RICS calls for Government to do more for housing market

I welcome the recent report from RICS calling on the Government to introduce measures to encourage the housing market.  The report advises that for every £1 spent on construction there is a contribution of £2.84 towards economic activity.  It also advised that the construction industry employs around 900,000 people.  RICS has laid out plans very similar to my own to stimulate the new build market, in particular, cutting VAT on the refurbishment of homes, changes to the tax system to encourage residential property investment and reinstating empty commercial property relief.

Mark Goodwin from RICS comments: “With house building at a desperate level, it is essential that the Government takes steps to attract investment into the residential sector”.

I would urge the Chancellor to take active steps in his Budget to stimulate the housing market.

Lindsay Darroch
Head of Property Services

The importance of first time buyers

I was recently asked to give my predictions for the property market in 2011 and this made me think again about the importance of first time buyers to this market.  I was particularly disappointed to see the results of the summit held by the Housing Minister, Grant Shapps, on 15 February.  The outcome of the summit was summed up by the Council of Mortgage Lenders who said “its good to see Ministers taking the initiative to discuss how we can look to improve market conditions for first time buyers but no-one will be surprised to learn that there is no simple quick fix for a market that has changed fundamentally since the credit crunch.”

I think this is a very disappointing outcome.  Recent statistics show that the average age of the first time buyer is now 37.  A recent survey conducted by Rightmove showed that  20.9% of current purchasers are first time buyers.  For a normal moving property market, this figure needs to be in excess of 40% and until we get this flexibility and liquidity into the market, the housing market will not move to its full extent and until that happens the economy will not fully stabilise.

I would advise that I have today written to Grant Shapps detailing my earlier proposals to help first time buyers:-

  1. The Government, via Project Merlin, should instruct Banks to lend first time buyers up to 95% loan to value with the Government guaranteeing 10% of the loan.  This means that in effect the Banks are only risking 85% borrowing.  This sum could be limited by the Government to the £800 million pounds extra raised via the additional Bank tax and once this fund has been used, the scheme would come to an end.  The Government would in fact not be spending any money unless these guarantees went bad and if the properties were sold for less than 95% of their original value.  Both unlikely if we get the housing market moving.
  2. The Government should look at, via the FSA, agreeing with banks that they can lend 95%-100% loan to value mortgages – with correct multipliers and income checks – and also introducing a compulsory mortgage insurance guarantee scheme.  This is an insurance policy that would cover the banks should the mortgage go wrong and the property repossessed and sold for less than the original loan.  Originally very popular in the early to mid 90’s but phased out by Banks in the heady days of 2000’s.
  3. The Government should look at extra funding for housing associations.  This would encourage the building of more low to medium range houses.
  4. There should be tax breaks for developers and a reduction in VAT for people carrying out property development.
  5. Finally, there should be limited pension relief for people purchasing investment properties – limited to a certain number of properties purchased within say a 12 month time frame.  This will again assist the housing market both by getting more rented property on the market thus cooling the overheating rental market and also taking up some of the oversupply of low end properties currently languishing on the market.

If these points were implemented with immediate effect you would see the appropriate number of first time buyers coming into the housing market causing the housing market to stabilise increasing the Banks confidence and allowing the Banks to lend more freely causing further stability of the housing market and strengthening the current fragile economic recovery.  These could all be implemented at very limited costs.  I shall let you know as soon as I receive a response to my letter.

ps Since dictating this blog, I have been in discussions with a client who has been involved in the property market in the United States of America.  His report was that the housing market in America is starting to stabilise and that the Banks there are in fact lending 95% and 97% loan to value mortgages.  The word on the street is that there is now an expected housing market recovery for summer 2011.  My feeling is that with the Presidential election in the summer of 2012, the housing market will start to improve by autumn 2011 with economic recovery in America in full swing by January 2012.  Thus being the perfect launch pad for a President seeking re-election.  Let’s hope there is a knock-on effect here!

