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Written by rosalind renshaw

Yesterday’s summit over first-time buyers was told that there is no ‘magic bullet’ to solve the crisis.

The Council of Mortgage Lenders described the meeting, held by housing minister Grant Shapps, politely as ‘a constructive discussion’.

The CML made several robust points, telling Shapps that:
 
Current constraints are an issue not just for first-time buyers but for existing recent buyers and those without a large equity cushion. Funding constraints apply across the whole market. Gross lending in 2011 will be around £135bn compared to £360bn at its pre-crunch peak.
 
High loan-to-value lending is very capital-intensive for lenders. Under today’s risk-averse regulatory environment, lenders need to hold typically 6–8 times more capital against a 90% loan than a 60% loan. This is bound to have a knock-on effect on the volume and the price of the high loan-to-value lending that is taking place.
 
Consumers are also wary: demand is relatively low not only because of the relatively higher cost of high loan-to-value borrowing, but also because they are unsure of the future direction of house prices.
 
It’s important that the Government considers and understands these underlying drivers before looking towards specific solutions.
 

While mortgage insurance, shared ownership and product innovation can all potentially play a part, none will provide a ‘magic bullet’ to normalise the mortgage market – for first-time buyers or anyone else. This is likely to be a gradual process as confidence in funding markets and lending decisions is restored in the light of a more stable market environment.
 
CML director general Michael Coogan said after the meeting: “It is good to see ministers taking the initiative to discuss how we can look to improve market conditions for first-time buyers. But no-one will be surprised to learn that there is no simple quick fix for a market that has changed fundamentally since the credit crunch.”

Comments

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    Chris:
    This illustrates the problem graphically.

    I've just finished a Thesis on 'How To Improve The UK Housing Market' and have published it online, inviting comments at the Property Match Blog.

    It would serve the both the housing market and the agents working within it well, and I'd welcome comments, here or on the blog itself.

    In essence, it's about how to achieve correct marketing, with correctly priced houses, for sale in the market.

    • 21 February 2011 17:04 PM
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    We currently have a problem! We are selling more properties than we listing and at this rate, we will have nothing left to sell in about 2-months time! This is the gods honest truth and I am not making this up to impress anyone or upset anyone!

    One thing I am doing however is listing carefully. Take the 2-bed victorian terrace I want out to yesterday. The vendors had already asked me to bring my camera as they had every intention to place it on the market with us!
    Before I left the office I noticed that they bought the property last May for £112,000 and there were similar properties around at the same time they bought it, for similar prices. In otherwords, it wasn't a bargain when they bought it. Most of the properties on sale last year are still for-sale today! I figured that I would have a tough time just trying to get them their money back, so imagine my surprise when they told me to put it on the market for £122,000! I told them that this would be wasting my time and money and I wouldn't be willing to list it for anymore than £115,000. I left them thinking about it. I am sure another agent will list it for them at that price!

    Can you now see why we are selling our stock? We place property on the market for sensible prices, but sensible vendors are pretty hard to find.

    Soon, I may be forced to put some overpriced stock onto the market, else I will have nothing to advertise and may as well close the company doors, mothball the business and take an extended holiday for a year or two!!!

    • 20 February 2011 18:14 PM
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    @Simon

    Around here anyone with a 25% deposit could AFFORD to pay a mortgage on an equivalent to the place they rent, as they'd be paying less!. The problem is in getting offered a mortgage because lenders have got ultra-cautious - partly due to government swinging from no control to over-regulation of some financial criteria..

    But how realistic is the solution of immediate lower prices? This could be achieved by raising interest rates, making finance more expensive and therefore deterring more of the few buyers currently around.

    This would mean less chance of selling a house because of a job-change or upsizing to cater for an expanding family. Also, negative-equity would affect even more sellers, and higher repayments would increase the prospect of reposessions. The repercussions would be financial chaos, and inevitably lead to a future property boom for some, with a repeat of the problems!

    Better to let the economy gradually catch up with the market, and keep some stability in place. Having panicked and lowered rates too much (IMO) I hope the BOE now recognises that significant rises in rates will shatter a fragile equilibrium in property, having a detrimental effect on much of the population.

