Search Coreco

Footer

Tin Hats & Bayonets

05.12.11

Ever since the issues first engulfed our industry 4 years ago I seem to be fed up of saying, “wow, that was an extraordinary week” and last week was no exception.

It began with some positives from the previous week; UK growth was confirmed at 0.5% in the 3rd quarter of this year and the Government launched its much anticipated Housing Strategy, pulling together a range of announcements with a couple of new ones to try to stimulate growth and return some confidence back to the house building industry.

Whether you agree with the content of this or not, the point is that at last the Government is trying to do something to help stop a housing issue become a full blown crises. It looks like there are two main strands to the policy, which is firstly set out to bring back some confidence, (key word that), to the house builders. For the most part they seem quite pleased with it all and let’s face it, if builders are not building at all there is not much hope for much needed housing supply.

The more contentious issue is around the so called 95% LTV guarantee. I have had more than a few twitter banters this week around this with some commentators and journos suggesting that this is creating a false market, lending to people who otherwise would not be able to buy and putting the taxpayer on the hook when it all goes Pete Tong. I disagree.

The reality is that the taxpayer is the last resort; it assumes all these buyers will not be able to pay their mortgages, slip into negative equity and subsequently get repossessed. The claim that they will take out loans that are not affordable is plain wrong. In reality the loans will only go to people who in a “normal” market can afford the monthly payments of a 95% LTV mortgage but are struggling to raise the “abnormal” levels of deposits.

If they can afford the loan at say 3.5 or 4 times income, (my guess is that it may be more stringent than this anyway), so what if they slip into negative equity? We have to get out of the view that a house is a short-term investment. For most, here’s a novel idea, you could always just live in it – it is a home.

If people are then forced to move for whatever reason lenders should be big enough to underwrite the reason effectively and work out a sensible plan. If I have a 120% mortgage, have no issues with the payments and need to move to a similar property in another area keeping 120% LTV, fine. It is affordability that should govern everything – get that right, with a sensible degree of comfort then issues will be fewer.

Whilst the Euro turmoil is starting to turn into a full-scale endgame with the markets becoming more and more convinced of an EU zone break up of some description, we may yet need our tin hats and bayonets. However, as an industry we need to welcome every little move made to try to improve matters.

Comments are closed.

Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

Read more posts by Andrew