Stoking up the housing market.

Boarded up units21st February, 2013.
Stoking up the housing market.
By Andy Lamb, Director

From a commercial property viewpoint an easing of credit and availability of finance for property lending will provide some real impetus to growth.  My colleague Neil Slade talked about a shortage of new development where demand exists but credit is difficult and I thought it was worth supporting Neil’s piece with a little more detail.
Well the headline from the latest Ernst & Young Item Club that “The crippling credit crunch is loosening” certainly seems to be a pointer that the availability of credit may be getting a little easier.
There is little doubt that the ongoing credit crunch and crisis in the Banks continues to affect business thinking nearly 5 years on from the start of the world’s economic woes.  The effects on property both commercial and residential are well catalogued and there for all to see – not least the retreat of values!
It is not an argument for inflating property values – what we need is more financial liquidity in the market to ‘make things happen’.
The Item Club lays bare some of the statistics around the credit crunch.  Part of their commentary was how UK Banks borrowed “£900 billion” that was borrowed from overseas up to 2008 and how we’ve been paying the price ever since as the UK reigns back from the £100 billion a year that Banks were using to fund domestic lending.
The Item Club explain that once it happened, the breakdown in the funding markets triggered several other crucial factors.  Secondary banking subsidiaries had to be supported, straining capital adequacy ratios.  Loan losses had the same effect.  Bank boards, as well as their shareholders and regulators, became very risk-averse as the losses mounted.  Tougher capital and liquidity requirements exacerbated the lending squeeze.  The ensuing recession made Banks even more worried and of specific concern for those earning their money in the property market, about the solvency of mortgage borrowers and small businesses.  Lending was depressed because the economy was depressed and vice versa, a classic vicious circle.
The Item Club thinks the background of tight credit and the Banks’ liquidity issues may be coming to an end with credit and liquidity requirements having been relaxed.  The Bank of England’s new Funding for Lending Scheme is designed to increase the flow of credit and reduce its cost, increasing the funding gap, or at least slowing the speed at which it is paid down.  It will reinforce the effect of the revival of the UK mortgage-backed securities market seen in recent weeks.
Ernst & Young say that ‘Although banks remain very risk-averse, they are effectively shifting the risk lending to affluent home buyers who have equity to invest.  In the case of first-time buyers, the builders and the government are shouldering the risk through new-buy schemes.  The banks’ capital base is also recovering’ they say.  Furthermore they comment that ‘These developments help to explain the marked improvement in the mortgage market suddenly being signalled by the Bank of England’s Credit Conditions survey, the sharpest since this survey began in 2007.  In the third quarter of this year, a significant proportion of mortgage lenders said they had loosened their lending criteria or were planning to do so, while 22% were planning to reduce the mark-up on mortgage rates.  The survey suggested that little movement in unsecured lending and forecast a continued deterioration in the outlook for lending to small companies, which it seems, are still regarded as too risky.  Nevertheless, these developments are encouraging.’
A lot of economic detail but for ‘property watchers’ and for those like us working in the property industry these are important pointers for how the market may perform over the next 12 to 24 months.
Not sure we can say this is the end of the credit crunch although we’d all hope that, it may just be the ‘end of the beginning’ though

The Bank of England and the Government are both keen to see the housing market re-ignited and in their own way both are saying and acting to make this happen.  Their collective efforts are making the headlines with the Council for Mortgage Lenders reporting lending having picked up in 2012 with the number of first time buyers rising by 12% to its highest number since 2007.  The office for National Statistics reported UK house prices rising by 3.3% last year too.

Mervyn King and the Bank of England have kept interest rates at their record low level of 0.5% since March 2009 nearly 4 years ago.  The Governor is now signalling in his latest speech and Quarterly Inflation Report that he expects inflation to remain above the Bank’s 2% target rate for 2 years, he may as well have said “I don’t care what inflation is”.

With the Bank showing no signs of increasing costs of finance there is little to hold back a property market where credit and supply issues are being slowly healed by Government.

Our work for the National Housebuilders reflects this growing confidence in the industry.  The agency work of selling residential sites and planning work bringing forward consents on sites is all busy and we have seen our workloads increasing and growing market demand.

The RICS have just reported property sales rose for the fourth month in a row and their spokesman even said the “very worst” may now be over which echoes Mervyn King’s assertion that “a recovery is in sight”.  Someone is bound to say shortly they’ve seen a “green shoot”!!

The Government’s Funding for Lending Scheme which my colleague, Charles D’Auncey recently highlighted in his Blog piece is also offering cheap funds for Banks and Building Societies to push through to customers.  This cheaper money seems to have had a real benefit to the first time buyer market.

When you can fix home loans for 5 years at interest rates as low as 2.7% then the incentives for home ownership are considerable especially when, nationally, prices are rising at 3.3% annually.

If you want advice on residential land or planning advice on residential and mixed use projects contact one of the agency or planning teams at Harris Lamb.

If you want advice on residential land or planning advice on residential and mixed use projects contact one of the agency or planning teams on 0121 455 9455 or email

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