Mortgage drought stalls builders
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The country’s sixth largest housebuilder Redrow, says a chronic shortage of mortgage availability and down valuations are stopping new homes from being built.
Steve Morgan, chairman of Redrow made the comments as he announced a pre-tax loss in the six months to December 2009 of £8.7m compared with a loss of £46.2m in the same period last year.
Redrow’s cancellation rate is running at around 18% and he says the overwhelming reason is due to mortgage availability and/or down valuations.
Morgan says: “Aside from planning, the other significant obstacle to Redrow increasing output is the chronic shortage of available and suitable mortgage product combined with the persistent and ongoing issue of down valuations by valuers acting for the mortgage lenders.
“This is a particular issue for first time buyers, who desperately need the return of the 90% and 95% mortgage.”
He adds: “We strongly urge the government to join with the home building industry and consider the introduction of a government/industry insurance indemnity scheme, which would enable lenders to provide up to 95% mortgages once again.”
He says until the dual issues of planning and mortgage availability are resolved the house building industry has little hope of making real inroads into the country’s current chronic shortage of housing.
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Readers' comments (12)
Anonymous | 25 Feb 2010 4:15 pm
Or should that read, Chronic over valuation by builders for their product and the realisation by the lenders that most new builds seem to be overvalued by 20%
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Anonymous | 25 Feb 2010 4:17 pm
At a mortgage strategy event question and answer session in 2008 with representatives from the Nationwide I asked a question about down valuations as there were rumours of this happening then. I was made to feel rather small and told that no such term or practice existed and never would, it seems someone from Redrow thinks it does!
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Anonymous | 25 Feb 2010 4:25 pm
This is old news. There have been lending restrictions on new build properties for at least 18 months in addition to the lack of mortgage schemes for first time buyers. From memory it was 18 to 24 months ago when builders such as Barratt's had a lot of redundancies and their share value fell through the floor. I agree with everything that was said but as I say, nothing new.
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Grey Haired Underwriter | 25 Feb 2010 4:34 pm
There has always been this concept of down valuation but the valuation figure on a new build has always been hampered by the new build premium. This is a bit akin to buying a new car and losing 20% when you drive it off the forecourt.
What needs to be considfered is that a lender is interested in what the property would be worth if it had to be sold in possession and there is little doubt that the next owner will no longer have the supposed kudos of being the first owner.
Valuations have always been a matter of opinion and the fact that a third party chartered surveyor considers the property to be worth less than the developer does not surprise me - let's face it there is only one of them interested in making a profit from the sale (and the bigger the profit the better!).
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Grey Haired Surveyor | 25 Feb 2010 5:11 pm
The Grey Haired Underwriter is spot on. The CML Disclosure of New Build Incentives Form has also added transparency to transactions which was not always apparent before it was introduced.
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Anonymous | 25 Feb 2010 6:03 pm
New Home builders are always looking for someone else to blame for their woes, in my opinion their equally as guilty as the lenders for getting us to the position we now find ourselves in, ie requiring large deposits etc. Its about time they started taking some responsibility for driving house prices up to unsustainable levels, and stop blaming everyone else when it all goes wrong!
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Mary Lockyer | 25 Feb 2010 6:21 pm
The real issue here is not down valuations, but the % LTV all lenders are prepared to do on new build flats in particular, some restrict to as little as 60%, until lenders are prepared to lend on new build flats, obviously more attainable in price than houses, this market will be stalled, new builds are classified as anything less than three years old in many instances. Houses are not quite as bad. Of course this is going to have a knock on effect. Deposit is the issue here, not only possible overpricing by builders or down valuing by valuers.
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Al | 25 Feb 2010 8:49 pm
An equity on which to go short if ever I saw one...
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Sensible Yorkshireman | 26 Feb 2010 9:30 am
Whilst new build properties are required, how many people (outside of London) actually want to live in a flat? OAP's? Families with kids? People with pets?
It's a limited market but it is highly lucrative for builders who do have unrealistic valuation expectations. Just look around the country and see how many blocks of flats are vacant, together with how many developers have had to sell the units off at up to 60% less than they were 'valued at' 18 months ago! Its not that long ago that blocks of flats were called council tower blocks. The market for this type of property is saturated, often city / town centre located, so instead of them remaining vacant / falling in to disrepair, why do the local authorities / housing association purchase them and use the available space/ accomodation?
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Grey Haired Surveyor | 26 Feb 2010 10:07 am
So Mr Second Post, you now know why you were made to feel rather small!
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