    Whilst sympathising with those currently priced out of the market, I empathise with George Daws' sentiment, in that perhaps this is anther self-interest group looking for someone to subsidise their "investment return" from property, rather than seeing it as a home!

    • 17 February 2011 07:17 AM
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    Simon: "That is why the FTB Strike campaign group is gaining larger and larger numbers"

    Lets look at those "larger and larger numbers" shall we...

    It was difficult, because you have to go to page 3 of Google to find ANY mention of this so-called 'strike'. TWO AND A BIT other pages of the usual Googlecrud before you see the wee entry for the HPC Forum announcing the Strike.

    So - In I go - risking life, limb, and brainwashing - and find that there is a Facebook Page for it. Might have guessed. If it can keep Joe McElderry off the Christmas Number One, then it can bring down the housing market...

    It's been going since last April, apparently. HAH! - April 1st, to be precise!! You couldn't make it up, could you!! (Didn't someone have the nous to think about that small but significant detail beforehand...?)

    ANYWAYS - according to our friends at HPC, there were 82 members within the first week of it opening. Not bad - most FB page owners would be quite happy with that I would imagine... On target for 4000-odd in a year. So - here we are - Week 46. All 3772 of you must be laughing your trousers off, are you? Erm... no. There isn't 3772 of you at all. it seemed like the influx tailed off around... week 2, I think.

    TWO HUNDRED AND FORTY TWO MEMBERS! Wow! - you'll need an aircraft hangar for your AGM... ;0)

    Little birds who fluff their feathers up to look like a bigger bird get one thing.

    PLUCKED - and you certainly have been...!

    • 16 February 2011 22:39 PM
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    That is why the FTB Strike campaign group is gaining larger and larger numbers.

    That campaign has been raging along since 20th Feb...... 2007 4 solid years of glacial growth.
    Please think about your post and realise that what utter guff you have posted. if you have saved a 25% deposit then surely that is the point, you can afford to buy.

    You are simply scared to buy in case you spend a few years in negative equity.

    • 16 February 2011 20:10 PM
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    There are lots of us FTBs with 25% deposits but still can't afford to buy because house prices are too high. That is why the FTB Strike campaign group is gaining larger and larger numbers.

    Only slashing asking prices will solve the FTB crisis. It will get increasingly difficult as the larger debt generation graduates come to want to buy.

    • 16 February 2011 19:18 PM
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    What bugs me about so many FTB's is their constant moaning about 'not having a deposit'. 20 years ago, and more, FTB's saved bloody hard for a deposit. These days, FTB's want to go out 3 times a week, have four holidays a year, drive a fast car, go shopping every weekend, maxing the credit card.......we need to go back to being prudent and careful, and saving rather than blindly spending, and whinging.

    • 16 February 2011 17:39 PM
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    Members of the CML have got away with murder. The government cannot possibly pluck a rabbit out of the hat unless it takes action to put in place some really (and probably rightly due) drastic action. Like giving back the money the mortgage industry stole to those in negative equity after capping house prices .... wow that would work but try and implement it without the fall out, arguments, wheres the money coming from etc, the list is long..... just not going to happen.

    So we (the nation) will just end up treading water, as the economists, lenders and Government know only to well until the economy and incomes gradually climb to the affordability levels. Will take years.

    Whatever happend to price per square foot. Worked before so if you want to spend £30K on a kitchen, fine but tough at getting your money back.

    • 16 February 2011 15:36 PM
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    Sorry - wrong rr - was replying to rantnrave

    What I am not advocating is fast rising prices - I would prefer them to stay as they are now, or even come down a bit more ....

    Consumer demand dictates prices, but they could be controlled to some degree by sensible lending criteria coupled with attainable LTV's

    For example the Northern Rock were a laughing stock "Hello sir.. been turned down by every lender have we? Not to worry The Northern Rock will do it for you" Without this kind of stupidity we could see a stable market with stable prices.

