The entire housing agenda is at the heart of government policy, with Theresa May picking up the baton to get Britain Building as the domestic diversion from the Brexit negotiations.
She has taken over after David Cameron ran a decent first bend, with May now stretching her legs down the back straight and being cheered on by Sajid Javid and Philip Hammond. It is they who must keep her on track if she is to deliver her key domestic pledge.
Whether the UK can get the baton home is dependent on a number of key factors. The aspiration of delivering 300,000 new homes a year is a real stretch target, but the Budget has provided proper building blocks with a key change being the promise of more funding to deliver new apprenticeships to train the tradesmen to construct.
The promised attack on builders’ undeveloped land banks, pressure to complete sites more quickly, cleaning of polluted land to be handed back to local authorities, taxation of empty properties, and the continuing assault on private landlords while freeing up first-time buyers from stamp duty costs — these all constitute a huge change agenda. Not since the post-Second World War rebuilding programme have we seen such a concerted drive.
The Budget has provided proper building blocks
And funding will be available. The recent increase in base rate is gradually feeding through to the back books of lenders where their borrowers are not on a fixed rate. The increases will start in December or January depending on lenders’ systems and their need to give adequate notice.
Market rates for new borrowers have shifted up a little, but the conundrum all lenders are facing is that this is a very competitive market for both remortgage and new business. They are all acutely aware that the y need to have a good pipeline going into 2018 as applications received now are unlikely to complete until the new year. They all need a good start to 2018 because it is never easy playing catch-up to target.
So, while we may have lost some of the amazing deals, do not expect the 25bps increase to be fully passed on in new business. Many savers are not seeing this either.
Lenders still have access to cheap funding through the Term Funding Scheme. The Bank of England has just topped this up from £115bn to £140bn as a further clear indication of support for the residential mortgage market. The Bank was concerned that there was not enough capacity before this funding window closed at the end of February 2108.
This addition of liquidity to the market is provided against mortgage books and comes on top of the quantitative easing and other asset purchase facilities being used by the Bank to keep the market vibrant. This enables lenders to acquire further funds to lend that cost them only base rate, which is significantly cheaper than retail or wholesale funding.
This is against a backdrop where Bank governor Mark Carney, in his Quarterly Inflation Report and subsequent interviews, set out clearly the risks around Brexit. The Bank’s current modelling is based on there being a form of agreed exit with some type of trade agreement, capacity for our key London financial services to trade pan-Europe, and monetary penalties consistent with our known financial commitments. Any deviation from this has the potential to increase the down-side risks to the economy.
Carney was clear in interviews that the Bank regarded the uncertainty created by the fraught nature of any negotiation like this as reducing market confidence and adversely affecting commercial decisions to invest. The Bank’s current assumptions are that this will dissipate over time and its projections are based on delayed, not cancelled, investment decisions. This makes an agreed deal more essential than many Leavers are prepared to accept.
However, the down-side risk of not getting a deal is that the Bank would have to look again at its projections on GDP, inflation and interest rates to protect the economy. Recent falls in sterling value have not delivered the gains in exports, output or productivity hoped for.
So, this looks like a longer-distance event than a ‘dash for growth’, with consistent policy being essential to see plans through and deliver results.
Robert Sinclair is chief executive of the Association of Mortgage Intermediaries