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Stalemate as type of property fails to match finance

We need to find solutions to the mismatch of a glut of new-build flats with a dearth of first-time buyer finance


The Royal Institution of Chartered Surveyors reported in March that supply outstripped demand in January and February in terms of properties available on the market.

This implies that the supply of property is adequate but the finance is absent. We appear to be at a stalemate – the type of property available does not match the demand or the finance available.

A local estate agency which also deals with surveying new developments told me that it was inundated with survey instructions in the new year for all the developments that had been put on hold last year but which have suddenly had their funding lines reopened.

One distortion to the figures is developers dumping 20 or 30 identical units at a time onto the market.

The government’s frantic endeavour to keep up with the need for 250,000 new-builds per year resulted in a glut of one and two-bedroom flats being built, which were inappropriate for the buyer type.

Affordability constraints meant that more buyers were joint couples looking for twoor even three-bedroom houses with gardens. This caused the value of the new-build flats to plummet and many lenders still refuse to lend on them.

Part-ownership of several thousand tiny properties would make the value of lenders’ asset books volatile

Yet affordability based on the mortgage rates available now, and on current house prices, is apparently at its highest for years.

Despite this first-time buyers are still faring no better. Rightmove’s consumer survey has shown that only London has projected first-time buyers close to the typical healthy market norm of 40%.

I was impressed to see that Abbey has stepped forward and will go to 90%LTV for first-time buyers purchasing houses when its normal limit is 80%LTV. On flats it is now lending up to 80% LTV, up from 70% LTV.

Excluding second-time buyers might look odd, but I can see the intention in supporting the first-time-buyer market.

Shared equity is often touted as the answer to stimulating the property market. But there is a huge barrier to entry for lenders that would otherwise consider participating in such schemes.

The issue is that part-ownership of several thousand tiny properties around the UK would make the value of their asset book volatile and too much of a risk to the business.

To counter this, there are solutions that have yet to be explored, such as a guarantee scheme whereby the government indemnifies part of the value of the private property asset book.

But when property values are low is precisely the time when government coffers run dry.

I am no derivatives expert but even I know there are ways of investing that are counter-cyclical to the property market.

The government should be taking the advice the Financial Services Authority has been throwing at investors for so many years – diversifying its assets.


Reading out the figures he proved in detail that they had more oats and turnips than in Jones’ day.’ George Orwell Animal Farm

The month at a glance

A self-serving Budget speech was a disappointing climax to March, with chancellor Alistair Darling’s belated attempt to help first-time buyers coming at the end of a period that contained a mixed bag of news for lenders

John Murray: Consulting Editor, Lending Strategy

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