In 2007, gross mortgage lending was £362bn but this fell to just £135bn in 2010 and lending figures for 2011 have mirrored 2010 so far.
Last week, the Confederation of British Industry produced a report called Unfreezing the Housing Market, which put forward suggestions to get the market moving again. The most notable of these was a re-introduction of a mortgage indemnity guarantee insurance scheme for lenders, which would allow FTBs to take out high loan-to-value mortgages without posing risks to the lender.
CBI director general John Cridland said: “We have to do more to support young people’s aspirations to be homeowners. We could reduce the risk of higher-LTV mortgages if the Government encouraged lenders to take out insurance against the borrower failing to meet payments.”
London & Country head of communications David Hollingworth says: “A Government-backed indemnity scheme could help incentivise more higher-LTV products, which would help first-time buyers.”
CML director general Paul Smee says: “Mortgage loans are weighted with risk and it is hard to fault the rationale but, as an industry, we may be able to introduce mitigating factors to those risks. If we can show lender risk has been reduced, we would expect capital weightings to reflect this.”
However, John Charcol senior technical manager Ray Boulger does not think the CBI believes a Mig scheme is really a possibility. He says: “There is no way the Government will introduce a Mig scheme. When trade bodies call on the Government to do something, it is because they are already in talks with politicians or because they think there is a reasonable chance of getting the idea agreed.
“Neither apply here and I do not think the Government should back a Mig scheme. It only has a relatively modest amount of cash to support the housing market.”
Boulger believes a Mig scheme would not be attractive to the Government as it would not benefit them. He says: “With the FirstBuy scheme, the Government can get a share of any capital gain. They are creating jobs and generating income tax, helping first-time buyers is just an extra benefit. This is not the case with a Mig scheme.”
Hollingworth agrees there could be practical issues. He says: “The question is whether this would be workable for the Government and whether there is any appetite for it. The atmosphere of austerity has led to limited funding.”
Reticence on the part of lenders could also play a role. Few building societies offer MiG insurance currently.
Boulger says: “Genworth is the only one that is fairly open about offering mortgage indemnity. There is definitely more capacity but lenders have to consider what the best way is for them to lend at 80 per cent LTV. Do they buy a Mig or take the risk themselves? The big boys – Aviva and L&G – will not be interested but smaller building societies might be. I do not think the Government should get involved.”
The CBI also suggests allowing borrowers to dip into their pension pots for deposits.
Cridland said: “We can jumpstart the housing market by allowing first-time buyers to boost their deposits by borrowing their own pension savings.”
Hollingworth thinks this would do more harm than good. He says: “Early access to pensions is a fairly radical solution and could be seen as shifting the problem in a market where young people are constantly being urged to save sooner.”
Boulger welcomes this idea. He says: “That is the one sensible suggestion from the CBI. There will be two benefits. The first is to encourage young people to start saving and, second, to decrease the need for parental help.”
He says it would need strict regulation to avoid abuse.
One issue raised by the CBI that the industry seems united on is that of help for people who already own homes.
The report said: “Much attention is being given to FTBs but there has been less focus on existing homeowners who may be unable to move during the market downturn.
“Lack of movement among existing homeowners can prevent FTBs entering the market, causing it to grind to a halt completely.”
Hollingworth says: “Higher-LTV mortgages are not just for FTBs. Support for the second-steppers, who bought at the peak, is another point in the chain that struggles.”
The CBI’s solution for this, developing equity support schemes for homeowners in negative equity, is less welcome.
Boulger says: “They are schemes for people with mortgage problems. Someone in arrears is not going to be able to get a new mortgage.
“From a spin point of view, first-time buyers tend to be lenders’ focus but people who bought between 2005 and 2007 are likely to have no equity in their property. The CBI makes a fair point but its solution does not seem suitable.”
The final suggestion from the CBI is to reform stamp duty to make it more progressive by eliminating the cliff edges brought about by the tiered structure.
Boulger says: “You cannot mention stamp duty too much. When it was 1 per cent across the board, it was straight-forward but when Gordon Brown introduced the tiered structure, it became unfair. It is obvious it needs to be changed so that it works in the same way as income tax. Chancellor Osborne is giving every impression so far that there are no plans to do so.”
Hollingworth is equally pessimistic. He says: “The need for stamp duty reform will come up again and again but it does not look likely we will see any major changes in the short term, especially with the new £1m-plus banding.”
There may not be any revolutionary proposals among the CBI’s suggestions but they are at least helping to keep attention focused on the housing market.
Boulger says: “Whenever these issues are flagged up, it gets a bit of coverage and can move things on.”