Properties sold to first-time buyers under the Government’s 95% mortgage indemnity guarantee scheme could instantly depreciate in value, the RICS has warned.
The RICS says it is concerned that demand for homes within the scheme could artificially put up their prices.
David Dalby, residential director at RICS, said valuers will need to look at properties outside the scheme and take their prices into account.
He said: “There is a potential issue for lenders and buyers in that, as this scheme is only available for new-build property, any subsequent purchaser would not be able to take advantage of it.
“Unless similar loans come on to the market for second-hand homes, there may be an instant depreciation in value the day after purchase.”
Dalby said there is also a risk that demand for second-hand homes will fall in some areas.
The Council of Mortgage Lenders has also said there are concerns about the valuation process of properties in the mortgage indemnity scheme. It will be working with RICS to ensure that its guidelines to valuers are robust and address lenders’ concerns.
Comments
"Monthly affordability isn't a problem here, raising the deposit necessary to apply for the mortgage is"
What about monthly affordability when interest rates go up?
Good idea to take on a mega mortgage at the moment at rock bottom interest rates?
Village England will never be the same again. Even during the recession, wealth has quietly seeped into favoured rural enclaves and they have officially become “millionaire villages”. New research based on Land Registry figures, reviewing sales of houses valued at more than £1 million over the past four years, shows that chic rural pockets now have prime value.
Forbes published its new rich list, showing that the world had 214 new billionaires, of whom 32 — three more than last year — were in Britain. Continued sales during the recession show there is still wealth around and it is being put into safe havens, though perhaps more discreetly than before.
The rich are getting richer, and they buy houses.
According to reports, Roman Abramovich has given his teenage daughter Anna a relatively modest £4million mews cottage.
I think any increase in lending is going to have to circumvent the banks. More UK banks were downgraded last night re exposure to the Eurozone crisis.
Sorry i was in a rush earlier...and don't call me Shirley.
Yes, which is why I welcome any scheme to increase availability of credit, with the proviso of not returning to the wreckless ways of liar loans etc. The balance is nearly there, the banks though still need to loosen up just a little bit.
Not trying to be more difficult than usual (!), but while the prices may be back to 2004 levels, access to credit is way different from what it was seven years ago, shirley?
"Wouldn't the cost of living have eroded those salaries?"
Yes but if memory serves me right that anicdote was from 2006 and prices now are at 2004 levels so I suppose that offsets the raise in costs (?)
The job market here seems reasonably stable and there is a reasonably good mix of jobs. There's the odd company creating jobs (Amazon and Debenhams for example have recently opened big distribution centres, to sit alongside existing Tesco and Ikea distribution centres. We've just got a TK Maxx to fill the old Woolies and Primark seem to ripping out half of Queensgate for their new store.
RAF Wittering isn't closing and I read recently that some different fighty people are being re-deployed there and the old USAF base RAF Alcolnbury just down the A1 has recently been designated an employment zone.
Thomas Cook are a big employer and have had a wobble this month but it seems mainly the shops which will be affected, and the big manufacturing co.s like Perkins Engines seem to be back up to speed after a big wobble in 2009. There seem to be plenty of jobs in recruitment agencies windows and the special brew drinking crowd outside the job centre seems about the same as before.
Wouldn't the cost of living have eroded those salaries, or did you factor that in? You'll have a feel for the job market in the area too I'm sure.
Hope it works out for you in 2012 though.
"it's already been noted on this thread that prices in Peterborough have come down 20% in the last few years."
True, but I also said I don't think prices have much further to fall. Last time prices were at these levels, there were dozens of first time buyers and people are generally earning the same if not a little more. I remember once (rose tinted spectacles moment here) having six different first time buyers booked to see a starter home one evening and losing out to a colleague across the office because her buyers happened to have the day off that day and went in the afternoon.
Monthly affordability isn't a problem here, raising the deposit necessary to apply for the mortgage is.
"this will only happen if every lender defaults on their mortgages and prices drop by another 20% in the meantime"
Not wishing to be accused of making a predictable comment and undermining what is a refreshingly polite and informative discussion, it's already been noted on this thread that prices in Peterborough have come down 20% in the last few years.
That alone doesn't seem to have helped FTBs enough (hence this scheme). In a housing market with less interference than today, that would suggest prices there could well keep falling. This scheme would therefore seem less risky to the council taxpayer in places like Oxford, Cambridge and Surrey where the falls have been much less pronounced.
