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Mortgage drought stalls builders

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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  • Jon 26th February 2010 at 2:09 pm

    So what is the real reason:

    Mortgage availabilty
    Down valuations
    Low LTVs
    Shortage of building land with planning approval
    Inflated valuations by builders

    My money is on the last one

  • John O'Hearne 26th February 2010 at 12:22 pm

    Grey Haired Surveyor, no I don’t, I understand why it happens but a bit of transparancy on what is going on with valutions wouldn’t go a miss. But then again your probably not the one out of pocket having submitted cases in good faith based on valutaions given by so called experts. I am a broker not a valuer, estate agents, valuers and lenders need to get their act together and may be work closer together as its the customers and brokers who are bearing the cost, you still get your valutuion fee no matter what!

  • Grey Haired Surveyor 26th February 2010 at 10:07 am

    So Mr Second Post, you now know why you were made to feel rather small!

  • Sensible Yorkshireman 26th February 2010 at 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?

  • Al 25th February 2010 at 8:49 pm

    An equity on which to go short if ever I saw one…

  • Mary Lockyer 25th February 2010 at 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.

  • Mervyn Coupe 25th February 2010 at 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!

  • Grey Haired Surveyor 25th February 2010 at 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.

  • Grey Haired Underwriter 25th February 2010 at 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!).

  • David Smith 25th February 2010 at 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.

  • John O'Hearne 25th February 2010 at 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!

  • Marc Open 25th February 2010 at 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%