COUNCIL of MORTGAGE LENDERS 1 The Mortgage Event 2004 Housing Market Review: Overview of latest developments Alex Solomon CML Senior Policy Adviser 27.

COUNCIL of MORTGAGELENDERS

1

The Mortgage Event 2004

Housing Market Review:Overview of latest developments

Alex Solomon

CML Senior Policy Adviser

27 September 2004


2


Housing Market Review: Overview of latest developments

Bernard Clarke

CML Communications Manager

29 September 2004


3



Jackie Bennett


30 September 2004


4



Alex Solomon


4 October 2004


5



Bob Pannell

CML Head of Research and Information

11 October 2004


6



Andrew Heywood


12 October 2004


7



Jennet Vass

CML Senior Economist

14 October 2004


8

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)


12

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.


15

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.


16

Sectoral issues – lifetime mortgages

Balances outstanding £3.3 bn

Number of loans 71,500 approx

New advances H1 2004 £517 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.


18

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!


19

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)


20

FTBs are seeing payments rise beyond reach …

10

15

20

25

30

1979 1983 1987 1991 1995 1999 2003 2006

Forecast


21

Interest rates going up …

02468

10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Base rate Average mortgage rate


22

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


24

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)


25

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?


27

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?


28

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!


29

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.


30

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.


31

Contact us!

• www.cml.org.uk

• [email protected]






COUNCIL of MORTGAGE LENDERS 1 The Mortgage Event 2004 Housing Market Review: Overview of latest developments Alex Solomon CML Senior Policy Adviser 27.

Documents

council of mortgage

housing market review

property market

rhsgross new advances

numbergross new advances

j new advances

gross advances

bn271298284net advances