    95% LTV with no conditions on who is lent to, will create another bubble - unfortunately the banks will not learn in the long run, and I bet it happens again unfortunately

    • 16 February 2011 15:08 PM
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    James,
    Because without stability in house prices, people will not be able to move, at times when they ordinarily would.

    Worse, all the allied trades, including estate agents, would be unable to trade successfully whilst the housing market suffers in the doldrums, approximately 7 yearly.

    The idea of owning your own home is partly so that YOU can decide when you want to move, and where to.

    It large numbers of people, I am concerned about.

    • 16 February 2011 14:41 PM
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    RR

    Why does a house to live in have to provide investment growth

    If you buy it with a deposit on a capital and interest based mortgage which you pay down to zero over twenty five years, where is the problem with that

    Why do you want to own a house that only goes up in price all of the time? Buy it, watch it yoyo but don't worry about it.

    Love it, decorate it, bring your kids up in it, and then sell it when you need to - the one you buy after that will have either gone up or down accordingly

    Why does it have to be cheap? and then worth more at a time to suit you?

    Buy a home. I did, and I don't care what it's worth.

    • 16 February 2011 13:23 PM
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    ...House prices collapse and suddenly lots of people emerge with money to snap up all the cheaper properties and frustrate the priced-out FTBs all over again...

    These would-be buyers waiting in the wings are of course all people who aren't already heavily invested in property and have cash they can access at a second's notice. Being such shrewd investors, they decided that the fastest increases in UK house prices as witnessed in the years up to 2007 did not merit their funds or even attention. Having patiently sat those rises out, they are suddenly keen to jump into the housing market now.

    Lets be honest, very few of the UK's population were ever taken in by the idea of house prices rising forever. Given how little exposure that mindset receives in this country's media, there must only be a handful of folk out there whose personal financial situation would take a big hit if house prices went down by say 30%. How few people out there have all their eggs in the house price basket? Come on, this is the UK population we're talking about, a nation of people who would never jump on any bandwagon if they thought it was a quick way to make money and keep up with the Joneses.

    No, be assured that these would be buyers waiting in the wings are people who are not deterred by the idea of assets that are falling in value. Obviously they are privy to knowledge about where the bottom of the market is that the rest of the population are denied access to.

    How many of these people do I know? Let me see, ah yes, it must be absolutely none...

    • 16 February 2011 13:14 PM
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    There is no doubt that prices will continue to creep downwards, but a 50% drop is an unrealistic short term view for the whole of the market

    Credit will not get any easier in the short term, as banks have no capital, no competition and a very cushy profit margin at the moment

    But I also cannot forsee credit getting a lot harder thus creating a crash

    Now if interest rates suddenly leap to 6%, and by the same token mortgage rates leap to 11% then it might happen, but Mervyn King and co have more sense than that

    It is on a knife edge, the BOE will not destroy a large portion of the British public on purpose just to meet an un-meetable inflation target

    • 16 February 2011 13:12 PM
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    Yes please RR, can you send me one of your floor plans to use as an avatar?.....Oh you dont do them? in that case can send me an out of focus, low res property picture, i know you have plenty of them. Failing that i'l chuck a set of keys on my desk and use them.

    • 16 February 2011 13:09 PM
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    Let us imagine, hypothetically, that there was no speed limit on our motorways. People would drive as fast as they could, only to find their speed was limited by the power of their vehicle. Now lets imagine that a new fuel was introduced, which enabled cars to drive at two or three times their previous top speed. What would happen to the average speed people drove at on motorways? Naturally it would increase by a similar factor of two to three times. What would happen if the supply of that new fuel suddenly became much more restricted? How would the average speed be affected?

    The words 'speed' and 'fuel' can of course be substituted for 'house prices' and 'credit availability'. Sure it's a little simplistic, but I think illustrates what has happened to UK house prices (and where they might be heading)

    • 16 February 2011 12:55 PM
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    It amuses me that the HPC brigade are generally quite polite and tend to present reasoned arguments. Whereas the HPI brigade in the other corner are often rude, derogatory, childish and present no other argument than "because I say so". I'm minded to pay more attention to the former.

