The marketplace in 2016
Rob Clifford is group commercial director at Shepherd Direct which is a shareholder at CENTURY 21 UK, Moneyquest and Stonebridge.
4.5%. 5.6%. 9%. On the day that I write this, those are the annual house price growth figures from the Nationwide, Land Registry and Halifax (albeit just up until the end of November in the latter’s case).
Clearly there’s a significant difference between both Nationwide and Halifax but it seems fair to say that house price growth has certainly been single digits during 2015, and the anticipation is that 2016 will probably see similar results.
So, how might the government and the mortgage market at large regard such figures and the predictions related to them? I suspect they will be seen as cause to validate their policies and perhaps to give themselves a pat on the back. It’s been obvious for some time – indeed since the 2007/08 crash – that government and regulatory policy, as far as the housing market is concerned, has been aimed at mitigating the potential risks that an overheated market could present UK plc.
Indeed, all policy has been focused on this objective. Thus we have had the MMR affordability constraints, the introduction of Help to Buy, the increase in capital requirements for banks, Bank of England oversight for residential (and no doubt soon, buy-to-let) lending, increases to stamp duty rates for additional properties, the list goes on.
In following these policies the government, and its regulators, have been attempting to tread a fine line; a balance between supporting the housing market in particular, attempting to increase the supply of new homes, helping first-time buyers onto the ladder, etc, whilst at the same time disallowing anything it sees as threats to stability to get out of control, for example, preventing borrowers from overstretching themselves, curbing smaller private landlords’ ability to purchase properties with interest-only mortgages, etc. The strategy has clearly been focused on achieving a status quo and maintaining it for at least the medium-term.
So, up until this point, has this been successful? The results are inconclusive. Clearly, the ability to get new supply into the housing stock has been a priority for some years, yet we are still a long way short of the numbers required – 250k units per year is often cited and we are nowhere near this. The mortgage affordability measures were, without doubt over-egged by a number of lenders immediately post-MMR although since then there has been a return to common sense lending by most. However, there are still many borrowers who would ordinarily be judged to be able to afford a mortgage but are unable to secure finance.
I’m also not convinced that by ‘picking on’ smaller landlords/the buy-to-let market in general and actively favouring first-time buyers at their expense, the result will be the right one. Clearly, a minority of amateur landlords will be dissuaded from purchasing additional property because of the stamp duty increases, however given the importance of the private rental sector to UK housing; it seems rather self-defeating to adopt policies which could backfire so significantly. Yes, landlords may bring about property disposals, but can first-time buyers afford these properties? Yes, some landlords may be put off buying however others won’t and many are likely to recoup the additional tax and regulatory costs through increased rents anyway. When the major problem remains supply, these measures do little to tackle this overarching challenge.
Going back to house prices – certainly increases have not become the runaway train many feared; they have stabilised and for the foreseeable future look like they will maintain the same course. However, with constrained housing supply we shouldn’t really expect homes for first-timers to become affordable overnight – wages for instance, while showing a recent uptick are still off the pace, and therefore (coupled with the mortgage affordability rules) will mean many wannabe borrowers will have to remain just that. Add in the increased deposit requirements and you can see why the private rental sector remains so important.
So, while there may be some cause for minor celebration around housing market stability, there still remains much to be done in order to move to a satisfactory long-term position. It’s clearly positive that the government recognises the root housing supply problem and is working on developing a wider solution but the fact is we have been behind the trend for so many years makes it a huge hill to climb. That being the case, we will of course continue to have a functioning marketplace but perhaps one that doesn’t quite reach its potential for some years to come.