A clear warning that Britain must not rush into a new building boom has been sounded by Nationwide.
Andrew Baddeley-Chappell, its head of mortgage strategy and policy, said that an artificially-induced boom could prompt another housing market bust.
He was speaking at a Westminster forum just as the Government announced its shake-up in planning, designed to boost house-building and the economy.
He said: “We must be careful … interventions in the market are distortions.”
He said: “Over-building is a greater risk than under-building – for example [as shown in] Ireland and Spain.”
In a hard-hitting speech, Baddeley-Chappell said that while the UK’s housing market currently seems broadly stable, with supply and demand broadly matching each other, activity levels were low – and the apparent stability was an artificial situation.
In reality, he said, pressure is continuing to build and the market needed ‘healing time’ and a period of de-leveraging.
He said activity levels were low on all fronts. First-time buyers are currently 180,000 a year rather than the ‘normal’ 350,000; home owners moving to new properties are 300,000 a year not 550,000; and remortgages are 360,000 a year when they are usually up to a million.
He said that lack of confidence has become a self-fulfilling prophecy: seeing failure to invest in the housing market, potential purchasers also hold back.
Answering a question, Baddeley-Chappell also warned that the shared home ownership market is ‘desperately struggling’ – perceived as high risk for lenders.
He said shared ownership and equity are unattractive to some lenders.
With shared ownership, the buyer purchases between 25% and 75% of the property and pays rent to a housing association on the balance. With shared equity, buyers fund at least 70% with the balance funded by the Government or the developer, who keep their stake until the property is sold.
Baddeley-Chappell said: “There are some real challenges from the regulatory regime. Shared ownership is broadly okay but shared equity brings much more trouble because the regulator is requiring lenders not just to consider the share borrowers are buying but the whole property which, of course, they can’t buy.
“These markets are desperately struggling.”
His remarks came as the Government announced a cash injection into FirstBuy, its shared equity scheme.
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Comments
I read today that Barrats proits ave jumped so is there any need for artificial stimulation? Some could argue manufacturing needs more help than building.
Any comment Tony?
Aye Jonnie - it's a fair point. The HPCers underestimated the extent to which The Powers That Be would throw all they could at stopping a full speed crash. This will drag on for years more.
I am moving into a new rental - I don't know the area where I'm going to though, so that kind of makes sense while we get established there. Also, renting here has given me the flexibility to upsticks and move at relatively short notice. I've used the time in renting to build up a war chest of savings as well, to the extent that most of the interest on that covers the rent I'll be paying in the future.
All in all, I don't feel like this personally is a bad outcome, compared to the state of affairs of several peers I know who did buy at the peak, are now in negative equity etc.
@rant
I trust you are moving to another rented place and you haven’t had a full reverse ferret and decided to buy?! – interesting to see some comments on HPC from old members that have moved to the dark side, one of them even got a little slap about it yesterday.
Ive had a think about this and I need to stand by my principles, ive always said I liked the old days, monkeys couldn’t sell houses like they were able to in the boom, there was loads of choice, volume was good it was easy to build chains and get people moved, on top of that ive always said EA’s don’t control prices
I agree, artificial booms are not helpful, you never know the world might learn from the last one and not do it again but ive probably got more chance of pulling Cheryl Cole than human nature changing and as an overweight suburban 40 something estate agent (still an handsome one) I cant see Miss Cole taking over from Mrs Jonnie anytime soon.
Although this crash you lot have promised and the return to high volumes and all that is taking its time – I was in a hotel at the weekend and they had a Christmas Tree up! – we are now at least 5 years on from the HPC promise being made and you are about to spend another Christmas in a rented gaff with prices just a gnats knacker lower than the Christmas before, or the one before that, or the…….you see my point
Jonnie
Tony: 'POTW - attacking developers in the way you do shows you have absolutely no idea how the new-build market works. You are adopting banal cheap and unwarranted assumptions that all developers and housebuilders are evil profiteering scum, when I bet you've never come anywhere near the practical hard work that's actually involved in getting houses built.'
Bit of an over-reaction there. Actually I spent 20 years of my life in construction - 3 or 4 of them as a project manager for a volume housebuilder. So I do know how it works.
Which is why I said 'thankyou builders and PLANNERS'.
