The Victorian economist, Alfred Marshall, once said: “We might as well reasonably dispute whether it is the upper or under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by demand or supply.”
Consider this in the context of Help to Buy and other housing stimuli. Some argue that the fuelling of demand without a commensurate increase in supply will lead to a bubble – and we all know what happens to bubbles.
However, equally well-qualified supporters of the various schemes argue that they support consumer confidence, driving increased consumption across the wider economy and are therefore to be applauded.
If Marshall’s statement is correct, then it doesn’t really matter. Like it or not, it is happening, and we are now living with the reality of the consequences of not only H2B and all the noise surrounding it, but also the various other stimuli that are in place.
The housing market is recovering strongly, particularly in the South East, and the broader outlook is increasingly positive, driven by growing consumer confidence.
I would imagine a “confidence index” for intermediaries and mortgage lenders would show an industry with high hopes for the years ahead – and it would be difficult to make a case to the contrary.
It is essential, however, for the industry to recognise that the current levels of goodwill need to spread themselves to cover the inevitable decline that will come at some point in the medium term.
Banks have had to get used to this post-crisis, most obviously in their capital plans. However, I think that the message has wider application.
Lenders and intermediaries must ensure that they build sustainable business models, effectively ensuring that we put away in the good times that we appear to be on the cusp of, something to see us through the leaner times that will inevitably follow.
For me, that means there has to be more to the housing recovery than H2B.
Man cannot live on bread alone, and to extend the metaphor, Help to Buy is stodgy white bread from the supermarket – very appealing for a bacon sandwich, but deep down we know we’d be better off with some granary.
I’m not saying there is no place for the scheme, merely that lenders and intermediaries need to have business models that are not solely dependent upon it and other stimuli.
OneSavings Bank through Kent Reliance has stated its intention to enter the scheme, as have several other lenders. A number of building societies have chosen to go their own way, often undercutting existing H2B products, in a move that I think will offer an excellent alternative to the mass market.
Despite our announcement, we will not become a lender for whom H2B becomes a dependency. More important to OneSavings Bank is that we continue to reinforce our specialisms and expertise in niche markets and that H2B should be seen as one area of capability within a spectrum of others – be that in BTL, complex residential, secured loans or commercial lending.
I think that the timing is perfect. Whilst H2B is driving mass demand, there will remain a market that needs a more personalised service.
If lenders become preoccupied with the scheme (or overwhelmed by demand), then it is likely that clients in need of a more specialist service could find such a service harder to locate. The demand for specialist lending, rather than being drowned by the noise of H2B, may actually increase.