Posted on 8 May 2015 by
I opened my previous blog by saying that I hoped none of the politicians seeking our votes by saying we had to end austerity immediately intended to apply for a mortgage in the near future, on the basis that assuming they run their personal finances like they planned to run the Government, i.e. with expenditure not only exceeding income but even borrowing to pay the interest on existing debt, they would fail the MMR (Mortgage Market Review) affordability test miserably.
What is feared most by investors is uncertainly and so the fact that the election did not result in the messy conclusion indicated by the polls is important for markets, and the more so because of the expected uncertainty prior to the election. The fact that the election was won by a party the markets have confidence will run the economy prudently is also important because it takes away the worry of a rise in gilt yields, and hence mortgage rates, as a result political uncertainty, although of course rates may rise for other reasons.
Some MPs who expected to lose their seats may already have a new job waiting and some will be “kicked upstairs.” Some of the more prominent ex MPs, in particular those who have been Cabinet Ministers, will no doubt be commissioned by the government to write a report on something or other. However, if any of these ex MPs decide they would like to move home whilst working as a “consultant,” perhaps on a temporary contract, they may join the ranks of mortgage prisoners until they have built up a self employment track record! In a couple of years or so one such ex MP might provide the government with something to think about if it commissioned one of these ex MPs to write a report about the problems of being a “mortgage prisoner.”
As the Conservatives have won a majority I expect to see an increase in activity, and prices, of high value properties, now that the threat of a Mansion Tax has been consigned to the dustbin of bad ideas for at least 5 years, and hopefully given a decent burial. The LibDems were already moving towards the much more sensible policy of adding extra Council Tax bands rather than inventing a new tax. The longer the Government delays a complete council tax revaluation the more the inconsistencies in the system will multiply. The Government should announce it will have a complete revaluation of council tax, which would allow it to introduce more bands at the same time.
The Conservative manifesto did not offer any solution for the reluctance of lenders to offer 95% LTV mortgages, apart from continuing with the current Help to Buy schemes and extending the mortgage guarantee scheme by at least a year to December 2017. This reluctance is primarily because of regulators’ (particularly the Basle Committee) perception of risk and at some stage the Government will need an exit strategy for its participation in the mortgage business. Fortunately the private sector is working on this.
The Government, incidentally, is the only residential mortgage lender that is exempt from being regulated by the FCA. Based on the experience of some of our clients when dealing with UKFI (UK Financial Investments) the fact that, unlike other lenders, the Government does not have to ‘treat customers fairly’ is a useful opt out!
The Government’s housing policy will be judged in 5 year’s time on how successful its various schemes to promote the building of more new homes has been. I confidently predict that it will miss its target and so the question is by how much. Many of the individual schemes are very sensible on an individual basis but the major developers all say that the biggest hold ups are caused by the planning system. If a significant fine was imposed on planning authorities when a realistic statutory timetable for determining a planning application was exceeded perhaps that would concentrate a few minds, but for this to work the Planning Authority would have to allowed adequate resources.
I hope the government rethinks the proposed Right to Buy scheme for housing association tenants. It will no doubt be popular with those who benefit from such largess, with discounts as high as 70%, but it is difficult to understand why the Government feels it is necessary to be so generous with other people’s assets.
The views expressed here are those of the author and do not necessarily represent or reflect the views of John Charcol Ltd
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