Yesterday’s summit over first-time buyers was told that there is no ‘magic bullet’ to solve the crisis.
The Council of Mortgage Lenders described the meeting, held by housing minister Grant Shapps, politely as ‘a constructive discussion’.
The CML made several robust points, telling Shapps that:
Current constraints are an issue not just for first-time buyers but for existing recent buyers and those without a large equity cushion. Funding constraints apply across the whole market. Gross lending in 2011 will be around £135bn compared to £360bn at its pre-crunch peak.
High loan-to-value lending is very capital-intensive for lenders. Under today’s risk-averse regulatory environment, lenders need to hold typically 6–8 times more capital against a 90% loan than a 60% loan. This is bound to have a knock-on effect on the volume and the price of the high loan-to-value lending that is taking place.
Consumers are also wary: demand is relatively low not only because of the relatively higher cost of high loan-to-value borrowing, but also because they are unsure of the future direction of house prices.
It’s important that the Government considers and understands these underlying drivers before looking towards specific solutions.
While mortgage insurance, shared ownership and product innovation can all potentially play a part, none will provide a ‘magic bullet’ to normalise the mortgage market – for first-time buyers or anyone else. This is likely to be a gradual process as confidence in funding markets and lending decisions is restored in the light of a more stable market environment.
CML director general Michael Coogan said after the meeting: “It is good to see ministers taking the initiative to discuss how we can look to improve market conditions for first-time buyers. But no-one will be surprised to learn that there is no simple quick fix for a market that has changed fundamentally since the credit crunch.”
