Brokers and packagers battling to meet monthly targets and maintain business levels in the face of unremitting gloom about the mortgage market can be forgiven for thinking purely about the here and now.
Why look to the long-term future when the day-to-day news is enough to concern anyone? You don’t need a crystal ball when the current view is shrouded by half-truths and sensationalist headlines.
Headlines such as ‘UK housing market close to collapse, analyst says’ from The Times newspaper present an accurate view of the near future. Or do they?
The views of Dresdner Kleinwort Wasserstein analyst, Alastair Stewart, advising investors to sell shares in house builders demands attention.
He argues that there is over-building as well as over-lending as builders speculate on future demand. However, the industry as a whole should be looking further into the future than simply the next few years.
A familiar situation
Anyone who has paid any attention to what is going on in the housing and mortgage markets will be wearily familiar with the arguments that the fundamentals of supply and demand are currently out of synch.
We are regularly told that there are too few first-time buyers coming into the market and that prices are over-inflated. The relationship between average house prices and average salaries has become distorted.
Council of Mortgage Lenders’ (CML) statistics show there were 357,600 loans to first-time buyers in 2007 – the lowest level since 1991. The average age of the first-time buyer was 29 and the average income was £35,030. On average they borrowed £116,820 – which equates to 3.3 times income.
First-time buyers are getting older and wealthier, but still have to borrow more than previous generations to get on the housing ladder. Many analysts wonder where the next generation of first-time buyers is going to come from and point to the market running out of new buyers.
Given that background, should the industry grit its teeth and welcome the recent signs of a housing market slowdown as a long overdue correction which will enable the market to return to its stable growth path? Or should we all start thinking a bit more long term?
It is certainly not the case that we should all be panicking about the housing market slowdown. The most recent CML gross lending figures showed that in January the total was £26.5 billion. That compared to £26.6 billion in January last year before the phrase ‘credit crunch’ was bandied around, and was 11 per cent ahead of December 2007.
Traditionally December is a stronger month than January so reports of the death of the mortgage market are still somewhat exaggerated.
We should not, however, be focusing on one encouraging month for gross lending, particularly as all the forecasts for the year point to lending volumes being lower throughout 2008. Remortgaging, rather than house purchases looks like the likeliest source of new business over the coming months.
The property market is about a lot more than simply gross mortgage lending, house prices and the age of first-time buyers. The mortgage market makes a massive contribution to UK society as a whole and we should be looking at the societal pressures which are driving our market.
Home alone
The phrase ‘home alone’ may conjure up images of Macaulay Culkin fighting it out with burglars in the 1990 movie hit. It’s a phrase which has entered the language and even spawned a movie series – although the less said about the made-for-TV Home Alone Three and Home Alone Four the better.
‘Home alone’ however is the reality for millions of people in the UK. The traditional nuclear family of father, mother and 2.4 children is increasingly not the norm in the UK.
Research by GE Money Home Lending shows the ‘Home Alone Household’ is on the rise, with around 28.6 per cent of UK residents currently living alone.
The number of solo households is increasing rapidly. Our analysis shows that in the past four years there has been a 5.15 per cent increase in singleton households. That equates to another 340,000 single households in the past four years taking the UK total to 6.94 million.
The increase is being driven by people of working age. In the past four years there has been a 7.7 per cent rise in the number of people of working age who are living alone.
The 6.94 million ‘Home Alone Households’ comfortably outnumber the 5.8 million households where two or more adults live with children. Households with children make up 23.9 per cent of all UK households.
The way ahead
Statistics alone do not tell the whole story. What does the fact that 6.94 million households are singletons mean? The clear lesson is that the number of single households is increasing but does it mean much more than that?
The government appears to think so. The Communities and Local Government department produced forecasts last year that revealed around 10 million of us will be living alone by 2029. For the media that was the cue to talk about ‘a nation of Bridget Joneses’ as more of us live and grow old alone.
For the government those figures are the justification for pushing ahead with ambitious house building plans. House builders – who’ve been told by City analysts that they’ve been over-building – will be hoping that the government is correct as it will mean the prospect of more work and the likelihood of buyers coming forward for flats and apartments.
An increase from the current 6.94 million single households to 10 million would be a 44 per cent increase in 21 years. Given that we’ve seen a 5.15 per cent increase in the past years at a rate of around 85,000 a year, there will need to be a step-change in the rate of growth.
However there are a whole range of factors driving the increase in single living. Rising levels of divorce, people getting married or cohabiting later in life and the fact that we are all living longer than ever before contributes to the mix. The increased level of immigration into the UK is another factor.
Responding to the changes
The mortgage industry needs to think about how it will respond to the changing face of the UK property market. The obvious point is more people choosing to live alone means the housing stock has to expand and that demand will continue to rise.
However singleton buyers face different challenges from the traditional model of two adults living together and the mortgage industry needs to adapt.
The singleton household will not be easily classified either. They could be people who choose to always live alone as well as people who through changes in circumstances are now living alone. People who have divorced will have dramatically different credit profiles from those who are first-time buyers.
Responsible lending is crucial in this new financial climate and particularly in an environment where property prices could potentially fall. However, mortgage lending is clearly a long-term industry and we need to be thinking long-term. ‘Home alone’ is the future.