Having said that - i must add that I quite like the new paving in town ;o)
"Wouldn't the 75% of the loan that the bank is responsible for be the last to be affected if there are problems with negative equity?"
Yes, which will make it easier for them to loan money to FTBs. Since the banks have had to be more responsable and take less risk, FTB lending has gone through the floor, no because the buyers can't afford the repayments, but because thay haven't got huge deposits.
There will be risk on behalf of the council, but having read some of the comments of the HPC thread about this there seems to be a mis-conception that the council money will all be lost (this will only happen if every lender defaults on their mortgages and prices drop by another 20% in the meantime) . Much of any council's funds is in savings accounts, and if a million of this money can be offset against people's mortgages this can only be good for the city.
We need to also remember that this is the same council that recently paid £8M for the local football ground, £12.6M on repaving parts of the city centre and £8.4M on consultants fees in 2010, so actually for a change this is a good use of the council's money
Wouldn't the 75% of the loan that the bank is responsible for be the last to be affected if there are problems with negative equity?
Personally, I'd rather see my council tax used for schools and libraries than propping up the housing market. My income doesn't depend on transactions in the housing market though.
Peterborough is the first place to roll this out, through Lloyds Lend A Hand scheme. This package, which seems to be designed for use anywhere, was another idea at Shapps infamous FTB summit that didn't involve any FTBs.
No I've just Googled it and it is the first I've heard of it.
My first impression was that it was a bit daft, having read further, It seems quite a good idea. The main concern is that they're only putting in 1 million (possibly more if more lenders come on board - but there's none at the moment), which if you consider that a two bed terrace can be bought in the city for £100k, means they're splashing out indemnities of £20,000 a time, only leaving enough money for about 50 applicants - which is about one third of one month's transactions in the city.
The scheme as I understand it would also allow an FTB with a 5% deposit to buy a house up to a maximum of £130,000 - which would allow them to buy a 3 bed semi in many of the nicer parts of the city.
So 50 or so more chains than would otherwise be the case and a bit of help for FTBs who actually want to buy (and aren't just sitting around for a crash ;o) ), but the only publicity I can find in the local rag is from June and there has been no launch, so I'd be surprised if many know about it.
The other concern would be what happens at the end of the five year period when the council take their money back. There seems to be an assumption that in 5 years the value of the house will be high enough, the owner will have more money and/or banks will be healthy enough to sustain a remortgage without any additional funds/indemnity. If the homeowner is in NE or can't remortgage, it seems that they will be locked into the mortgage and that the bank will then be incurring all the risk - just on a deferred basis.
I support it in so far that it ISN'T available for new builds, will help build chains in the city and that the council don't actually lose any money unless the borrower defaults - it's just put in a high interest savings account (as a lot of council funds are anyway - or were until the Icelandic bank debacle). So it seems that if we sell it right we might be able to close a few more deals to FTBs.
Pbro - have you seen reports that the local council in Peterborough is to start underwriting the mortgages of FTBs?
What's your take on that?
Dont post links to stories as that idiot who posts ranrave now has somewhere to go a cut part to apste nonsence on here!
@Hotairmail, for what it's worth I do think prices are still a bit high. Peterborough is an interesting case study. As mentioned in Henry Prior's blog recently, prices here are already 20% down on peak prices and whilst prices have steadied somewhat in the last few months, there is a great deal of uncertainty at the minute.
I do think that more houses will come to the market as interest rates rise and more people struggle to pay mortgages, but I don't see prices falling by much more than 5 or 10%. The reason for this is that we have a very active BTL sector here and there are planty of investors ready to snap up anything that looks too cheap. We also find that many regular residential buyers pop out of the woodwork as cheaper properties come to the market and there seems to be a pent up demand.
Peterborough is undergoing massive redevelopment, we have regular Intercity trains to London in just 50 minutes which is faster than many ares in the commuter belt and it was recently announced that Peterborough will be benefitting from the Thameslink scheme, so demand for houses here is only going to increase.
What makes Peterborough especially interesting though is that there is a huge development of new homes being built on the southwestern edge of Peterborough. This development is due to continue for at least the next 15 years and probably even longer. The problem is that these homes are in constant supply and we are seeing real drops of 10-15% on the value of new homes once a buyer moves in - who wants to buy a 12 month old home with a bit of dirt and grime attached when you can get a brand new one with 5% deposit paid and your choice of kitchen units?