Lindsay Darroch
Head of Property Services

The Government should create a first-time buyer guarantee fund with money raised from the Banks

Following my recent blog regarding breaking up the Banks, George Osborne has announced he will increase the Banks’ Tax – raising an extra £800m for the Exchequer. This makes good headlines and also appears to be a good political move in light of expected Bank announcements regarding bonuses. Taking more money away from the Banks, however, while trying to encourage them to increase lending appears to me to be two actions which are at odds with each other. At the moment the Banks are unsure of the housing market hence their reluctance to lend which is increasing the uncertainty and has the property market locked into a downward spiral. The only way to break this spiral is with Government intervention and I would urge the Chancellor to use the extra £800m he has raised from the Banks to create a first time buyer guarantee fund. This would help first time buyers back into the property market which would help stabilise the property market, increasing the Banks’ confidence and thus increasing the amount that they are prepared to lend by way of mortgage finance.

ps Since writing this blog the Scottish Government have announced their plans to help First time buyers. Whilst I welcome any initiative in this area I don’t think the proposals are enough to really help the market I will revisit the issue of First time buyers shortly

House sales in January below December levels

The RICS have issued their January review indicating that a lack of buyer demand and low levels of supply got the housing market off to a poor start this year.  The RICS report indicates that agreed sales continue to drop while weakness in market activity was at its lowest point since June 2009.  A RICS spokesperson has indicated that “uncertainty over the prospects for employment, alongside the shortage of mortgage finance, particularly for first time buyers, continues to way heavily on transaction levels.”

Although the RICS survey is a small snapshot it is taken into account by the Bank of England’s Monetary Policy Committee at its monthly meetings to set interest rates.

This report certainly accords with my view and indicates the need for Government intervention and also shows the importance of an innovative and sales driven solicitor estate agent.  I will continue to keep you updated in respect of future figures and analysis.

Lindsay Darroch
Head of Property Services

Don’t break up the banks

I was pleased to read John Cridland’s (the new Head of the CBI) comments against the break up of the UK banks.  A break up of the banks would put Britain at a competitive disadvantage with those jurisdictions which prefer to leave the banks intact.  Anything that weakens the banks weakens the economic recovery and as such will weaken the housing market.  We need to get the banks lending more money to SMEs and also supporting the housing market by increasing mortgage lending – in particular to first time buyers.

I hope the politicians will not jump on the populist bandwagon of bashing the banks and instead turn their attention to supporting the economy through this difficult period.

Lindsay Darroch
Head of Property Services

‘Guaranteed Sale Scheme’ launched

A recent report has shown that the December 2010 mortgage lending was at its lowest level since 2000 and 18% lower than December 2009.  The latest Home Track Survey of over 5000 Agents shows a slowdown in both supply (new houses coming onto the market) and demand.  I have to concur with these two views and would advise that the Scottish wide analysis that we carry out on the property market in Scotland certainly shows that, with a few geographical exceptions, supply and demand are lower than 2010 levels and are very close to the low point of the market in 2009.

Whilst these figures are only our initial analysis and January has ended with a definite increase in activity, there is no doubting the trend.  I am not concerned in relation to house prices, as these remain relatively stable but I am concerned about a stagnating property market. With people taking the view that there is nothing to buy or that they would not be able to sell their house, they are apprehensive about putting their property on the market.  This then becomes a self-fulfilling prophecy and has serious implications not just for the housing market but for the economy as a whole. I was interested to read an article by Tom Vosa who is the Head of Market Economics for Clydesdale Bank who states that a sustained economic recovery will only come with a housing market stabilisation.

I would reiterate my call to UK and Scottish Governments to do more to assist the housing market.  The Scottish Government should scrap the Home Report with immediate effect and the UK Government should implement a programme of assistance for the housing market and in particular first time buyers.

To assist the housing market, Blackadders has, for the month of February, launched a guaranteed sale scheme which, subject to terms and conditions and availability, means that if we do not manage to sell a property within 12 weeks then there will be no estate agency fee payable.  My hope is that this will encourage people to take the plunge and get their house on the market and get the housing market moving again.

For more information, please do not hesitate to contact me or any member of the Blackadders Property Team on 01382 342222.

Lindsay Darroch
Head of Property Services

PS – I am delighted to announce that since writing this blog the Housing Minister Grant Schapps has organised a summit with mortgage lenders, industrial leaders and house builders to discuss the first time buyer mortgage crisis.  This will take place on the 15th of February and I will issue a blog shortly thereafter with an update.