And, yes, you are right - the framework is down to the planners. But I have spent many an hour poring over plans and models examining ways to make the site more profitable - by cramming more in.
visited relatives in surbiton london recently
wow...if thats the face of suburban london then god help us all
seemed full of either old money and people on benefits
quite shocked actually
I don't actually live in that much of a hole Jonnie - it's a market town that a few years ago placed in the national top ten awards for 'best place to live'. Ask any EA in the vicinity too, they'll all tell you that it's a highly sought after area ; )
Am in the process of moving on though. Will kind of miss the place.
yes leave it alone including the banks,the cause of house price inflation was the banks correct, so they are dealing with the problem by not lending. I do not want the banks lending to people that cant afford to pay it back. I do not want them lending 6 times income on IO mortgages or self cert mortgages.
Prices dont fall through inflation they only fall if wages or desposible incomes inflates faster than house prices do you think this is happening?
If the house builders did not have to allocate any housing as affordbable that is acceptable. I dont have a problem with that would any more houses sell?
Lets get the million empty homes back in use before we build more, lets convert empty luxury offices into flats, convert empty pubs into homes, rather than subsidise the big devolpers, Can any developer tell me why this is not acceptable other than because it effects the share price?
(First all these fixed term and other time sensitive deals that were taken up about 5 years ago and which mature next year will give those borrowers big problems.)
Rubbish, 5-year fixed rate deals taken out 5-years ago with around 5% or 6%. When they end they go onto the banks standard variable rates, which are well below this or as my mortgage (C & G) does next month when it falls to 2% above base rate or 2.5%. My monthly mortgage will halve, so why would I want to change it by trying to remortgage. You people should get your facts straight before making assumptions!
(We’re not building second homes for holidays in the sun here. In fact we’re not building them at all which is the problem. New build volumes are at record lows.)
Builders are not bulding houses because of planning difficulties, they are not building them because once they are built they are not able to sell them! Yes there is a need for housing in this country, but not in the private sector there isn't. Most people are turning to the council to house them, because they can't get a mortgage to buy. If they sort the bank lending out, builders will start building again, simples. No builder is going to start building lots of houses for them to stand empty and the last thing we want is our taxes wasted on building loads more council houses for people on benefits!
Holland had an unemployment problem in the early 90's so the government worked with builders to build millions of houses, most of which stood empty for nearly a decade. Sure they also pushed house prices lower, which led to lots of repossessions because home owners couldn't sell for what they still owed and simply handed the keys back to the bank. This ruined millions of people's lives and in Holland there wasn't a greedy housing bubble to burst. It was just an idea to get builders back into work, which cost tax payers money and damaged the lives of hard working families in the process!
To tackle any problem, you need to deal with the cause, not the symptoms and in our case it is the banks.
(What we need is land to build on because developers, certainly in my area, have the desire and the funds. In fact they have to build. It’s a numbers game and it’s what they do.)
Rubbish, builders have vast land banks and are choosing not to build on them at the moment. In fact we completed on a 6-acre site today to Westleigh Developments, but it is not clear when they will start building the 117-properties. If they get the agreement to build social housing they will start this year, but if not, the site will be developed when demand picks up.
Everyone that thinks building lots of homes is the answer, but they are wrong. House prices won't fall much because much of the land that has been bought, was at peak prices and the developers won't give it away. Bricks and raw materials still cost a similar amount and the builders still need to make a profit.
Yes there is a demand for housing of sorts, but not true demand that will lead to house sales. The demand cannot be unleashed because buyers need loans in order to buy. Sort the loans out and this pent up demand becomes actual demand and properties will sell. Builders will then start building again because they are selling and the wheel starts to turn again.
It's not exactly rocket science, but the House Price Crash gang that want to get onto the housing ladder will say anything to get house prices down and don't care who gets hurt along the way. They are trying to make out that it's just the poor Nationwide that will lose money while the rest of us laugh and everything gets better again. Rubbish. Prices are falling gently both in actual terms and through inflation. and while supply and demand are closely matched, some stability is present and our economy can adjust. Trying to increase the number of sales artificially so that our DIY shops and Kitchen business can go back up to pre-crash levels are also dumb. The property market needs to move at a sustainable levels and all the other industries need to move accordingly whether we like it or not. Lets leave the housing market alone and it will find it's own speed.