    • 16 February 2011 12:47 PM
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    So lets fantasise that house prices are going to collapse, and that the banks will only start lending again when this has happened

    Well, I am afraid that the moment the banks start to lend at 95% of the value of the purchase price, housing transaction volumes will double and house prices will boom again.

    The HPC lot will then come on telling the losers in life how smart they were to pay rent (someone elses mortgage) for ten years

    • 16 February 2011 12:40 PM
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    A spare key not attached to the keyring of life!
    It that a metaphor?

    • 16 February 2011 12:40 PM
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    Mike

    "We are witnessing a gradual erosion of property ownership in this country"

    Sorry Mike the boat has already left and gone. There was a 2 month window of property for pensions under the last administration that convinced folk with spare monety that investing in property allowed for an index linked pension plan.

    Go and find out how many properties your MP owns! The Starter home market has been gobbled up not just by MP's but a whole raft of folk who listen to Radio 4.

    They simply will not come onto the market, thus prices at that end of the market will not fall.

    Perhap Mr Shapps and all those folk at the FTB summit are a bit simple but Properties for Pensions has FTBs locked out of the market for a good few years to come.

    A freedom of information request of members interests is going to cost someone 10 quid!

    • 16 February 2011 12:35 PM
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    Wardy,
    It's about time you sorted yourself out with a proper avatar.
    If you like, I could definitely help you there.

    • 16 February 2011 12:32 PM
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    This may seem a bit 'off the wall' .. but maybe the ridiculous price bubble that was encouraged to inflate needs to deflate and Government need to stop attempting to disrupt/prolong this process. FTB's need cheaper property. End of. I think that rising unemployment and the threat of rising interest rates might be just the catalyst needed.

    Anybody know how many FTB's were invited to the summit?

    • 16 February 2011 11:52 AM
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    Rob - The very first thing that came into my mind too. If you can't afford to buy, you can look to rent, lower your expectations or buy with someone. I am bored of saying this, but owning a home is a privilege - not a right.

    IF prices drop 50% like you dreamers wish, a boom would start on that very day. EVERY man, woman and their dog would look to buy a second or third property at a dirt cheap price, creating a brand new (large) market of buyers. Not to mention the big boys who watch the market like hawks, ready to swoop in to add yet another property to their books. FTBs would not get a look-in.

    RR - You still haven't responded to the fact that your stock on your site is in line with agency pricing and in several cases, substantially higher. I thought you said prices were too high? Make your mind up.

    • 16 February 2011 11:45 AM
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    .RR, do your vendors, whom you are marketing property for, know your advice to people is not to buy?

    'buying is not a good idea'

    With every bit of dribble you post, it becomes more and more apparent that you have little to no interest in your clients. Every single person who has payed you money should be banging on your door wanting their money back while you hide behind the sofa in your slippers. The less people in the industry like you the better.

    • 16 February 2011 11:38 AM
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    Going back to FFS., I am one who strongly agrees with what he has said.
    Prices still need to re-adjust, and until average prices are, once again, in line with real earnings for average people, buying is not a good idea.
    If its not a good idea for the buyer, if sure isn't a good idea for high LTV lenders either.

    This Government really has got a mess to sort out and, in many respects, they did draw the short straw.
    What they do about, it is all important. I have suggestions but am not sure if they are, in fact, listening.
    It remains to be seen what Oliver Letwin does in his supposedly secret review, which is ongoing.

    UK plc has a problem with house price booms, followed by busts - despite relatively stable earnings in this country.
    One thing is obvious. House prices haven't crashed - not until the first time buyer average house price to earnings ratio, is below 3. It is currently at about 4.5!

    What I'm most concerned with though is why are successive booms forming in the first place?
    I am looking right at the causes and one of them is undoubtedly a prime suspect. I could elaborate but probably shouldn't do so just yet.

    • 16 February 2011 11:29 AM
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    Mike, your son could perhaps try to buy with his two friends, as Tenants in Common and with a Deed of Trust incorporated.

