News: Weekly News Round Up - Lenders Fearful Of Council Run Mortgages

Thu, 28 Aug 08

The Council of Mortgage Lenders is getting worried. The once unlikely prospect of local authorities entering the mortgage market now looks like a very real possibility.

Mortgage rescue schemes are being considered by a number of councils, whereby social landlords buy a share in homes that are under threat of repossession and allow struggling homeowners to live there as tenants - see Home News 23 Aug 2008.

Councils are now calling on the Government to bankroll their schemes and giving social landlords the finances to buy up homes.

Question marks still remain as to councils’ role in this scheme with the CML concerned it could effectively turn local authorities into state sponsored mortgage lenders.

It is understood that housing minister Caroline Flint is supportive of mortgage rescue schemes and firm proposals could be in place by next month, when the Government is due to unveil a package of measures to shore up the flagging housing sector.

If the measures are to be successful, the CML argues, mortgage rescue should be standardised and councils involved should be regulated by the Financial Services Authority, as their members are.

A CML spokeswoman said: “In practice it might be difficult for local councils to run fully fledged mortgage businesses.”

This week the Liberal Democrats entered the debate, coming out in support of mortgage rescue schemes  - see Home News 28 Aug 2008.

Other measures being proposed by Lib Dem Treasury spokesman Vince Cable include allowing councils and housing associations to borrow money to buy up land and empty homes for social housing.

They also want the CML’s guidance that repossession should only be a last resort enshrined in law. Courts should be given guidelines to ensure that repossession is only for “extreme circumstances”, the Lib Dems argue.

It is not just homeowners who are feeling the effect of the housing slump, so to are housebuilders.

This week saw another set of grim results from two of the UK’s biggest house builders Taylor Wimpey and Bovis Homes.

Bovis Homes revealed that pre tax profits fell to just £11.7 million during the first half of the year, compared to £58.4 million during the first six months of 2007.

It’s chief executive David Ritchie warned that tough times are set to continue.

“The Group considers that the current difficult trading environment will continue for the foreseeable future with continued poor mortgage liquidity limiting housing market activity,” he said.

Taylor Wimpey reported a huge slump in profits down to just £4.3 million from £119.8m last year.

Buy to let landlords are also struggling to find mortgage deals. Lending in the sector has declined by 18% during 2008, according to latest figures released by the CML – see Home News 27 Aug 2008.

For the first half of 2008 there were just 144,600 buy to let loans agreed, down from 176,500 in the second half of 2007 and 169,500 in the first half of 2007.

However CML director general Michael Coogan pointed out that while the downturn in the buy-to-let market is significant it is not as bad as the mortgage market as a whole, which is down 28% on the second half of 2007’s figures.

Tenants are also in good supply due to the number of potential first time buyers unable to secure mortgage deals and forced to rent.

“We expect the rental market to remain underpinned by strong demand, partly because some people who would like to buy a home are being forced to carry on renting for now,” Coogan said. 

No week of housing market news would be complete without latest figures on house prices. This month’s figures from the Nationwide were particularly grim. For the first time since 1990 house prices nationwide have seen an annual double-digit fall.

Prices were down 10.5% in August compared to last year and around £19,000 has been knocked off the value of the average home, which the building society estimates is now worth £164,654.

By Joe Lepper

See Also - Mortgages, House Prices & Trends



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