News: Weekly News Round Up - Lenders Concern Over Financial Services Shake-Up

Fri, 18 Jun 10

Mortgage lending is set to get even tighter.  This week the Chancellor George Osborne revealed plans to axe financial services watchdog the Financial Services Authority and hand much of its power to the Bank of England (BoE). 

But according to a number of media reports this could include giving the BoE new powers to restrict loan-to-value rates on mortgages.

The Council of Mortgage Lenders (CML) says such a move is unnecessary and would adversely affect tens of thousands of homeowners and potential buyers – see Home News 16 June 2010.

It says that around a quarter of all mortgages are already at a high loan to value rate, in excess of 75%.

CML director general Michael Coogan added: “We need to remember that in the UK it was not risky lending that caused the banking problems, it was banks’ inability to refinance their borrowings due to the shutdown of global financial markets.

“We also need to remember that what is currently bothering most people about the mortgage market isn’t high-risk lending, but the fact that lending is so constrained into low-risk borrowers that it may be making it more difficult for the economy to grow as individuals and businesses find it more difficult than they would wish to borrow.”

“Policymakers need to be very careful to avoid trying to solve the wrong problems – the much bigger problem for the mortgage market for the foreseeable future will be in raising enough money to lend, not the risk of stoking asset bubbles through over-generous lending.”

Concern over tough restrictions on the size of loans comes at a time when gross mortgage lending levels are increasing but are still at historically low levels. According to the CML gross mortgage lending totalled an estimated £11.3 billion in May, a 7% increase from £10.5 billion in April and up 10% from £10.2 billion in May 2009.

However, the CML points out that the market still remains subdued and it forecasts that gross lending may marginally undershoot its existing forecast of £150m for 2010.

CML economist Paul Samter said: “The ground has been cleared for next week's Budget to be the start of an austerity drive to get the public finances onto a more sustainable footing. We do not expect it to include housing and mortgage specific direct tax measures. But the market will inevitably be affected by how policy impacts on the wider economy. Financial sector regulation is a further source of uncertainty.”

Such uncertainty is the last thing the property market needs. The number of homes being put up for sale continues to increase but the number of completed sales is still low compared to previous years, says the Royal Institution of Chartered Surveyors (RICS)’ latest survey of members.

While sales across the UK were 26 % higher during the first four months of year compared to the same period last year, they are still less than half the level recorded during 2007, 2006 and 2005, says RICS.

RICS members have recorded an increase in instructions from sellers and anticipates more homes coming on the market in the coming months following the suspension of Home Information Packs by the coalition government.

Around three quarters of those surveyed by RICS in May believe that the decision to suspend HIPs will lead to more homes coming onto the market in the coming months. The average surveyor believes this increase in supply during 2010 will be around 15%.

So far the increase in supply in the housing market is not forcing prices down, with 23% more surveyors reporting a rise in prices rather than fall during the three months to May.

RICS spokesperson Ian Perry said:   “Surveyors are generally confident that sales will continue to pick up over the summer months. The increase in supply as a result of  the abolition of Hips is helping to support this optimism, despite continuing concerns about mortgage finance.

He anticipates that if the supply of homes for sale continues to grow then prices will flatten towards the latter part of 2010.

Latest asking price figures published by Home.co.uk suggest that prices are already flattening out and are even falling in some areas.

The mix-adjusted average asking price for homes on the market in England and Wales increased by 0.3% in the month leading up to its June report. Monthly falls were observed in 6 out of 9 English regions and Wales and the annual change in asking prices is now -0.1%.


By Joe Lepper 

See also: Asking Price Index, House Prices and Trends by Town and Postcode, Mortgages, Life Insurance and Mortgage Protection Guide


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