Thursday, Nov 12, 2009
Report on FTB's Reposessions and BTL
Citywire: Property has become a matter of inheritance not an aspiration for many
What the Council of Mortgage Lenders figures on first-time buyers, repossessions and a recovery in buy-to-let lending tell us about the housing market.
Posted by jack c @ 06:05 PM (645 views) Add Comment
4 Comments
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1. jack c said...
For those without a Citywire account, article as follows:-
I've had three new fascinating pieces of research from the Council of Mortgage Lenders – all of which are ultimately linked in ways that many might prefer not to acknowledge.
First up was yesterday’s news that first-time buyers are returning to the housing market. The number of loans advanced to FTBs climbed to 19,700 in September – a 5% rise on the previous month and 45% up on September 2008.
Tellingly, however, the average loan to value for FTBs fell to 75%, from 84% a year earlier, though those who did secure mortgage credit found it cheaper than before.
Today, meanwhile, we learnt that the number of repossessions rose only modestly over the third quarter, from 11,400 to 11, 700. This was actually down on the first quarter total of 12,700, and has led the CML to reduce its full-year estimate for repossessions to 48,000 – compared to the 75,000 originally forecast a year ago.
Low interest rates and lenders’ forbearance policies are the main reason for the lower-than-expected total, the CML noted.
And finally, we also discovered today that the buy-to-let market is growing again, for the first time in two years. The number of B2L loans advanced in the third quarter climbed to 23,700 from 21,600 in the previous three months, with the total value of loans 10% higher.
The recovery in the B2L market was modest at this stage, the CML said in its commentary, but buy-to-letters were being supported by historically low interest rates and a chronic shortage of social housing.
So what are we to make of all of this, and what does it presage for the housing market over the next couple of years?
The first thing to note is that average LTV figure for FTBs. That FTBs are still being asked to stump up a 25% deposit says everything about our still vastly overpriced houses, and the understandable unwillingness of lenders to further expose themselves to any possible sharp correction.
Individuals may be desperate enough to pay vast amounts for a shoebox; they need to live somewhere, after all. But banks need to repair their balance sheets and improve the quality of their loan books, and that means taking proper account of default risk.
But that 25% average deposit also means that home ownership is being denied to millions – unless they get huge parental help. And where does that help come from? Invariably from property, bought in days of old for a song, and now worth a small fortune.
Thus property ownership is increasingly becoming a matter of inheritance, rather than a reasonable aspiration for ordinary people.
Those FTBs that do take the plunge, meanwhile, are still being asked to spend an average of 15.3% of their income on interest payments, up from 15.1% in the previous month.
Thus not only are FTBs being asked to stump up massive deposits, but even then houses are getting more expensive yet again. These are kinds of figures previous generations would have baulked at.
The figures on repossessions, meanwhile, have as much to do with wafer-thin interest rates, the desperation of the Bank of England to re-inflate house prices at any cost, and the imminent general election as they do with the health of the economy, or the benevolence of lenders.
Banks owe their continued existence and bumper bonuses to the government and taxpayer, after all, and there must be at least a small price to be paid for that.
And that price is to keep people in their own homes when they might otherwise be ejected – at least until after the next general election.
But again, interest rates are the key to repossessions. Not only have millions of desperately indebted homeowners been bailed out by loan rates they could never have dreamed of, but even better for them their home values may even be rising again thanks to the increasingly desperate search for a reasonable inflation-proof return.
Through low interest rates – and therefore paltry savings rates – it has been the Bank of England’s intention all along to force people into spending their cash on consumer goods and speculative assets rather than saving, and that strategy now appears to be bearing fruit.
Give British people no other choice and they will inevitably plough their money into property, as they have always done.
They might even buy a second or a third house, which takes us on finally to the news that the B2L appears to be growing again.
For there is surely no better symbol of the age of excess than the swelled army of amateur buy-to-letters. They are the ‘Loadsamoneys’ of our times. And just like residential homeowners they were bailed out by the dramatic and previously unthinkable cuts in interest rates, though unlike residential homeowners there is public little sympathy for their plight.
But B2L is as much a symptom as a cause of our current plight. Sure they have pushed up prices and priced many FTBs out of the market, but they are also responding to a nation that sold off its social housing stock on the cheap and has since failed to replace it, and to a government that is desperate to avoid a house price crash. Until those two things change, one can't help but suspect that the buy-to-letters are on to a pretty good thing.
2. drewster said...
Are interest payments really only 15.3% of incomes? That seems quite affordable to me, especially considering how much these mythical FTBs must be earning in order to afford a house in the first place.
3. fallingbuzzard said...
Interest payments are 15.3% of incomes because a large chunk of mortgage holders have very low mortgages. Thats why no-one should ever listen to averages, house prices being the mother of all averages.
4. drewster said...
fb,
Any idea what % of income a typical FTB spends on mortgage interest?