.
In that sense, there is still much work to do. Yes, first-timers have more support than at any time in the last decade, yes there has been a growth in high LTV mortgages, yes we have schemes that can help, but is this still enough? Are we still overcoming the biggest single obstacle for first-timers – saving for a deposit? Again, there is an over-reliance on the Bank of Mum and Dad to deliver in this area which won’t be sustainable for the generations that follow, especially given the growing personal commitments that those in later life now have.
The next decade is therefore incredibly important in terms of pushing those numbers up. A lot of things have to move in their favour, not least lenders appetite to lend in this space – we have seen progress here but the true proof of the pudding will be in the eating. We not only need greater product numbers, at more competitive rates, but we need actual lending – if the finance is readily available then the numbers will improve. We await to see whether the market can deliver on that.
Pad Bamford is business development director at AmTrust Mortgage & Credit