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Duffy on Mortgages

HBOS enjoys over 20 per cent of the UK mortgage market so you would expect its annual intermediary dinner to be a consummate affair and once again did not disappoint last week.

CEO James Crosby was honest enough to concede that his overbearish predictions of 12 months ago went largely unfulfilled. Alas , I think his punditry on the 2005 market will once more invite questions.

HBOS is pretty upbeat about 2005, which is interesting in so far as it has most to lose if the doomsters such as Capital Economics are even half-right. Historically, low borrowing costs and unemployment levels were quite justifiably hailed by Crosby as supporters of homebuyer activity.

Some demographic patterns will also continue to stimulate the market. One is Bridget Jones. The UK would win Olympic medals for its divorce and separation rate but the property market is not reaching for the Kleenex as young women (and parting couples ) are increasingly choosing to buy on their own. This is, of course, also helping the BTL landlord out.

The market is possibly becoming asthmatic. HBOS referred to a lack of oxygen and most authoritative surveys now cover this contracting liquidity problem. I agree with Crosby on the oxygen matter but would offer a different metaphor as the property market’s pure oxygen always has been and always will be consumer confidence.

My own instinct is that this confidence is starting to wane. This is mostly borne out of my anecdotal experiences of dealing with actual clients over the past three months. Even Professor Miles – did anything actually stem from that report? – is making the point that the perception that housing is overvalued could tip the market into a sharp slide.

These sentiments are pretty subjective but I can also point to some actual phenomena which I believe will result in up to 15 per cent fewer transactions next year.

There is the distractional impact of regulation. As welcome as it is, the ultimate consequences for the consumer will not be as benign as its architects imagined.

Lenders are now narrowing their product ranges as opposed to diversifying them and the outcome of six months of further grind on perfecting websites and KFIs means the innovative and ground-breaking products now needed to combat first-time buyer stagnation will be put on the back-burner. Some lenders have a case to answer in terms of not having been fully prepared for October 31. With general insurance regulation still to come in January, the new product stove could be cool for some time yet.

Confidence is all about perception and whether you believe what you hear and who says it so when the Bank of England once again stands up and issues warnings about house prices, be ready for the ripples to reach every coffee bar conversation and pub gathering at some point.

Mervyn King is clearly going to use every sinew of independence that the Labour Government gave the Bank of England when it divested responsibility for interest rate policy. This will not cost Labour the spring election but this election will be unique in that the Government will not have the power to soften the electorate up with a base rate reduction in advance.

Bah, humbug, I know. But I sense that Christmas is already being brought forward by retailers who are just as nervous about receeding consumer confidence. We are a long way from a May Day situation but what lies ahead is in my view the trading equivalent of trying to navigate the Southern Ocean, which is at best wrought with unpredictability.

Kevin Duffy is managing director Hamptons International Mortgages

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