Further to last week’s blog, there has now been increased debate on the recent and possibly encouraging movement in the housing market. The Council of Mortgage Lenders (CML) reported that loan approvals in March were a 14.8% increase on February. In addition to this, the Royal Institute of Chartered Surveyors (RICS) said that a majority of its members reported a rise in prices for the first time since 2010. The director general of the CML said, ‘more borrowers are taking out higher loan-to-value mortgages than at any other time in the last 4 years’. He further commented that, ‘that this is a sign that lenders are open for business and that borrowers – even those without a large deposit – are increasingly able to get a foot on the property ladder’. Good news you may think. However, Fathom Consulting, whom we have now discovered are a forum of Bank of England economists (so one would hope that they know what they are talking about…), make a very valid point; tempering the enthusiasm of both the CML and RICS. Under the plans unveiled by Chancellor Osborne, the Government will either provide a loan or guarantee the top 20% of the value of a new property. This is in addition to the borrower’s 5% deposit. If someone is purchasing a £100,000 property, the lender’s exposure could only be £75,000. The concern raised is that at this new reduced level of exposure, lenders may be encouraged to slacken their underwriting criteria and revert to the somewhat gung-ho practices of the early 2000’s. Of course everyone wants movement, but nobody wants a boom in the housing market; what goes up, must come down, and a boom is programmed to be followed by a bust. Steady growth is far more desirable and sustainable in the long-term.
