Goodbye to the golden age

30 September 2010 | By Gregor Watt

There is a gathering consensus in the mortgage and housing market that the “golden age of homeownership” is now dead - or at least suspended.

Last month, the Chartered Institute of Housing chief executive Sarah Webb said: “A golden age of home ownership may be coming to an end” and added that the difficulty in buying a property was leading to a growing number of people wanting to buy a property but unable to and earning too much to qualify for social housing.

This month, it is the turn of the Council of Mortgage Lenders director general Michael Coogan to declare: “The golden age of home-ownership is over, for the moment.”

The CML is concerned that growing financial and regulatory pressure on mortgage lenders is constricting the supply of new lending, which is having a knock-on effect on the housing market by making it harder to borrow and depressing house prices.

Coogan said: “Mortgage rationing has limited activity and left pent-up borrower demand unfulfilled since 2007. But, looking ahead, the barrier to a reversal of that trend will not be lenders’ future risk appetite or consumers’ aspiration, but rather an interventionist regulator managing conduct risk to enshrine risk aversion in long-term housing finance markets.”

This is in stark contrast to the sentiments expressed by housing minister Grant Shapps, who boldly declared to a Royal Institution of Chartered Surveyors’ conference in June that “the age of aspiration is back”.

Shapps declared the Government was willing to take the hard decisions to ensure that the pent-up demand was met but without a free-for-all bonanza that would lead to another housing bubble.

He said one of the Government’s aims was to make homeownership affordable for the estimated 1.4 million people who still want to buy.

In what could be seen as an effort to put clear water between the new Government and the Labour administration, Shapps said: “I do not believe that it is right to deny the benefits of homeownership that we have enjoyed to the next generation. This new Government is not in the business of pouring cold water on people’s aspirations.

“I know that many analysts predict further short or medium-term falls in homeownership and, given the appalling financial legacy left to us, they could be right.

“But it is not good enough to simply say: ’this may be a good thing’. I believe it is human nature to aspire to shelter and security and for the many that means owning the roof over your own head.

“And I don’t consider it my job as housing minister to hold those aspirations back.

“With a new Government and despite the enormous financial difficulties the country faces, I want to state clearly today, The Age of Aspiration is back.”

Despite his rhetoric, Shapps seems to be in a dwindling minority who believe making housing affordable for large sections of the population is currently workable.

Intermediary Mortgage Lenders’ Association chairman Peter Williams expressed very similar sentiments to those of the CML at the Imla annual dinner earlier this month when he said: “Looking at Shapps’ speech, you are forced to reflect that it was an utterly aspirational speech.

He was setting out what he would like the world to be but, unfortunately, the way it looks, it is entirely possible that the housing and mortgage market that will emerge is extremely different. It is at considerable odds with the emerging reality.

“Imla, as a body, remains deeply concerned about all the changes going on in the market. The impact of successive waves of regulation and change will ultimately have an impact upon generations to come.”

The statistics are in line with the views expressed by the mortgage lenders.

The CML recently reported that gross mortgage lending in August hit its lowest level for 10 years, while house prices have cooled in the latter part of the year. Economist Roger Bootle of Capital Economics believes the short to mid term could see a sharp fall in house prices followed by a period of level prices. Writing in The Telegraph recently, Bootle said the resilience of UK residential property as an asset class is a striking anomaly and, on a very basic level, it can be argued that it is clearly overvalued.

He argues that the housing market was at the very centre of the financial crisis in both the UK and the US but while US house prices have fallen by an average of 32 per cent, equities (both US and UK) fell by around 50 per cent and UK commercial property lost around 45 per cent of its value, the UK residential market only fell by a maximum of 20 per cent and has recovered to within 10 per cent of pre-crisis levels.

Coupled with long-term doubts about the sustainability of the current ratio of house price to average earnings, which is 5.2 times average earnings compared with the long-term average of 3.7, Bootle says the inability to save for a deposit has locked many first-time buyers out of the market and is leading to a big drop in the number of potential buyers.

Add in the restrictions on lending and fading consumer confidence in the market and Bootle concludes that he suspects “both the ability and the willingness” to buy are about to drop.

The latest figures from the British Bankers’ Association seem to bear out Bootle’s assessment.

The BBA reports that gross mortgage lending for August was 7.6 per cent down on August 2009 and statistics director David Dooks says: “Demand for mortgages continues to be weak despite more properties reportedly coming on to the market. Even with stable or falling house prices the current economic climate makes it unlikely that demand will pick up in the near future.”

The Nationwide Building Society monthly house price index shows an average reduction of 0.9 per cent in August, the second consecutive monthly fall.

Nationwide chief economist Martin Gahbauer says the drop in values is likely to be relatively modest and is due to an unwinding of a temporary spike in demand.

He says: “As more sellers have returned to the market, buyers have a greater selection of properties to choose from and more bargaining power with which to bid down asking prices.

“There is little evidence of distressed selling, however, with the Council of Mortgage Lenders’ secondquarter figures showing another drop in mortgage arrears and possessions.”

But whether the fall in house prices is due to a lack of buyer confidence, a result of a temporary imbalance between the supply and demand of properties on the market or a much more significant and long-term change in the housing market, few people are expecting house prices and housing demand to go anywhere but down for the remainder of the year.

Property Portfolio Rescue, director Nick Hopkinson says: “This is further confirmation, if needed, that the mortgage famine is continuing to worsen. Even the taxpayer-owned banks are failing to help struggling borr-owers who still need massive deposits and a perfect credit score to get any kind of reasonable loan currently.

“Worries over inflation and future interest rates continue to bubble away at the back of borrowers’ minds and huge public cuts are very much on the agenda which will make life in Austerity Britain much tougher for many in the near future. Even estate agent surveys are showing falls in asking prices as reality slowly sinks in among even the most optimistic home sellers. Against this backdrop, house prices are going to fall further just as certainly as the autumn leaves will fall off the trees in the next couple of months.”

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