Scottish Labour’s Support for First Time Buyers

I was very interested to read Kezia Dugdale’s proposals in support of first time buyers.  Whilst I do not think the plan goes far enough, I think it is very positive that we have a party that appears to recognise the aspirational nature of home ownership and the importance of first time buyers to the housing market and the wider economy.   Not only does a stable housing market assist the economy, my view is that it also benefits society as a whole as people also have a financial stake in their communities as well as a moral one.

I would urge all parties to look at more ways of supporting first time buyers and also schemes to increase the amount of house being built.

Lindsay Darroch
Partner – Head of Property
www.blackadders.co.uk 

Mixed Messages From Mortgage Market

The latest Bank of England figures show that Banks and Building Societies cut lending by a net £2.425 billion between October and December, 2012.  This includes lenders who are taking part in the funding for lending scheme.  While I am noticing an increase in activity in mortgage lending, I know from speaking to a number of mortgage advisers that deals are taking longer to get through and that every box requires to be ticked before the lender will process the application – perhaps no bad thing!

Money Facts have recently called on lenders to re-open their books to first time buyers to get the property market moving.   Sylvia Waycot, editor at Money Facts, said “we have seen the first time buyer market stagnate as deposit demands become unrealistic.”  The latest significant changes the Government’s funding for lending scheme, which seems to put everything back on track – but only time will tell if this works out as planned.  We are already seeing the forward thinking lenders into the markets with innovative products to help first time buyers to get onto the housing ladder.  It looks as though we are about to enter yet another period of change within the mortgage market, and at last it might be for the better.

I hope the Government’s funding for lending scheme works as planned and the Chancellor takes the budget opportunity to do more to assist first time buyers.

Lindsay Darroch
Partner & Head of Property

 

Ray of light for property market

As readers of previous blogs will know, one of my main concerns is the lack of support for first time buyers in the property market.  This is primarily due to lenders tightening up their lending criteria and refusing to break the 90% loan to value rule.  I was pleased to hear from contacts in the USA that the housing market there is starting to show signs of recovery and the banks are now providing 95% and 97% mortgages.

I have been in discussions with a major High Street lender regarding a variety of mortgage products and I am delighted that due to those discussions we can now launch the Blackadders Deposit Match Scheme.  In practice, this means that if we are able to reach a deal on a property for at least 5% lower than the Home Report valuation the lender will class this as a 5% deposit requiring the purchaser to fund a minimum of a further 5% and thus treating the deal as a 95% mortgage.  This product is available for all purchasers although I do think it will be of particular interest to first time buyers. I think that this will start the release of the housing chain and will be a welcome development for purchasers and sellers.

This is a very exciting development and one that I believe will mark the beginning of an improvement in the housing market.   As I have mentioned before, to get a self sustainable property market we need to get the number of first time buyers over 40%, i.e. the number of first time buyers in the market needs to be more than 2 out of 5 of all purchases. This scheme will assist those who have small deposits or those who require to retain funds to pay for home improvements or contribute towards the purchase outlays such as stamp duty.

This is another exciting initiative that we are delighted to be part of and shows our commitment to getting the housing market moving.

I will report on the success of the Scheme in further blogs but in the meantime should anybody require further information then please do not hesitate to contact either myself or another of the Blackadders Property Team on 01382 342222.

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

Lending collapses nearly 100%

I was interested to read a prediction by the Counsel of Mortgage Lenders that net mortgage lending this year is likely to be just £6 billion, the lowest annual total since 1980.  Net lending is what borrowers actually owe their lenders after they have paid off some of the capital etc.  This figure represents a fall of almost 95% from the £108 billion of net lending in 2007.  This figure does point to the initial concerns regarding the housing market and shows inherent weaknesses.  As I have mentioned in previous blogs, with no clear strategy from the Government in respect of the housing market, continuing economic uncertainty and job insecurity, people are less inclined to move house.  Coupled with that you have the problems that first time buyers have in getting on the ladder then there is a real problem of a stagnating house market.

I will continue to monitor matters and keep you updated.

Lindsay Darroch
Head of Property Services

First time buyer assistance from builders firm

I heard with interest that Barratts have launched a First Time Buyer Scheme.  The scheme allows first time buyer’s parents to borrow 15% of the purchase price on an unsecured loan basis with a fixed rate of 5.4% and run for up to 12 years.  The scheme has no early repayment charges and a limited overpayment will be allowed penalty free.  This will enable first time buyers to have a mortgage of 80%, put down a 5% deposit with the remaining 15% funded by the parents through a loan from Hitachi.

As I have mentioned before, first time buyers have been badly hit in this economic downturn and the average age of a first time buyer is now 37.

I am in discussion with a national builder with development sites in Scotland to see if they would be in a position to offer something similar and I shall let you know as soon as I have some more information to report.

Lindsay Darroch
Head of Property Services

Are responsible lending restrictions going too far?

I welcome the comments by the Head of the National Association of Estate Agents voicing his concerns regarding the Mortgage Market Review (MMR).  Readers of this blog will know that for the past 18 months I have advocated strongly for Government action and support to force lenders to increase the amount of lending to enable all prospective purchasers and first time buyers in particular to get onto the housing market.  If the current proposed restrictions are applied, more than 150,000 purchases each year will not take place and this will hit first time buyers heavily.  This will have a huge knock on effect.  I will keep you updated in respect of these proposals.

Since writing this blog, Prime Minister, David Cameron has now spoken out against plans to clamp down even further on mortgages in the name of responsible lending.  Mr Cameron had indicated that lenders have already gone too far in preventing good risk buyers from accessing mortgages.

The Housing Minister Grant Shapps, who is due to meet the FSA during the course of this week in respect of the MMR proposals, has himself indicated that he would have failed to get a mortgage under the new proposals.

I am delighted that the Prime Minister and the Coalition Government are taking this matter so seriously as the housing market is fundamental to the whole economy.

I will keep you updated.

Lindsay Darroch
Head of Property Services
T: 01382 229222
E: lindsay.darroch@blackadders.co.uk