It’s interesting to note that over the past couple of weeks, particularly since we didn’t get a rate cut at the last Monetary Policy Committee (MPC) meeting, there has been a notable ramping up of activity and price cutting from lenders.
One wonders if there was an expectation that ongoing Bank Base Rate (BBR) cuts would continue to drive stronger interest and demand as we saw in August, and when that didn’t materialise in September, they have taken it upon themselves to act.
The issue, however, might be that we have plenty of product, rate and criteria choice, but everyone is waiting for the Budget before making any sort of decision.
One group that might not necessarily be that worried about waiting are first-time buyers, who on the whole, when they get to a point where they are in a position to buy, tend not to hang around.
Certainly, first-time buyer numbers have held up pretty well in the past 18 months or so, and with the likelihood being that the Budget will not have anything radical or new for them to draw upon – in the way of Help to Buy-esque Government schemes – there seems little incentive to wait.
The latest Nationwide first-time buyer product offering up to six-times income at 95% loan-to-value (LTV) seems designed to tap into the first-time buyer resilience, and a 5-year or 10-year fixed-rate might be appealing if these borrowers want long-term certainty of payment, and they can also stretch the term to meet affordability, as many obviously need and want to.
Clearly, we’re not going to be too mealy-mouthed about the launch of such a product, but the fact that it is only available to first-time buyers is likely to stick in the craw of many an adviser and their other clients who it would be appropriate for.
In fact, from a potential risk point of view, it’s hard to square the circle between why you wouldn’t offer this product to existing borrowers and home movers as well as first-time buyers. After all, if the former group pass the eligibility, affordability, and criteria then many within the latter group would be able to, and be viewed as less of a lending risk?
Existing borrowers come with a track record of mortgage payments, of running a property, paying on time, etcetera, as opposed to a customer who, by definition, has none of that experience or financial history to draw upon. It’s not quite at the level of giving a newly-qualified teenage driver a Porsche to drive, but you catch our drift.
Overall, first-time buyers seem pretty well-catered for in the current mortgage market, and as mentioned, are not likely to be hanging around waiting for Rachel Reeves to tell them the ‘bad news’ before they act.
Housing supply
Of course, all this potential first-time buyer activity, is somewhat moot if we don’t have a supply of affordable homes for them to choose from, and move into.
We have to give ‘props’ – respect – to Angela Raynor and her department, who seem determined to remove some of the significant obstacles in place in order to get his country building houses in the number required, but even with the best will in the world, we are going to be waiting some time before we start to see the results of these endeavours.
However, fair play to the new Government for recognising the scale of the problem and moving relatively fast to act.
But it should also therefore be obvious that new-builds are not going to wholly solve the problem facing those individuals trying to get on the ladder, or the second-steppers who want a bigger home, but find slim pickings to choose from.
Of course, we need a plentiful supply of second-hand homes available to allow the climb up the property ladder to not just start but progress, and here we find ourselves with a significant issue, not least in the form of those who find themselves right up the top and would ordinarily want to move down a rung or two.
Indeed, if the Government did want to introduce a measure which would help in this regard and get people moving again, it would – and should – come in the form of downsizers’ Stamp Duty relief, because it’s quite clear that we have many older homeowners who would like to move out of properties too big for them, but won’t because of the cost of that move, notably the thousands upon thousands of pounds they would have to stump up for Stamp Duty.
At present, there is something of ‘perfect storm’ brewing here. Not only are older homeowners disadvantaged from a tax point of view to move, but we also have a significant growth in options for later life lending and borrowing, which work to keep these individuals in their homes for longer. Hence why that flood of family homes which used to be available is now but a trickle.
It may be odd for those in Government circles to get their heads round, but incentivising those at the top of the ladder to make a move will actually support greater transactions levels right throughout all other buyer and seller types.
It would literally get people moving, and would help solve a perennial problem of the UK housing market – having the wrong people living in the wrong houses. It’s certainly time for action to resolve this and there is no Budget like the present to do it.
Rory Joseph and Sebastian Murphy are group directors at JLM Mortgage Services