POTW - attacking developers in the way you do shows you have absolutely no idea how the new-build market works. You are adopting banal cheap and unwarranted assumptions that all developers and housebuilders are evil profiteering scum, when I bet you've never come anywhere near the practical hard work that's actually involved in getting houses built.
The fact is that construction is not a highly profitable industry - even the national housebuilders achieve barely 10% gross profit margins, which is much less than any number of other industries. And if modern estates are crowded, there are some very simple reasons: there's an acute shortage of land because planning policies are so restrictive, and because developers have to give away between 33 and 40% of their sites as "affordable homes" to housing associations. Housebuilders do not build crowded estates because they want to: they are forced to by the government's minimum density rules. Imagine if your period house had been built in today's era, when the developer has to cram a further 50% extra houses onto the estate in order to deliver a load of free council houses and still achieve some sort of profit for her shareholders and a wage for herself. If modern private housing is small, it is because the housebuilding industry has been forced to pay for the government's and local authorities' social housing and infrastructure policies, whilst all the people like you who complain about small modern housing don't have to pay a penny. When you drive the roads or use the GP surgery paid for by developers' "contributions", or when you notice the benefit claimants living in their free housing association homes on a new estate, you should remember you haven't paid a penny for this: it's all just a free ride off the housebuilding industry and the crowded modern estates you are so quick to condemn.
@rant
Fair point, most areas have their own 'boil on the arse' it's just the size of the boil varies
Point is not everywhere is hole of doom an depression.
Jonnie
I think we can all agree that there will be consequences to the current economic policies(near zero rates and QE)lack of growth and huge debts
these are as yet unknown..but likely to be nasty/difficult and definately impossible to control
Dave, in Spain, Ireland and USA prices have crashed too, in fact in some areas of the UK they are down 20%.
However, there is a concerted effort by the banks and the government, and VI's to keep prices stable here. In fact foreign demand in London is driving prices up.
Perhaps not having a crash will be to the detriment of the whole economy long term. However, i see no evidence or change in the fundmentals that will cause one.
So perhaps no boom no bust just stagnation for 20 years. (Does that mean Gordon Brown was right????????)
@happy chappy
In japan where they had a credit bubble,then burst,property dropped 70% despite zero interest rates and money printing
they are still 40% less than 1991
some central tokyo property fell 90-99%
transactions though will increase,which is good for EA unless they have a portfolio of mortgaged btl properties!
POTW- same can be said for chocolate bars, thieving choc bar makers
Well, I live in the South East.....there is a half finished luxury appartment complex 1/4 mile fom where i live, there are many boarded up areas, there are empty old social housing flats in the centre of town rotting away.
It would be nice to see these put back into use before any other new builds pop up (which they are)
As for activity some properties are selling and there are others on market for ages. Asking prices are stable
On the whole prices and therefore depositsfor ftb'ers here are unaffordable for most of locals (without BOMAD or inheritance)
Prices are probably propped up by those that commute to the city, who cant afford to live there, due to prices being propped up by foreign investors.
I do not want a return to 5% deposits and IO loans or ridiculous multiples as the bubble will reinflate and I dont want taxpayers money bailing out the banks AGAIN......a slow correction is probably the only way this will go and that is what we ae seeing. Not great for EA's I know.
You might be on to something there Jonnie. Not being under the impact of a London-centric economic policy might do some of the non-South of England a lot of good.
I was actually in the 'Promised Land' of darn sarf a few weeks back, east Kent to be exact. Having expected flowing milk and honey, things looked pretty rough I have to say. Lots of boarded up stuff, high street packed with charity shops and not much else. Stopped in Reading for some fuel on the way back, got lost round an unbelievable one-way system and found ourselves in an area that could have passed for a set in Slumdog Millionaire.
Are you based in some sort of gated community for bankers per chance? I also wonder sometimes if your kitchen shelves are packed with lots of half-full jars ; )
@rant
Do read what I said, tax incentives for landowners, not builders.
Also understand as Jonnie says, that not all parts of the country are as bad as yours.
Our estate agency handled over £6m of new build sales in our county over July and August . . . yes at the time when everyone was predicting the market would fall off a cliff due to the Olympics and Paralympics.
Not only can new build, whether its private or affordable, address the volume/quality of housing in the UK and drive the economy forward, it can bring huge infrastrucure improvments.
