As we approach the holiday season, news about the UK's housing market is more in the nature of a trickle than the torrent to which we are accustomed during the rest of year. There have nonetheless been several developments in recent days which could be of major significance in 2017 and which therefore merit examination in these pages.
FCA to examine mortgage relationships
The Bank of England (BoE) has expressed serious concerns around mortgage lending arrangements numerous times in the past twelve months. We have, in previous columns for example, discussed its intention of having the Prudential Regulation Authority (PRA) regulate aspects of the buy-to-let mortgage sector from January. The BoE's specific remit will be the imposition of strict new affordability criteria, which financial institutions must apply before granting mortgage funding to landlords. This measure is designed to prevent banks from being over-exposed to risky lending and, by extension, to calm the buy-to-let market. The BoE says that it regards buy-to-let as being a potential "bubble" which could ultimately compromise the country's financial stability.
Several newspapers have covered the latest regulatory announcement, namely that the Financial Conduct Authority (FCA) will be evaluating the relationships between mortgage lenders and certain businesses such as estate agents, developers, price comparison websites and brokers, to ascertain whether consumers' interests are always best served by the arrangements. It will, as part of its study, investigate the "inducements" offered, for example, to estate agents by mortgage lenders and will try to determine whether this type of commercial tie-in results in house buyers being directed to the wrong lenders and, as a consequence, effectively taking on the wrong mortgage products.
The findings of this wide-ranging research will be published in 2018 and the report's contents will be of huge interest to the entire property industry. Little is known about the remedies being considered by the FCA if it detects serious problems in these close relationships. However, there is a range of options open to it:
1. market-wide rules and regulations
2. referral to the Competition and Markets Authority
3. penalties, such as fines, for individual firms
The FCA's Christopher Woolard says that his organisation acknowledges that the arrangements it is exploring may well provide benefits for customers. A mortgage is the biggest financial commitment a person will ever undertake and the FCA wants to make sure the market is competitive and works to the benefit of everyone.
Have government policies made the housing crisis worse?
Another issue that has previously been discussed in these pages is the effort being made by the Government to solve Britain's housing crisis. The policies developed to this end have not been universally popular, to say the least. Landlords, by way of example, have been understandably disgruntled by a series of new taxes applying to their business arrangements. Elsewhere, the right of tenants to buy their housing association house or flat has been criticised by charities and certain social justice think tanks, who believe that selling off the country's existing housing stock during a grave housing shortage is a deeply flawed policy on many levels.
If these policies worked, they would be accepted by the public at large, even if they remained controversial among affected businesses. There are important doubts being expressed about their efficacy, however. Some commentators have gone so far as to say they have made matters materially worse. The latest voice to be added to the debate is that of Dame Kate Barker, a former BoE policymaker.
Speaking to a Treasury Select Committee, she argued that some measures ostensibly calculated to help first time buyers, for example, have pushed house prices up. Without getting bogged down in the economic theory underpinning her argument, she seems to be saying that the policies, such as the help to buy ISA, have increased demand for housing while doing nothing to ease the housing shortage, so prices have inevitably risen.
Dame Kate discussed a number of other governmental interventions in the property market. Mortgage criteria for private borrowers were significantly tightened following the financial crisis. The net, and entirely unintended, outcome was to make it dramatically more difficult for first time buyers to obtain mortgages, meaning that landlords and the much-maligned buy-to-let sector had a real advantage when competing for lower cost residential properties. This resulted in resentment and a sense of injustice among aspiring homeowners. This, in a grimly ironic turn of events, the Government is now addressing, with measures to cool the buy-to-let sector and level the playing field so first time buyers can compete with landlords! The obvious question is: if we hadn't tinkered with the lending regulations in the first place, would we be in this position now?
That debate, of course, will run and run. One thing of which Dame Kate was absolutely certain was that nothing will ease Britain's housing crisis until we commit to building more homes. This has been one of her consistent refrains for many years and she is supported in her opinion by housing economists, charities, think tanks, professional bodies and participants in the housing industry.
Suggestions for increasing the country's housing stock include tax incentives for house builders, deregulating large parts of Britain's planning infrastructure, allowing local authorities to borrow money to build homes, permitting house building on the green belt and repurposing brownfield and public spaces so that they can be used for ambitious home construction projects. All of these proposals will face the dual difficulties of a perennial lack of funds and opposition from local residents who naturally want to preserve the character of their neighbourhoods. As formidable as these obstacles may be, they aren't insurmountable. For example, opposition to new builds in a town or village is found to start to evaporate when local authorities pledge infrastructure investment, such as new roads, to help accommodate new homes and residents.
The team at Nethouseprices will be regularly monitoring these stories and other property market developments. Visit us again soon for more information on the issues that matter to you, your family and your business.
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