Am I saying there is not a problem? Of course not but there is plenty of evidence to show that the issues are now being addressed.
Obviously, the effect of tough credit conditions will have a very wide impact on all aspects of the consumer market. Much of the focus has been on housing but all areas of the retail sector are feeling the impact. These contractions have already had a direct impact on employment in the manufacturing sector. Sales volumes in sectors such as clothing and motor vehicles are particularly vulnerable as only a small number of purchases are directly driven by real need. Many of us can manage quite well with our existing wardrobes and cars are now built to last.
To some extent, this could also be held to be true of the housing market although purchases here may be driven by factors outside the direct control of the individual.
Young people grow up and have a natural desire to set out on their own. They find partners, they get married, they have children, their ambitions drive them to new jobs in new locations – any of these events may result in a need to change their living arrangements.
These are key factors which will continue to drive the housing market.
The other factor in the housing market is the effect of supply and demand. There are already over 20 million households and this is growing in line with the population increase and the move towards more people living on their own. The number choosing to live alone is double the figure for 1971. This is partly the result of lifestyle but also a symptom of changing demographics. By 2021, there will be more over-65s than under-16s.
Given these statistics, the supply side of the housing market must cause real concern. New build is currently at a level of only 150,000 units a year, with the forecast for next year showing a further decline. Building is now at the same level as in the 1950s and while much development in those days was of traditional family homes, today the focus is on inner-city flats which seem to appeal to only a small percentage of buyers.
Unless there is an improved supply of properties that meet buyers’ aspirations, the shortage of supply will inevitably drive prices higher. There can be no doubt that price growth is being restricted by credit shortages, not by a collapse in underlying demand.
What does this mean for mortgage brokers? Yes, we are experiencing very difficult conditions and income levels have collapsed but current market conditions can only be temporary. The numbers of people who would like to move house are growing and while the numbers of lenders are reducing, there is no evidence that consumers will not continue to look to independent brokers for help in finding the most suitable product for their needs.
When will the light at the end of the tunnel reach us? This will depend very largely on when the confidence essential to the market returns. Mechanisms have been put in place to ensure that financial markets do not collapse and depositors can have confidence that their savings will be safe. Now everyone must do everything within their individual powers not to cause any more destabilisation.
Richard Fox is chief executive of the Society of Mortgage Professionals