    • 16 February 2011 11:21 AM
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    @Keith

    "Sometimes i wonder if they understand anything about the market. There is something wrong when a potential FTB cant get a big enough mortgage but can go round the corner and take out a tenancy at a higher rent than the mortgage payment making it impossible to save for a deposit- , and what happened to good old M.I.G.s? "

    Yes .... but, my son rented a small house a while ago ... £750 a month. But he did it with 2 friends - so they paid £250 a month each. There is no way he could afford a mortgage (or rent) of £750 a month.

    Plus, of course, if he did take on a mega mortgage (compared to his salary) - there is no guarantee that interest rates won't double.

    The way we buy houses in this country is nuts. No-one should borrow money over 25 years without the rate being fixed.

    And BTL needs to be regulated. We are witnessing a gradual erosion of property ownership in this country

    • 16 February 2011 11:02 AM
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    Sometimes i wonder if they understand anything about the market. There is something wrong when a potential FTB cant get a big enough mortgage but can go round the corner and take out a tenancy at a higher rent than the mortgage payment making it impossible to save for a deposit- , and what happened to good old M.I.G.s?

    • 16 February 2011 10:50 AM
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    The elephant in the room is the bubble that hasn't popped yet. We can't keep expecting FTBs to pay ludicrous money (6, 7, 8, 10 times FTBs' salary!) for poxy little boxes, which is still the case in much of the country.

    Prices were low in 1997 thanks to historic factors (the last crash and its aftermath), around fair (compared to salaries) in 2001 and from 2002 onwards started to go stratospheric - the sentiment was only one way and boy what a party it was.

    But we are left with prices at the bottom of the ladder that in a lot of places are probably double what they should be on any sensible logic. The government needs to withdraw its support (including its negative interest rates policy), let the inevitable happen as quickly as possible, and let's all get on with life. (And provide a lesson in life to the BTL generation that there's no free money tree). As an allegedly free market Tory, surely Shapps should see this argument?

    If I was an FTB I would look at the prices and walk on by. If I was a financial institution I wouldn't be lending either without a huge deposit cushion, just to help individuals get themselves into trouble when the inevitable drop happens. And if my kids were older I'd tell them to wait - outside London the bank of mum and dad is the only thing keeping the market afloat.

    The industry should be helping vendors face reality - it's the only way we can ever get back to decent volumes.

    • 16 February 2011 10:05 AM
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    Sadly I don't really blame the CML. Why should they lend without a solid deposit at a time when income source is at risk and house prices are uncertain? For years we have all accused the mortgage industry for throwing money at people who then get into trouble. A few years ago I had returned to UK from abroad, had no job but £120k cash, and had Barclays trying to force a loan on me, inviting me to self certify my income even when I had already told them I had no job !

    I can only see the CML wanting to ease up the lending if the poor old tax-payer was left to guarantee these loans ... which really is not on is it?

    For my own sake as an agent I am sorry a solution could not be found, but I am not surprised.

    • 16 February 2011 10:00 AM
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    This may seem a bit 'off the wall' .. but I have long held a theory on a potential radical 'kick-start' solution to the problem of first-time buyers being unable to raise the 20% or so deposit required to secure a mortgage. Many of these potential buyers are now aging graduates - which an average of around 18/20 k in student debt . This debt is already underwritten by HM Gov. ( so it is 100% secure for the banks ) If the Government were to introduce a scheme where this could be "pledged" as the portable amount the applicant could put forward to the Banks as a deposit, the Banks would only - in reality - be as exposed as they would have been had the applicant actually put up the cash deposit himself. ! ! ! ... interesting Vince/George ?

    • 16 February 2011 09:54 AM
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    It's about time the banking system in this country was carved up into smaller pieces, to promote competition.

    There is a cartel operating, no doubt about it.

    Of course there is a banking crisis, but for no one bank to break ranks smacks of a stitch up.

    Even captial rich banks find themselves not having to be more generous with LTV's as they are making more money than ever with less risk and higher margins above the BOE base rate.

    • 16 February 2011 09:30 AM
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