John Phillips is the financial services director at Kinleigh Folkard & Hayward and in a recent article for Mortgage Introducer he makes an interesting point about lending criteria.
There are plenty of positive headlines in the news about the return of growth to the UK economy and even enough good house price data to spark talk of a bubble and imminent correction.
At the front-line it is fair to say that we are seeing greater levels of confidence, with all measures pointing in the right direction.
The missing piece however is any significant improvement in household real incomes.
You can read the full article here
Although he obviously does not give specifics or timescales John does make a valid point that with the current cap on incomes it is hard to see how the property market can continue its current revival without lending criteria changing a little.
House Price Rises
Meanwhile RICS has reported that over half of its members reported price rises during October, the highest level since June 2002, Read more:
This adds to a wide range of predictions of price rises for the next twelve months, and the associated good & bad consequences. The government’s Help to Buy scheme is adding to the mix with pretty much all of the mainstream lenders now offering access. For mortgage brokers the increased activity can only be good news, but is it a short-term benefit?
Quite how the government will keep a lid on the property market remains to be seen. There is a natural (Conservative) tendency to trust that “market forces” will apply any necessary corrections. However, with the level of regulatory and treasury intervention already taking place in the housing market there is no real “market force” to content with. It is all artificially contrived.
And as if to prove the point, the Bank of England has pretty much confirmed that they do not see market control as their responsibility. This comment was in response to the Royal Institution of Chartered Surveyors’ suggestion last month that the Bank should step in to control house price inflation by capping it at 5%. It would appear that the Bank of England are content to see house prices rise as mortgages become more widely available. The bank’s main tool to combat price inflation is to control interest rates, but with the current constraint on incomes any upwards hike in rates could be very problematic for existing borrowers.
The banks acknowledge that there is a wider problem with the general population’s finances as a recent HSBC press release highlights a savings issue:
800,000 more households on the brink than in 2012 34% of the UK population have savings of £250 or less. New research from HSBC has found that over a third of people in the UK – around 8.8 million households – only have £250 or less set aside as a financial safety net.
Of course the 34% of households mentioned in the research may not be the same households that are applying for mortgages. Nevertheless it should be of concern that the general public appear to be walking into government underwritten home loans with very little by way of a safety net.