COUNCIL of MORTGAGE LENDERS 1 The Mortgage Event 2004 Housing Market Review: Overview of latest developments Alex Solomon CML Senior Policy Adviser 27.
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COUNCIL of MORTGAGELENDERS
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The Mortgage Event 2004
Housing Market Review:Overview of latest developments
Alex Solomon
CML Senior Policy Adviser
27 September 2004
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The Mortgage Event 2004
Housing Market Review: Overview of latest developments
Bernard Clarke
CML Communications Manager
29 September 2004
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The Mortgage Event 2004
Housing Market Review: Overview of latest developments
Jackie Bennett
CML Senior Policy Adviser
30 September 2004
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The Mortgage Event 2004
Housing Market Review: Overview of latest developments
Alex Solomon
CML Senior Policy Adviser
4 October 2004
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The Mortgage Event 2004
Housing Market Review: Overview of latest developments
Bob Pannell
CML Head of Research and Information
11 October 2004
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The Mortgage Event 2004
Housing Market Review: Overview of latest developments
Andrew Heywood
CML Senior Policy Adviser
12 October 2004
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The Mortgage Event 2004
Housing Market Review: Overview of latest developments
Jennet Vass
CML Senior Economist
14 October 2004
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What we’ll cover …
• CML market view/forecast
• Sectoral issues (buy-to-let and other niche)
• Risk/affordability (what can be improved)
• Operational/distribution issues (e-business)
• The consumer and regulatory environment
• Tax and benefits
• Emerging agendas
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CML market view/forecast2003 2004 2005
House price growth, % in Q4 15.4 14 8
Property transactions, mns 1.3 1.4 1.3
Gross advances, £bn 271 298 284
Net advances, £bn 97 107 102
First-time-buyers, % 29 -29 31
Remortgages, % o 45 41 39
Arrears, 3 + mths, number 93,000 100,000 105,000
Base rates, Q4, % 3.7 5.25 5.5
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Sectoral issues –Buy-to-let current position
• Typical max loan to value 80%
• Percentage of all new lending 8.29%
• Re-mortgage rate 39%
• Minimum Rental cover 130%
(constant 5yrs)
• Arrears (3 months+) 0.42%
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Buy-to-let - volumes
-
30,000
60,000
90,000
120,000
1999 2000 2001 2002 2003
0
3,750
7,500
11,250
15,000
Gross new advances in period, number, (LHS)Gross new advances in period, £mn, (RHS)
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Buy-to-let - issues
• Income v Cost• Voids • Rental yields• Interest rates• Multiple exposure of many new landlords • What if the property market turns down?• Government intervention• PIFs/REITs – a competitor to BTL?
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Sectoral issues – non-conforming
• No hard data on size of market
• But number of providers suggests increase
• More than just sub-prime!
• A blurred boundary between non-conforming and income non-verified/self-cert.
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Income non-verified- market size
Includes self-cert and fast-track• Recent CML survey suggests 30 out of 53
lenders surveyed undertook INV lending• Estimated total INV loans of £147bn -
19.2% of total balances • 6.1% of balances outstanding are self-
cert• Remaining 13% are fast-track mortgages.
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Income non-verified - issues
• External perception of INV being over-used
• Allegations of INV prompting exaggerated declarations of income
• But FSA’s “Dear CEO” letter concluded firms had sufficient controls in place
• Nevertheless caution still needed in this marketplace.
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Sectoral issues – lifetime mortgages
Balances outstanding £3.3 bn
Number of loans 71,500 approx
New advances H1 2004 £517 m
New advances H2 2003 £597 m
New advances H1 2003 £504 m
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Lifetime mortgages - issues
• Regulation – what impact will it have?• Advised sales• Staff training
• The future of home reversion schemes• To be regulated – but when?
• Another “tread with caution” market – but one with huge potential over the long term.
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Risk and affordability – a growing agenda …
• Sustainable home-ownership not just MPPI!• Range of ways of offsetting risks• Insurance/employer/savings/flexible finance
• The FSA risk leaflet
• The new MCOB requirements• Pre-sale disclosure and post-sale arrears
management
• Watch the Financial Capability initiative!
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Look what’s happened to prices …
40,000
80,000
120,000
160,000
1996 1997 1998 1999 2000 2001 2002 2003 2004
0
10
20
30
Nominal house prices, £ (LHS) House price growth, Y on Y,% (RHS)
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FTBs are seeing payments rise beyond reach …
10
15
20
25
30
1979 1983 1987 1991 1995 1999 2003 2006
Forecast
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Interest rates going up …
02468
10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Base rate Average mortgage rate
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Result? A decline in FTBs
0
50
100
150
200
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
30507090110130
No of first-time buyers, LHS NHBC index, RHS
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And the market will be influenced by housing issues
• The Housing Bill will introduce HIPs – effective from Jan 2007?• Assuming the technical issues get resolved …• HIP could influence the mortgage sales process• Compiling the HIP may give a timing
advantage to reaching the customer
• Housing supply post-Barker• Likely to be a slow-burn issue• CML supports increased intermediate tenure
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Distribution post-regulation could change
• It looks as if most intermediaries will continue
• Directly authorised/AR split suggests similar market offerings to the present
• KFIs will be ready/compliant to best of CML knowledge
• But how regulation will influence distribution long-term still not clear (panels)
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e-conveyancing should help efficiency
• CML greatly supports the concept of e-conveyancing
• There is now a legal framework for e-conveyancing and the Land Registry is taking forward the practical implementation
• The Land Registry is aiming at achieving a fully-functioning system by 2007.
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Other e-initiatives to be aware of
• NLIS• The National Land Information Service, an
online one-stop-shop for property search information. 49 local authorities (out of 375) are now fully operational under NLIS.
• PISCES• PISCES is a cross-platform protocol to enable
different computer systems to communicate. This would help lenders, surveyors, estate agents and conveyancers. Intermediaries?
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The consumer is king?
• Treating customers fairly• A key FSA theme, and Miles follow-up
expected in pre-Budget
• Endowment complaints• To time-bar or not to time-bar?• CML view is that certainty/closure is needed
• Financial capability• The next “big thing” – intermediaries a key
potential delivery channel?
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Tax and benefits – stamp duty
• Stamp Duty system is anachronistic• Starting £60k threshold would be approx £150k
if index-linked in line with house price inflation• And system should be reformed to prevent
“bunching” below thresholds• Government and opposition appear to be
interested• Reform could be revenue-neutral so there is
some hope!
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Tax and benefits – tax credits
• Around £1 billion pa in tax credits goes unclaimed by home-owners
• Intermediaries can really add value to clients by alerting them
• Not just for low-income households -moderate-income households (up to £58k for new child tax credit) can benefit – check eligibility criteria via Inland Revenue website.
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To end … the rising subjects
• Early days but watch out for …• Financial capability• Treating customers fairly• Implementation of Basel 2 (effect on pricing)• More flexible/creative housing and housing
finance public policy.
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