Tag Archives: first-time buyer

Send for the taxpayer!

In those long-gone antediluvian years before electronic calculators, personal computers, Subway sandwiches, alcopops , female managers and the morning-after pill, there were dusty institutions with mahogany desks, huge ledgers, pound notes and dour-looking men in shiny suits with fountain pens in the breast pocket.

Those venerable institutions  were called Building Societies.

They took money from their saving members and lent it to  their borrowing members who wished to purchase a home. That’s what they did – and they did it all with real money. Leveraging (borrowing), Gearing (borrowing) and Bonds (borrowing) had not been invented – and if they had, it wasn’t the sort of thing that they needed (or wanted) to know about. Life was simple  plus there was the bonus of a typing pool full of straight-backed sexy young typists whose drumbeat was set by the old crone at the front!

Happy days!

Here’s how money was lent and how they managed to lend MORE than the 70% maximum that Banks are currently lending. In those days, banks weren’t even allowed to lend for house purchase (just washing machines and refrigerators).

The mortgage underwriter (in those days, they he was called the mortgage “assistant” ) would decide on whether the “basic” maximum loan that the Building Society was willing to lend was 70% or 75%. Simple! (In very extreme cases – for instance, for properties which were only standing because the woodworm were holding hands – the maximum could be as low as 65% of the valuation).

However, there were MANY occasions when a borrowing member would be granted a mortgage of 90 or even 95%.

“How did they manage that?” I hear you ask.

Let us say that the borrower wanted to buy a nice big five-bedroomed house for £10,000 but could only find a 10% deposit. That meant that the Building Society needed to lend him £9000 (90% of the valuation).

The valuer would recommend a basic loan of say 75% which was £7,500. If the Building Society wanted to lend the borrower the full £9000, it would lend – but only after arranging a form of insurance for the difference – in this example £1,500. In this way, the risky top-part of the mortgage was insured by the Building Society.

So, if the mortgage went wrong, the insurance company  would stump up any shortfall if the Building Society needed  to dispose of the property in a forced sale.

It used to be called the Insurance Guarantee or I.G.

Why all this  rheumy-eyed nostalgia?

David Cameron has just announced a new scheme in which banks will be able to lend more than they are comfortable with – and presumably, borrowers will be able to borrow more than they are comfortable with.

The risky top-part of the mortgage will be insured but, in keeping with modern ways, it will be the taxpayer (who else)? and not an Insurance Guarantee company who will accept the risk.

That’s progress!

( I wonder who is advising Cameron these days? I bet he has a couple of fountain pens in the breast pocket)

We’re in the Shapps!

House building in the United Kingdom has slumped to a 90-year low. Home ownership is predicted to slump to  approximately 65%.  The proportion of people living in owner-occupied homes is forecast to fall to 63.8% by 2021, down from 72.5% in 2001 and from the mid-eighties high of 74%.

According to economists, house prices are set to soar by 21.3 per cent over the next five years whilst rents are set to rise by up to 20%.

In some parts of the United Kingdom, 16% of home owners owe more on their mortgage than their property is worth.

Housing minister Grant Shapps said: “The trebling of house prices in the 10 years from 1997 has locked too many out of owning their own home.

“I want to see a period of house price stability so that more homes become affordable, but I am also determined that we pull out all the stops to give hard-working first-time buyers the help they need.

“That’s why I’ve held summits with lenders to encourage them to do more to help people take their first step onto the housing ladder, and I’ve launched the First Buy Scheme as a valuable alternative to the Bank of Mum and Dad for those struggling to get together that much-needed deposit.

“But we also need to get Britain building again. That’s why I’ve announced plans to release thousands of acres of public land for housebuilding.

“Despite the need to tackle the deficit we inherited, this government is putting £4.5bn towards an affordable homes programme which is set to exceed our original expectations and deliver up to 170,000 new homes over the next four years.”

Phrases from Mr Shapps such as: “I Want to see”, “Pull out all the stops”, “The help they need”, “We need to get Britain building”, “Announced plans”, “Set to exceed” all indicate well-meant sentiments  – a “politician’s intent”.  Even the “170,000 homes over the next four years” is preceded by the phrase “set to exceed” and not “WILL exceed”.

Incidentally, the ONLY thing that Mr Shapps promises to exceed are his own expectations –  which have not yet been delivered anyway.

Yes, there is a shortage of housing but  the ROOT CAUSE of this dire situation is not being treated.

Once again, I shall put it in plain English: The reason why the housing market is in a moribund state is because the banks are NOT lending money to building companies and they are NOT lending money to first time buyers – who incidentally are becoming a near-extinct species.

Mr Shapps may well have held “summits with lenders” but he has not yet given us any indication of any positive outcomes. Meetings do NOT solve issues – only outcomes. So, Mr Shapps, what have the banks promised on this occasion? Amounts? Terms ? LTV? Underwriting Criteria? Perhaps The Big Society Banks can help??!

So far, we have The Big Society, Enterprize Zones and now the The First Buy Scheme.

The first is still a mystery, the second contributes little more than mass relocations of existing businesses and First Buy-type shared equity schemes  do little more that frighten first-time buyers by the morass of  bureaucracy into which they are suddenly plunged.

Once again, the REAL solution is in the hands of the BANKERS.

p.s. I am  surprised by the fact that the Royal Institution of Chartered Surveyors is still allowing itself to be pushed about by the banks. They used to be a very powerful organisation which played its part in controlling house prices.  The boom times prior to the 2008 crash turned the RICS into followers. They USED to be leaders. CLICK HERE