This means that time and time again I am seeing potential vendors who bought new houses, were attracted by the shiney show home but have now lost a huge chunk of equity and will have even less chance of selling it if FTBs are given even more incentives to buy brand new.
This scheme is not necessary and actually hurts the economy in so many ways.
I've just had a thought. There is a huge flaw in RICS' position isn't there?
RICS are responsible for valuations to protect lenders. They should take into account 'the fall in valuation' the day after the FTB moves in. The price surely should be kept in line with the second hand market...BY THEM!
There should never be any divergence as a result of incentives for new build. This means they are actually pricing new homes incorrectly right now as new build has outperformed second hand over the last couple of years due to various schemes.
So what are THEY gong to do aout it?
PbroAgent "Perhaps they did it for the benefit of their "friends" in the construction industry... "
I dont think any of the people mentioned in that Daily Mail article will benefit from a shceme aimed at assisting FTBs will they? FTBs looking to buy in Millbank Tower type places probably dont need assistance with their deposit.
The scheme will beenfit the construction industry, but not becasue the Government specifically wants to help construction companies, but becasue they can see it will create jobs - something the economy desperately needs at the minute.
@pbroagent
"It doesn't show that at all, new build prices could be peanuts - but you wouldn't know by that graph. All it shows is the rate of change of prices of two catagories of properties.
It especially doesn't show the effect on the price of new houses once buyers move in, which was the point of the story. "
Fair point if you don't believe current prices are 'high'. That was a bit of a leap of faith I have to say (which I base on historical statistics - I don't know what your rule of thumb is). Let's put it this way shall we, if the Bank of England were to return to 'normal' monetary policy which they say is their objective i.e. Bank rate of 5%, where do you think property prices would be lying?
What you cannot argue is the divergence in performance between new build and second hand houses that is already evident even before the additional help for ftb's to buy new homes.
"It clearly shows new buld prices staying high"
It doesn't show that at all, new build prices could be peanuts - but you wouldn't know by that graph. All it shows is the rate of change of prices of two catagories of properties.
It especially doesn't show the effect on the price of new houses once buyers move in, which was the point of the story.
By the way, you may be interested in this chart which shows the effect on new build prices from all the other FTB schemes, even before this one is launched.
It clearly shows new buld prices staying high.
http://oi42.tinypic.com/m299w.jpg
Right - so rather than arguing the subsidy should be removed because all it does is 'artifically put up the price', they want the entire housing market to have subsidies to 'artificially put up their prices'.
That works well as we've seen with our excessive costs and run down economy.
Land prices infect everything. They need to come down - maybe carefully and over time, but come down they must. Stimulating new build rather than pumping credit into the existing parlous housing stock is surely the way to go for our young people.
@ST "maybe the Gvmnt didn’t introduce this scheme for the benefit of EA's"
Perhaps they did it for the benefit of their "friends" in the construction industry...
http://www.dailymail.co.uk/news/article-2035836/Tory-party-given-3-3-million-donations-property-developers.html
Will the RICS issue a directive to exclude that element?
Simple logic, remove an incentive and then try to sell the same product withou it, be it a property or a widgit it will sell for less, unless demand is suddenly stronger and thats not going happen for a while.
So Hawkeye is fed up because developers have the temerity to sell direct to the public themselves and EAs don’t get their cut? I l know this may be difficult to take but maybe the Gvmnt didn’t introduce this scheme for the benefit of EA's?
Puff!
There goes Grant Shapps' credibility
“Unless similar loans come on to the market for second-hand homes, there may be an instant depreciation in value the day after purchase.”
QED
Ssshhhhhsshhh! Some young people must be snared into buying properties that will instantly go into negative equity .... got to keep the house of cards up.
All us EA's know that new homes have a premium so why is this idiot stating what we know.
Just goes to show that our wonderful government have not a jot of common sense inside their empty heads and I quote again:-
'Politics is the last place a man with no discernable ability can make a decent living'.
I said yonks ago that this hairbrained scheme will not work if the rest of the market which makes up the majority is included.
We EA's have a very limited amount of new FTB stock as the developers who would gain the most from this choose to sell direct to the public themselves.
Uggghhhhhhh give me strength!
Like - derrr!
No surprise there then.
Stupid, ill conceived government led scheme results in unintended consequences...
Who could ever have foreseen that?