Feature: Scheme on

Ryan Bembridge analyses the plethora of schemes aimed at first-time buyers entering and leaving the dysfunctional mortgage market

Bank of England

In a March blog two members of the Bank of England’s structural economic analysis division, Lizzie Drapper and Hasdeep Sethi, looked at what’s holding the housing market back.

“For transactions to pick up, we would need to see higher incomes and improved confidence, so households choose to move more often,” they say.

In 2006 just 64 English homes in 1,000 changed homes and three years later this halved to 32 transactions in 1,000 homes.

With the lack of new housing hitting the market, fluctuating house prices and safer lending practices, transactions haven’t reached the heights of 2006.

The BSA’s Paul Broadhead was asked if it would be healthy for properties to change at this level again before the government started drastically intervening with the market.

“I’m unsure what the healthiest figure is but we’ve still got insufficient housing which is why questions on affordability are prevalent across all tenures,” he says. “People are buying later and holding onto homes longer.

“We want to see tempered house price inflation in line with increased incomes.”

But he adds: “Incomes are unlikely to fly up any time soon. These things could take a decade or more to fix. We do need a narrowing of average wages and average houses.

“Confidence and sentiment plays a huge part in our housing market.”

In 2006 price rises were comparative with today, as they increased by 10.2% in the year to the second quarter of 2007, however mortgage finance was more available from the now much maligned sub-prime market and 100% loan-to-value finance was readily available.

Rob Ashley-Roche remembers life in 2006. “I’m doing less business then than now,” he says. “There was masses and masses of business in sub-prime.”

Bougler would like to see a return to the 100% LTV mortgage lending. “There’s only been a small recovery in first-time buyer lending but a number of these people could have got a mortgage in 2007.

“It’s fair to say there were a few people who got mortgages in 2007 that shouldn’t have but it was a few – it wasn’t a vast number. The fact is it is just a few is proven by the number of repossessions.

“There would be less of a need for schemes if there were 100% mortgages available.”

Stimulating demand by accepting 100% LTV loans could push prices up in the short-term, but Boulger reckons this is worth it in the long run.

“If you were to enable more people who could afford monthly payments and couldn’t buy it creates extra demand.” He adds.

“It’s right that if you create additional demand it puts pressure on prices but I suspect the majority of people are those who are already renting. If you allow people renting to buy you would create a surplus of properties and investors would be more likely to sell.”

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