head of communications, First Action Finance
director, Plan Money
mortgage partner, Chadney Bulgin
Speculation in mounting about when the Bank of England will raise bank rate. When do you think the first rise will happen?
Cornell: I think we are looking at May/June. Mervyn King has given a number of speeches recently and has obviously written to the Chancellor and, trying to read the tea leaves of those pronouncements, a lot of experts are pointing towards May/June.
Andrew Sentance, who has been the most pessimistic of the monetary policy committee members, gave a speech recently pushing much harder for a rate increase, so I think we are edging towards an increase. The next set of inflation data is due out in May so that would seem a sensible time to make a decision.
Wright: My gut feeling is interest rates will start to go up in the second quarter of this year. Maybe the media attention will make this happen earlier than it otherwise would but the information the Bank of England is starting to get people ready for it.
Clark: This is the $64m question. I don’t see significant rate rises this year. There is a slim chance there will be none but I think we are likely to see very slight increases in the third and forth quarter of this year. I don’t see them going up significantly. The economic pressures are too strong and the employment situation is really going to bite this year. There are mixed messages but I see a 0.25 per cent or 0.5 per cent increase before the end of the year but that is the worst-case scenario.
Grant Shapps recently chaired a summit on getting first-time buyers back into the housing market. What do you think the Government should be doing to help FTBs?
Cornell: I don’t think there is much the Government can do really. We are where we are because there is not much funding in the market and lenders want to lend to people with big fat deposits.
I do not think the Government can come up with a solution, I think it is a lot more likely that the industry will come up with a solution.
There are some very clever and very entrepreneurial people in the specialist lenders and I think it will be small and specialist lenders who will find clever and interesting ways of helping first-time buyers.
Wright: Try not to reinvent the wheel. It comes down to educating people so they know coming out of school they have to be saving for deposits.
But you have got to make the deposit-saving journey realistic. At the moment, the 90 per cent mortgage market is really non-existent as far as competitiveness is concerned.
The affordability of the average mortgage and the rate being charged is out of sync. Until that is addressed, we will continue to have problems. But we need first-time buyers to be buying responsibly, not just to get the economy out of a hole.
Clark: It is difficult because it is a free market as far as the lenders are concerned. We do need some more 90 and 95 per cent LTV loans. I think there are three or four 95 per cent deals out there at the moment, but it would be better if more mainstream lenders did 90 or 95 per cent products.
The products that are out there are generally from very niche lenders and are not generally available. There is nothing wrong with lending money to people who have got 5 or 10 per cent deposits but there is just no lending out there. There is the possibility of reintroducing Migs. That might be a way round it and I am surprised that no one has reintroduced them as there are practically no lenders using them. It worked before, I don’t see why it wouldn’t work now.
We have recently seen the introduction of a 95 per cent LTV from Taylor Wimpey in partnership with the Melton Mowbray and Saffron Walden building societies. Leeds Building Society has also recently launched a savings account for FTBs saving for a mortgage. Is this a sign that life is returning to the FTB end of the market or an indication of the need to sell houses or attract new customers?
Cornell: It is a bit of both. What Taylor Wimpey are doing is they are paying for a Mig on the amount of the loan between 75 and 95 per cent of the value, so the lender feels safer. On the Leeds BS product, the interest rate is not great as you can get a better rate at a no notice savings account. So out of the two, the Taylor Wimpey deal is more likely to help first-time buyers.
Wright: The property developers are stifled because of the lending criteria so they have got to do something about that. Schemes like this are normally limited to certain people. You have got to be buying their properties, it has got to be a Wednesday afternoon, it has all got to be on their terms.
I am not a great fan, as there should be freedom of choice, freedom to get advice and it goes against what I am thinking about getting education in place. The long-term solution is getting first-time buyers in the market who can afford and manage what they are doing rather than gimmicky schemes.
Clark: I think it is a bit of desperation on the part of the developers. We have a new homes department here, we do a lot of that and generally the guys that are doing new home mortgages are doing deals where there is some kind of shared-ownership arrangement or equity incentive.
Most of the developers are still doing a kind of do-it-yourself type of shared-ownership schemes, that is the only way they can shift property.
Clients having to save for a deposit is nothing new. Going back 20 or 30 years it was quite normal to have to save for a deposit with a lender before they would consider lending you money.
I don’t think this is going to breathe new life into the market. They are very niche products.
Tony Ward of Home Funding recently said the mortgage market will take 10 years to recover as there is still no sign of securitisation and it is only then that you get sufficient volume into the business. Do you agree with his timescale?
Cornell: I hope not but Tony Ward is one of the best placed people to make that assessment. If that is what he says, I am not in a position to challenge it. The optimist in me would say I hope it is sooner. But the interesting question is what will the new normal look like? We would all hope the new normal is not £140bn in gross lending, which is where we are bouncing around at the moment.
Wright: I’ve got to be honest, I probably would. It is a bit scary looking back to 2007, it is now 2011, we were saying it would take a couple of years to get back to normal. We are nowhere near normal, so I would not disagree with that timescale.
Clark: That is a pretty dire prediction. But the levels of lending are a fifth or a quarter of what they were at the peak and we are way behind that, so he is right. Ten years is perhaps a slightly gloomy spin but, without securitisation, we are not going to get significant increases in the market.
There is also a nervousness about buying houses and we are also going to see a general swing towards longer-term letting and that is going to make any recovery in house prices slower and more gradual.
The Treasury is considering giving the Financial Conduct Authority, the replacement for the FSA, the power to restrict lending on an income basis rather than restricting lending on an LTV basis which it considers may be too difficult. Should the new body have these powers?
Cornell: I have mixed feelings. The purist in me says the markets are much better at finding solutions than regulators but the last three years or so would suggest that theory is blown out of the water.
There are some merits in having a regulator that steps in and says, actually we think this is getting a bit overheated and a bit daft and you need to step back. But it is at what point does that happen and what is the experience of the people making those decisions and who they are making them in consultation with?
You would like to think the decision would be made in conjunction with the trade bodies and maybe a panel of industry wise people who are able to give a bit of perspective.
When markets overheat, we tend to lose a bit of perspective and forget the lessons we should have learnt from the past.
Wright: If you look back at the mistakes that happened when the FSA and the Government did not want to stop the momentum in the market, you could say would the FSA with a different title do any different? Would they use those powers? If those sort of powers would help maintain a stable market then I would welcome it but I would say that last time they should have done something, whether they had those powers or not.
Clark: They should not be interfering, it should be a free market. I think it is very sad if we have to have them regulating products in that way. If it has to be done at that stage, it is almost too late.
You must be able to control the market better at an early stage.
We know the FSA is going to monitoring products much more closely but it would be very sad if the type of product was dictated by the regulator.