Bob Young is managing director of CHL Mortgages
One thing you can never accuse the mortgage industry of being is boring and certainly not at the moment where there appears to be a veritable tornado of activity which could ultimately have a significant effect on a huge number of stakeholders.
The fact is that, here in the middle of May, we are a very long way from the positivity and anticipation which emanated from the market back at the start of 2014.
Whereas we entered January looking forward to future growth and a marketplace which appeared to be leaping and bounding away from the bottom, now we find ourselves much more unsure about the market’s direction certainly in the short-term and, perhaps if we’re honest, all the way up to and past next year’s General Election.
How has this happened? It’s not as if any of the scenes currently being played out were unscripted and thrown into the piece at the last minute.
For example, we have the MMR which has been in all our diaries for a very long time which meant preparation should have been done and dusted well in advance of the 26 April.
We have the current unrelenting focus on Help to Buy however this has been with us over a year having been announced in the 2013 Budget with HTB1 starting last April, HTB2 kicking-off early last October and both designed to run for a three-year term (albeit with HTB1 having now been extended until the end of the decade already).
And finally we have Bank Base Rate – kept at 0.5% for over five years and therefore inevitably going to rise at some point in the next 12 months. All ‘known knowns’ as Donald Rumsfeld was prone to say.
It appears to me however that the main ‘spanner in the works’ or catalyst for some of the current market chatter and turbulence has not been any of the above – it has instead been the increase in house prices.
Despite the fact that house prices fell post-Credit Crunch and recession, there are many amongst the powers that be that see 10% increases pa and immediately head for the medicine cabinet.
I can understand those feelings however, to my mind, they have to be kept in context and there must be no knee-jerk reactions to price increases.
Firstly, London and the South East does not equal the rest of the country. There will be people all throughout the land who will be utterly bemused at the talk of double-digit house price growth.
Secondly, if you want to impact on rampant house price growth in the Capital and surrounding counties it is going to take more than a few tweaks to the Help to Buy scheme.
For a start, as the recent data shows, the vast majority of Help to Buy mortgages have been claimed by first-time borrowers, outside London at below average house price levels. Bringing down the maximum value of a Help to Buy mortgage from £600k to £300k will have no impact at all in the London market.
Any universal changes to Help to Buy will only be felt by those individuals who we should be trying to help – good quality, credit-worthy first-timers who can afford their mortgages but struggle to pull 20/25% deposits together.
If you look at Help to Buy up until now it has actually done the job it set out to do. It has been responsible for an increase in house building and it has brought greater numbers of high LTV mortgages to the marketplace. I don’t believe it is the cause of increases in house prices and therefore calls to scrap it or radically overhaul it seem misplaced.
However, then we come to the MMR because, at present, it appears that if the Government is looking for a mechanism to cool the housing market – which I don’t actually believe it is – then this could be the one to do the job.
Already, it is having an impact and business volumes are rapidly retreating from earlier highs this year. The argument is that this will be a short-term thing; lenders are momentarily over-egging the affordability pudding but will see the ‘error of their ways’ later in the year.
I’m not so sure – systems of course take time to bed in and it could be a case of being much stricter earlier on than they plan to be later however this will probably mean a reinterpretation of the rules on their part to change this.
How many lenders will believe the way they approach affordability has been effectively wrong from the start of MMR? I’m not sure many will although this opinion is always liable to change if they encounter huge drops in volume as some might do.
Therefore, the ‘new normal’ mortgage market (as it is often referred to) post-MMR could be very different to what we saw immediately pre-rule changes.
It was perhaps always inevitable that mortgage volumes would drop off but it appears that they might not recover as quickly as some might have thought. In all of this we must think about the adviser and their client who will no doubt feel somewhat frustrated by current lender service issues and perhaps be worried that the market might be entering a period of relative slow down.
Certainly, with pressure growing on the government and the Bank of England to intervene to stop the perceived ‘house price bubble’ it looks likely that the rest of the year, whilst being just as interesting, will mean a significant pullback in activity for all concerned. And you can’t help but be disappointed in that.