More pain before first-timers gain

Michael Coogan says that the way things are going, if he had £200,000 he\'d either buy a US bank or a large mattress and stuff the money under it

No sign yet of an end to the credit crunch. We’ve had a budget that offered few answers to the challenges facing home owners or lenders, headlines declaring the end of cheap mortgages, and fears about the shortage of liquidity in the financial sector creating chaos on stock markets around the world. Is there any good news around for lenders at the moment?

Well, it isn’t just the bluffers among us who might say, well, yes, actually there is. Inevit-ably, the process of adjusting to a restricted flow of mortgage funding – and pricing that reflects changed market conditions – is a painful one.

It’s not a pleasant thought, but there will be more pain to come. Even so, those who attended the recent housing market debate hosted by the Wriglesworth Consultancy will have heard some encouraging messages. And not just from an old bluffer like me, but from my four fellow-panellists, Evan Davis, David Miles, Fionnuala Earley and Richard Donnell.

Considering they were all economists, there was a surprising degree of unanimity in their views. When economists agree with each other, I tend to get worried, but maybe I was wrong this time as they all agreed with my view.

None of them believed we were heading for a recession. Even the most pessimistic did not believe that a decline in house prices would affect people’s aspirations to be homeowners.

First-time buyers are being held back, not by any change in their longer-term desire to be owner-occupiers but by the difficulty of raising a deposit at a time when higher LTV products have all but disappeared. You are fine if you have an accommodating bank manager, or an account in credit at the Bank of Mum and Dad. But most first-time buyers aren’t so lucky.

It was no surprise that all those taking part in the debate believed the number of transactions would decline this year and that house prices would be flat or fall modestly. With a limit on the availability of funds, and all lenders focusing on lower risk and lower LTV business – and often, therefore, on remortgaging – the house purchase market faces a particularly tough squeeze at the moment.

The most downbeat prediction was from Miles, who thought prices could fall by 20% over two years. But that was “not disastrous”, in his view, and would be “good news” for first-time buyers in the long run. Those comments have not yet made it into a headline in the national newspapers to show how good for us the credit crunch will be.

Meanwhile, problems for first-time buyers will help underpin the buy-to-let market, the panellists agreed. Admittedly, flat house prices will not encourage investors to add to their existing property portfolios. But strong demand from tenants and the continuing shortage of housing supply will support rental yields. There is every prospect the buy-to-let market will outperform other lending sectors this year.

And if you thought Alistair Darling did nothing in his Budget to reinforce housing market stability, you would be wrong. By failing to reform stamp duty, the chancellor has forced even more would-be first-time buyers to carry on renting for now, particularly as it is more difficult to add transaction costs to their mortgage loan.

And by continuing to uphold high transaction costs, he is deterring landlords from dipping in and out of the market too regularly, as there are lower prospects for capital growth from investing in property in the near future. Stability through fewer transactions, or is that stagnation?

There was a good attendance at the housing market debate and it produced a wide-ranging discussion, with lively questions and comments from the audience, as well as from panellists. I must say, though, that the discussion was going up a dead end when someone raised the subject of home information packs.

Reflecting the importance of this topic, I kept my comments brief, succinctly describing HIPs as “a good read”. Still, though, if recent newspaper reports are to be believed it’s far from clear who is reading them. A HIPs provider in the audience did, however, give us the answer. Apparently, they are being read by vendors (who then complain to the agent about their energy rating).

I’m not sure if an avid vendor readership was the original policy intention. Which? recently described HIPs as the worst piece of consumer law in 50 years, and who am I to disagree?

As is traditional at this type of event, we finished with the inevitable light-hearted question. In the light of all the earlier discussion, what would each of the panellists choose to do if they were given £200,000 to invest? I opted for buying an American investment bank – a good choice given that the price of Bear Stearns has been sky-rocketing recently. Failing that, I’d buy a big mattress – and keep the rest of my money underneath it. Only bluffing.