My town got a fantastic new medical centre on a major new development a few years ago. It enabled my doctors to move our of their crummy old surgery which wasn't fit for purpose and the whole going to tjhe doctors experience has improved massively since.
Another town near me sold off their crumbling Victorian hospital to one of the major developers and built a brand spanking new one across the road.
'Reasons to be cheerful', Ian Dury wasn't it??
@Rant
Good god mate – 4 year old half built sites.
I know we’ve done this before but you paint a picture of a part of the world that sounds dismal but I like your idea and think you could expand on the priciple
I reckon its these bleak horrid parts of the country putting a drag on the rest of us getting out of recession– we should do what you say but let the whole place go bankrupt, cancel all the welfare (I assume you have plenty of sink estates in and about the place there) support, stop all this regional generation grant stuff dog areas get, in fact anything these places cant support themselves cancel.
Round here there is a new site that the developer has finished recently and been waiting to release them, in the process turning buyers away, he put them up for sale just after bank holiday sold half of them on the launch weekend.
Different worlds Rant but why keep supporting hopeless areas?
Jonnie
Talking about new builds - and planners (who have been in the news lately) - it is very good of builders to endlessly reduce what you get for your money.
New 4 bed detached estate houses near my 20 year old 4 bed detached estate house have:
Smaller rooms and generally smaller (300 sq. ft. missing in modern houses)
One garage - instead of double detached garage
Parking for one car - instead of parking for at least 3
A back garden which is the width of the house and about 25' deep - as opposed to one which is the width of the house and 70' deep.
By comparison, my (pretty poxy in my opinion) 4 bed house is a much bigger place with much more privacy, much bigger rooms and parking that allows for the fact that several adults may live in the house.
Thank you builders and planners - your policies make my house much more desirable than your even poxier boxes.
Round my way, I could give tours of new build projects that have been left unfinished or unsold for four years. FOUR YEARS. The builders know they can't sell them for a profit, because they bought the land at peak prices.
Rather than give these builders tax breaks, these companies that made poor financial decisions should have to face the consequences of that. Let them go bankrupt. The land can then be sold on at a price that better reflects today's economic reality. The knowledge to build houses wont disappear in this process. Let others have a go where these companies have failed.
Not rush into a new house building boom?
It beggars belief that someone at that level doesn’t understand the difference between drivers behind demand in the UK and Spain.
Spain’s new build was almost exclusively to supply a market for foreign nationals, a large proportion being second homes. That meant they were totally exposed to any downturn in the economies of other EU countries, especially the UK where 40% of all new build in the Spanish Costas about 10 years ago were bought by the British. So as soon as our economy stuttered it ground to a halt.
We’re not building second homes for holidays in the sun here. In fact we’re not building them at all which is the problem. New build volumes are at record lows.
Excluding post war rebuilding, we’re now at a level last seen in the early 1900’s. At the same time our population continues to grow.
Posts decrying the ‘not enough houses’ view and saying that people can’t get a mortgage (which in truth many people can and at a lot lower rate than a few years ago) are missing the point. It’s not just about people buying property. It’s about affordable housing for all and it’s also about private rental levels.
We can’t rely on state owned property being built to solve the issue. The amount of rental housing in public ownership has been declining for years whereas private rented property continues to grow and now exceeds public.
One of the main reasons for high prices even now, rental and sales, especially in the South East, is that housing shortage. Supply vs demand.
We aren't going to get out of a recession by cutting public expenditure. We desperately need capital projects that generate employment.
Major schemes such as HS2, new roads and the like take years to get under way.
In contrast, like them or not, house builders want/need to build and every development, large or small, is its own 'multiplier'. And who is it these days that builds social housing? Private developers.
From day one these sites employ people, purchase materials/hire plant from local suppliers, improve infrastructure etc etc. A modest scheme of say 30 apartments = 30 kitchens and appliances, 30 bathrooms, 30 central heating boilers and maybe 150 radiators, 200 doors, 400 hinges and handles, the list goes on.
And when people move in what do they do? Go out and buy carpets and curtains, visit the garden centre, buy new furniture. Those companies in turn can keep people in employment or employ more. People then have money to spend whether it be on a meal out or a family holiday or even a new car..
Most importantly, it increases the housing stock.
What we need is land to build on because developers, certainly in my area, have the desire and the funds. In fact they have to build. It’s a numbers game and it’s what they do.
