Despite months of calls from the mortgage market for action from the Government, the Budget failed to deliver anything substantial to improve conditions.
Chancellor Alistair Darling told the Commons he would be setting up an industry-led working group to examine proposals to improve the supply of mortgage funding.
He said this group will include representatives from the mortgage industry and investment industry, the Treasury, the Bank of England and the FSA.
But instead of setting a tight time schedule for this working group, Darling said it would report back to him in the summer, with proposals not being presented until the pre-Budget report.
Wave director of distribution and sales Mehrdad Yousefi says the Government’s housing finance review, published with the Budget last Wednesday, is short on action and urgency.
He says: “The bottom line is that nothing has been suggested in order to deal with the current issues in the market. The report is academically written but there is little commentary in it in terms of practical solutions.”
“The housing and mortgage finance market is critical to the well being of the economy. There needs to be action. Setting up a working party to report back in the autumn is too slow.”
Nationwide non-retail executive director Matthew Wyles agrees that the Government’s plans are too little, too late.
He says: “When you look at what the Fed and the ECB have given their respective banking systems with huge injections of liquidity, our Chancellor’s idea of a response is to set up a working party which will report back in six to nine months. He is like a rabbit in the headlights.”
The Budget failed to include further information on the Government’s plans to create a “gold-standard kitemark” for mortgage-backed securities in a bid to revive the market.
Hamptons managing director Jonathan Cornell believes the Government may have backtracked on proposals following the negative response from the mortgage market to its leaked plans.
The Council of Mortgage Lenders says it is pleased the Government did not commit to particular gold standard measures, which could have been damaging.
Edeus managing director Alan Cleary says: “It would be at least a year before any resulting measures were implemented. The Government would be far better placed to investigate how to alleviate the stigma associated with using Government auction funds in the here and now so that confidence and liquidity can begin to be bought back to the market.”
The mortgage industry is also unhappy about the lack of substance behind Darling’s calls for an increase in long-term fixed-rate mortgages.
The Government has been researching the issue for four years, after Gordon Brown commissioned Professor David Miles to conduct a review on long-term fixed rates in 2004.
In last week’s Budget, Darling said the conclusions of the review of housing finance show long-term fixed-rate mortgages could reduce some of the risks of taking out a mortgage, especially for first-time buyers and lower-income families.
But the conclusion of this review into long-term fixed rates, which followed a previous review, will be to start another review with the mortgage industry.
The Government says it will seek views on how it can deliver the “right framework for the UK to achieve affordable, long-term fixed rate mortgages”.
John Charcol senior technical manager Ray Boulger says: “Could someone in the Treasury please tell the Chancellor that plenty of lenders offer long-term fixed rates and would love more borrowers to choose them. It is not the lack of access to long-term fixed rates that limits their take up but the fact that most borrowers prefer shorter-term deals.”
One positive proposal to emerge from the Budget is the Government’s new Open Market HomeBuy products.
This follows the dismal performance of the original scheme, launched in October 2006. It failed to come close to the Government’s target of 20,000 completions in the first five years of the scheme, with first-year figures of just 2,364.
Darling announced that the Government will offer two new products from April 1, Ownhome and MyChoice HomeBuy, for key workers and other priority first-time buyers.
Ownhome is provided by Places for People and the Co-operative Bank. It offers people the opportunity to take up to 40 per cent of the value of their property in an equity loan.
Borrowers pay nothing for the first five years on the equity loan. For the following five years, the borrower goes on to a fixed rate of just 1.75 per cent interest a year, which would then increase to 3.75 per cent a year from year 11.
Yousefi says: “This is valuable and cost-effective way of getting onto the property ladder. This is extremely affordable for borrowers in the low to mid-income brackets.”
MyChoice HomeBuy will let borrowers apply for a mortgage with any lender they choose. The borrower would then pay a rate of 1.75 per cent a year on the equity loan funded by one of eight housing associations.
In a further move to help the shared-ownership market, Darling announced stamp duty on shared-equity homes will not be required until buyers own 80 per cent of the equity of their home.
This is a welcome move but mortgage commentators say this will not help the substantial number of ineligible applicants who are also struggling to buy their first home.
Association of Mortgage Intermediaries director Richard Farr says: “The Government has not increased stamp duty thresholds in line with property prices and the duty is increasingly becoming a stealth tax. Stamp duty is such a burden that it could cause the Government to fail in its ambition to achieve 75 per cent homeownership.”