Lenders' hands are tied by costs
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Every setback is the starting point for a comeback and we are finally seeing some positive signs in the housing market, although lenders have been taking flak for their reluctance to offer higher LTV loans and their margins. I think this is unjust for reasons I will explain later.
The house price balance has turned positive for the first time in two years according to the latest Royal Institution of Chartered Surveyors' survey. The balance of surveyors reporting rises rather than falls is positive of 10.7%, the best result since May 2007.
The national average has been boos-ted by data from the south of England. The balance of surveyors reporting price rises rather than falls for London and the South-East rose to 43% and 39% respectively. A balance of 12% of surveyors report that new instructions increased in August compared with 4% in July.
The average number of unsold properties on surveyors' books also rose to 63 from 61. Despite this the sales to stock ratio - a measure of market slack and a leading indicator of prices - continues to edge upwards. It has now risen for eight consecutive months and is at its highest since January 2008.
But while activity in the housing market is improving the pace of this slowed slightly in August. The balance of surveyors reporting a rise rather than a fall in new buyer enquiries edged down slightly from 61% in July to 49%.
Looking ahead, the strengthening in activity and sentiment has affected surveyor optimism. The balance expecting prices to rise rather than fall in the next three months rose to 17% from 7%.
Although these findings are encouraging, key problems remain the lack of higher LTV funding and the dearth of properties on the market coupled with difficulties for consumers in raising deposits. But at least lower LTV funding is more readily available compared with the first half of the year.
There is also a perceived rise in the availability of mortgage finance, according to the Building Societies Association's Property Tracker survey.
This shows access to a mortgage is now seen as a barrier to buying by just 49% of individuals compared with 58% in March.
It also shows that 58% of respondents believe now is a good time to buy, and that they expect property prices to rise by 1.6% in the next year.
Lack of job security remains the most significant barrier to purchase, cited by 58% of respondents. With unemployment forecast to rise into 2010 this is likely to remain a critical influence on confidence.
Less encouraging is the latest lending trends report from the Bank of England which shows that the number of new mortgages lent at above 90% LTV has fallen since January while the number of house purchase loans at LTVs above 75% has increased. This is despite lenders saying earlier in the year that they were encouraged by positive data such as lower than expected arrears and spreads on high LTV products.
Now high street lenders are saying that their appetite to lend at high LTVs has not increased in the past month .
To be fair, the cost of money at more than 90% LTV compared with 75% LTV is much higher than it was a couple of years ago so it's tough for lenders to deliver high LTV loans.
And when it comes to lenders taking flak over margins Michael Coogan, director-general of the Council of Mortgage Lenders, makes a good point. "Lenders face several pressures when setting rates including the cost of structuring products and the perceived risk of loans," he says. "They also have to take into account the higher costs of doing business in a post-crunch environment. Lenders want to meet demand but they must price appropriately."
Meanwhile, Nigel Stockton, head of sales at Lloyds Banking Group, says the increased cost of wholesale funding and retail deposits must also be considered.
"We ensure our deals are competitive while making commercial sense," he says. "Lenders are constrained by funding on fixed rate products and face a wide array of costs, not least in higher capital requirements."
Although it's easy to blame lenders it stands to reason that they want to lend as much as consumers want to borrow but the numbers have add up. Let's hope the differential comes down soon, and rising house prices might facilitate this.
Source:
Lending Strategy