The penny has finally dropped with the Government. They recently announced some form 'hit squad' who will to go out and 'persuade' local councils to renegotiate Section 106 Agreements where they are unrealistic and making a scheme unviable. Good idea.....if it works and isn't just another scheme whose end product will be to keep red tape manufacturers in business.
But why not make it tax efficient for landowners (many of whom own brownfield sites) to sell rather than penalising them? Give them tax breaks with extra incentives if it is suitable for an affordable scheme.
Finally, a message to Nationwide man. Every property, even in a society shifting towards rental, has to be owned by somebody. They need to borrow money to buy a property. The more properties built, the more loans that will be needed. They are called a mortgage. You can get a mortgage from a building society. The more mortgages they lend, the more money they make. Nationwide is a building society.
For those of a certain age who remember a black comedy in the 19802 called ‘Boys from black stuff’, you’ll recall Yosser Hughes and his phrase ’Gizza job. Go on gizza job, I can do that’.
I’m waiting Nationwide . . . . . .
Urmm. I think you find the that the Government thinks that there aren't enough houses. That's why the nationawide are worried that the Government will attempt to encourage more house building, causing prices to fall, It's kind of what the above article is about.
You might want to read it.
some facts
1/there are 1,000,000 empty properties in uk
2/1.4 million btlets
3/1 in 7 properties is a holiday home
4/only 6% of uk has housing built on it and 9% uncluding roads and rail
What gives you the impression there aren't enough houses?
Look on rightmove, there's millions.
There is no point in building thousands of new houses if people can't afford/obtain the mortgages to buy them!
If there aren't enough houses to satisfy the population, is it the house numbers that are the problem, or the population?
@industry observor...thanks friend ;-)
I also believe which other don't see,that as prices fall ftbs will buy rather than rent(if they can)
this could fuel a spiral feeding on itself as people try to offload btl properties..either forced or forced by lenders(equity thresholds in the contracts)
whos then going to rent all the 1.4 mill btlets when they can buy
in the 90s nadir 90-100% mortgages(25% hedged elsewhere with mortgage guarantee premium)
why would anyone rent with total insecurity?
FirstBuy is really FirstBuilders?
"Encouraging artificial housing boom is wrong, warns Nationwide"
In other news, archaeologists have discovered a very old gate. The remains of a fossilised horse have been unearthed shortly past it.
I hate to admit it but for once dave is right and I agree with him.
I used to work for NBS for a long tiome (and thank goodness a long time ago!!) asnd am embarrassed at this item.
Where does this danger of an arttificially fuelled hopusing boom come from when no lenders are interested in lendoing to 'ordinary' pewople on standard terms.
Where the crunch is going to come is from two angles:-
First all these fixed term and other time sensitive deals that were taken up about 5 years ago and which mature next year will give those borrowers big problems. Remortgaging unless you only have about 75% max loan to value is now near impossible - and comes with huge fees.
Second interest only mortgages which formes the vast majority of loans taken out between 5 and 10 years ago as then you didn't need to back it with an endowment etc policy. Which used to be the method for paying off until the floor fell out of maturity values.
Lenders are already making ominous noises about wanting these borrowers to do something about converting from interest only to repayment especially at age 60 and certainly after 70 as they are concerned about equity levels. For themselves that is, they couldn't give a toss if a borrower is in negative equity themselves as the lender always has stop loss insurance in place.
dave is right it is all going to end in tears.
POTW is right too - NBS should be ashamed of themselves though their record is probably better than any other lener. or was until the late 1990's.
I have a framily member who has struggled hard to keep things together over the past 3+ years and is just starting to get somewhere. What happens? Santander decides to increase its standard varianble rate on their interest only mortgage and from November it will cost then another £60 a month - why?
Read all about it. Someone who has lent billions of other people's money - secured against over-valued housing - does not want supply increased so prices fall. Read all about it. Same person happy that activity is half of normal and whole generation priced out of housing.
one of the problems with reducing rates to 0.5% and printing money is that people think its going to last forever like that
anyone who thinks there are no consequences to money printing should google it.
well the current situation is totally manufactured.
so great news....we've propped up a housing bubble so our kids can't buy..but we are petrified of building badly needed houses in case prices fall
what sort of society do we want?
this is the economics of madness and its gonna end very very badly