They say a week is a long time in politics. Since the UK voted to leave the European Union a little over a month ago, a day in politics has seemed like a long time, and a week more like an age, such has been the pace of change. So we now have a new Prime Minister, Chancellor, Economic Secretary, Housing Minister and responsibility for EU Financial Services has moved to Vice President Dombrovski. Former Vice President of the EU Commission and Former French Minister, Michel Barnier, has been appointed lead negotiator at the EU for the UK exit.
In many ways though, surprisingly little has changed so far. The process of leaving the EU will be a relatively slow one and in that time people will still want to buy and sell homes. Many will need a mortgage to do so. Recent conversations among BSA members indicate that mortgage demand is still broadly on track, a view supported by the Bank of England in the feedback from its agents’ network. With the August property market always difficult to read, it may be early to mid-autumn before we get a clearer picture of volumes and pipeline.
In terms of interest rates – the thing that really matters to consumers – the spotlight was firmly on what the Bank of England would do in response to the Referendum. As we know, the Bank Rate will stay at its current level of 0.5% for now. However, a number of members of the Monetary Policy Committee have signalled a likely reduction in August, with the announcement due on 4 August. Right now market sentiment and performance data is mixed, with some elements pointing to economic stability rather than a slowdown and other items like the PMI index for example, being far more gloomy. The MPC's decision will depend, too, on whether the fall in the value of Sterling leads to higher rates of inflation - and the Committee feels that intervention is needed to remain within the 2% inflation target. For me,with little consistent economic evidence available, there could be a real risk that an early rate cut could in fact be counterproductive to the wider UK economy.
Even then, a change in bank rate will not immediately feed through to all borrowers. While Base Rate tracker mortgages will fall in line, we know that around 80% of new lending is on fixed rates, as well as around half of all outstanding mortgages. Undaunted by the Referendum news, building societies continue to offer some of the best fixed rates around.
While the appointment of a new Cabinet able to take decisive action across the board is to be welcomed, there are some areas where we need clarity from our new Ministers. The most immediate question is around Help to Buy Mortgage Guarantee. The BSA has been calling on the Government to set out a coherent exit strategy for the scheme, which was due to come to an end in 2017. It has undoubtedly given large banks more confidence to lend at higher loan-to-values, so with the challenges high-street banks have been facing due to Brexit we now wonder whether the new Chancellor the Right Hon Phillip Hammond MP will choose to extend the scheme instead.
Building societies, of course, continued lending at higher-LTVs throughout the financial crisis and will continue to do so through the period of our negotiation with the EU. For the industry more broadly, though, it is vital that we do not go from famine to feast and quickly back to famine. Higher-LTV lending, as we know, is vital for enabling more first-time buyers to get onto the housing ladder.
What is our message to the new Housing Minister, Gavin Barwell MP? Regardless of any short-term impact there may be on the housing market, the fundamentals remain the same. Prices are primarily a function of supply and demand, and the bottom line is that in many areas we don’t have enough homes. So prices are likely to present a challenge to aspiring home owners, whether first-time buyers or those seeking to move up the chain until that balance is addressed. Essentially, we must increase the number of homes being built.
The Government’s flagship programme to get more homes built is, of course, Starter Homes. Refreshingly, it is a supply-side solution. The BSA has been working closely with Government and a panel of experts to ensure the policy will work well. Along with others in the industry we were concerned that the initial design of a 20% discount on homes, lifted after 5 years, could distort prices in the wider market. While the Housing and Planning Act 2016 may have been passed into law, the Government is still working on the secondary regulations that will ultimately determine key elements of the scheme like the length of the discount period. Hopefully the Government will be sensitive to industry concerns.
Recent research by Yorkshire Building Society found there has been a supply shortfall of 1.2 million homes since 2004. An influential report released recently by the House of Lords Economic Affairs Select Committee on Building More Homes
echoes this. It states that in the days since the Referendum, the former Housing Minister Brandon Lewis appeared to abandon his ambitious target to build one million homes by 2020. We are pleased to see that the new minister has already re-affirmed the government’s target in response to a parliamentary question.
Whatever the short and medium term consequences of the Referendum, the long-term fact is that people will always need somewhere to live, so a priority for the new Cabinet must be to ramp up building across all tenures, all types of housing and continue to encourage investment in different types of home construction.
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