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#GE2015 & The UK Housing Market Debate

Hot-off-the-heels of the general election and a stone’s throw from Westminster, this year’s HSBC Housing Market Debate was bound to be a lively one. John Wriglesworth chaired the discussion, joined by industry experts across housing and the UK economy with the recent Conservative victory at the heart of discussions. 

The panellists were as follows: 

 Tracie Pearce, Head of Mortgages at HSBC

Nigel Terrington, Chief Executive, Paragon Group of Companies

Paul Lewis, presenter of BBC’s Moneybox

Adrian Gill, Executive Director, Estate Agency Division, LSL Property Services

Dame Kate Barker, Business Economist, Senior Advisor to Credit Suisse; Non-Exec. Director, Taylor Wimpey. Former member of the Bank of England’s MPC. 

John Wriglesworth opened the debate with; “What does the general election result mean for the UK Housing Market?” And as Henry Pryor tweeted, the question was answered with a lot of “Slapping each other on the back & saying “wow, that was close”. 

Regarding the role of government, the panel and audience consensus was that state interference in markets like housing should be limited, although attendees were almost unanimous in agreeing that a ‘proper’ Housing Minister should be included in the Cabinet in order to tackle the current housing crisis.

 Next up was an analysis of the Conservatives’ major pledges. Help to Buy and Right to Buy were dismissed as short term, demand-led initiatives that would potentially create further upward house price pressure. The panellists went as far as to call the Conservatives’ belief in home-ownership into question, noting that ownership in fact fell over the last 4 years (mainly as a result of higher prices and funding restrictions), and that recently introduced policies like the MMR could be considered incongruous with the promotion of home ownership.

Help to Buy was first to be criticised. Paragon’s Nigel Terrington warned that luring FTBs (First Time Buyers) into high LTV and long-term mortgages could be seen as irresponsible, leading to affordability issues further down the line. Terrington also questioned the sustainability of such a scheme; how will we wean the market off a temporary scheme like Help to Buy? 

 Panellist Adrian Gill suggested that alongside a scheme like Help to Buy, the government should implement a downsizing incentive. There are currently 20 million spare bedrooms in England and Wales. If pensioners downsize to more manageable properties, many of these larger homes could be freed up to help solve the deficit. In essence, government support should flow through the entire home ownership system, not just start at the beginning then run dry. 

The real problem at the heart of the housing market is clear; structural deficit in the supply of new housing over the past two decades. The panel began to address the first question of the debate, generally agreeing that the election result was good for the market in the short term, but not necessarily in the long term. 

 If the Tories really do go through with Help to Buy and Right to Buy, this increase in demand to buy new homes will only increase the supply deficit. The conversation moved on to rent controls and why we’re lucky to have escaped them… Proposed rental controls included minimum tenancy lengths of 3 years. But who would this benefit? Paul Lewis pointed out that longer tenancy agreements would leave landlords unable to borrow as many lenders do not allow long term tenancies AST’s (Assured Shorthold Tenancy agreements) are a necessity for most lenders (security holders) who need the short term tenancies in case of repossession. German and other European models were referenced as many governments have successfully implemented regulation whilst maintaining a thriving PRS. 

Nigel Terrington reminded us that the average tenancy is 2.5 years, while a BTL landlord holds a property for an average of 19 years. Given the hassle of finding new tenants and financial burden of voids, longer tenancies are in the interests of professional BTL landlords, and the market generally operates efficiently with longer term tenures. Terrington also reminded us that the UK rental market was ruined by the price controls introduced after the Second World War. 

 Yes, rental controls may help to disincentivise rogue landlords, but these are a minority. Denying professional landlords access to lending will discourage investment in the sector. This would result in a fall in stock quality with tenants likely to be disadvantaged by higher rents due to reduced supply coupled with deteriorating quality. 

 In addition, a growing number of tenants continue to support shorter tenancies as they actively choose renting for the flexibility it offers. Binding both landlords and tenants into longer tenancies would be unpopular with the other end of the spectrum too. Lewis stipulated that tenants need to work out exactly what they want before making such demands. 

The panel and audience member Richard Lambert (CEO, National Landlords Association) agreed that changes need to be made in the PRS but that rent controls are not the answer. 

Kate Barker agreed; arbitrary regulation on tenancy lengths will only be detrimental. What we really need is better regulation on the standards and supply of homes. And would regulation actually be the right way to control this?

The panel suggested that tenants’ poor living standards can be addressed by the many powers granted to Local Authorities. However, budget constraints may limit the prioritisation of resources for these bodies, thus not providing the optimum level of enforcement. Terrington was quick to add that lenders are not responsible for stock quality, though Lambert stepped in to reassure us that bodies like the NLA seek to promote best practice alongside freedom in the sector. Without strict regulation and tangible measures, however, will this really be enough to stamp out the minority of non- compliant landlords? 

The debate closed with a discussion on NIMBYism and the Green Belt, where once again the Tories’ real passion for implementing change was questioned. Many thanks to all at HSBC and Instinctif Partners for organising yet another thought-provoking event.

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