Building Societies Association
Harold Wilson famously remarked that a week is a long time in politics. Well the last seven days have certainly proven that to be an understatement. A week after polls closed and only three days after confirmation of a Conservative/Liberal coalition, the country is still trying to figure out exactly what this alliance means for government policy.
Elections usually provide certainty and strong leadership – whether it’s a returning government with a new mandate or a new administration taking office, a clear result provides an unambiguous mandate. However, this election outcome has thrown up more questions than answers.
With us now having a coalition Government, the necessity for cross party support to carry out reform and policy change provides more uncertainty to what (and how far) the Government can realistically go. There is a political uneasiness and vulnerability about this regime which may continue to unsettle markets and provide discomfort to the Government itself as it treads through its business piece by piece. The knowledge that the alliance may break down, particularly with many difficult decisions to be made over the course of this parliament, triggering another election before May 2015 breeds further uncertainty.
There are many areas that the new Government needs to grapple with. Primary is restoring confidence in the investment markets that the UK is well equipped to manage its record level of public sector debt. It is clear that cuts in public spending are inevitable – the only questions being where the cuts happen, by how much and when? The two parties have different preferred approaches to tackling the deficit, however appear to have reached a compromise. The summer budget will provide some indication of how united the parties actually are on the big economic decisions and the Comprehensive Spending Review of public finances in the autumn will also provide clues as to whether a combined approach is likely to work.
What all of this means for the housing market and mortgage lending, in the short and medium terms, is far from clear.
A well functioning housing market is a key component of economic recovery and an indicator of a growing economy. What any market needs is consumer and investor confidence – and generally the political landscape fails to provide either.
The current restraints on funding have been well documented and debated over the past year. The election result does not provide an easy win solution to this problem and therefore limited mortgage availability is likely to continue in the short term.
Perhaps the single biggest immediate issue for the mortgage market is what the regulatory architecture for the industry will be. In particular, what is the future of the FSA, and subsequently, what does this mean for the MMR?
It now seems that the coalition Government plans to amend the tripartite arrangement, transferring macro prudential regulation and oversight of micro prudential regulation to the Bank of England but keeping the FSA broadly intact. The timetable and implementation plan for this have not yet been finalised.
Despite this change, there will be a period of continuity and business as usual. The MMR is likely to continue although its focus may shift. It would be difficult politically in the current environment for the new Government to argue against the need for a holistic examination of the mortgage market and how it operates. In any case, it is high on the European agenda and therefore not something that can be ignored.
What the election result means for wider housing and lending issues is also uncertain. Many had hoped that a post election honeymoon period together with a summer feel good factor would help the housing market, and encourage many wavering consumers to either sell and/or buy property. However, many consumers may now wish to wait and see before committing themselves.
The Queen’s speech on 25 May is unlikely to major on housing policy. Building new homes is very much off the Government’s agenda with no funds to deliver the number of homes required. The supply-demand dilemma is further exasperated by private developers who are equally reluctant to build in the current environment.
The extension to the Stamp Duty threshold announced in the March Budget would now appear to be a permanent fixture. Whilst this is of some assistance to many buyers, particularly first time buyers, a more detailed look at stamp duty arrangements is needed to create a fairer and sustainable system that does not discriminate against types of buyer and geography. HIPs are to be scrapped but it is difficult to envisage no provision of information to home buyers whilst property is being marketed. However devolving planning policy and funding environmental improvements may feature in the Queen's speech.
The coming weeks will tell us more about the direction this Government will take on many key issues, and the next few months will reveal a lot about its stability. However we may have a further wait until we begin to see what this may mean for lenders and the housing market.
