We offer a solid return on your investment because we only lend to the pick of the mortgage market, statistically the safest asset class in UK peer‐to‐peer lending.

The Instinctif Great Housing Market Debate, 2016

Who’s to blame for the housing crisis?

The annual Great Housing Debate took place on 17th May with a typically engaging discussion on the state of our nation’s homes. From Basel to Brexit, the experts weighed up uncertainty versus prosperity, and from buy-to-let to Bank of Mum and Dad, the government was criticised for lack of socioeconomic foresight.  

The panellists were as follows:

-          Richard Dyson, Personal Finance Editor, The Daily Telegraph

-          Nick Leeming, Chairman, Jackson-Stopps & Staff

-          David Smith, Economics Editor, The Sunday Times

-          Nigel Terrington, Chief Executive, Paragon Group of Companies

-          John Tutte, Chief Executive, RedRow

And the chair, as always, John Wriglesworth the Managing Partner of Instinctif Partners.

UK Housing Market

Wriglesworth opened the debate with the question on everyone’s minds at the moment, what would a Brexit mean for the housing market?

The general view was that a Brexit would spark a short term reduction in activity and house price growth, just as is common in any period of uncertainty. However, Nigel Terrington was quick to remind us that we would benefit from the autonomy of a Brexit.

UK Mortgages

Free from Basel, the mortgage market would be free to grow solely under UK regulation. There was a point raised from the audience about the disadvantages of the strengthening of the pound against the euro and US dollar, though this was also regarded by the panel as being purely a short term issue. As in other sectors, the experts concluded that a long term view on Brexit is nigh on impossible, and as such the discussion moved swiftly on.

 Buy to Let Mortgages 

Tired of speculating on the unknown future, discussion turned to the present, and to the recent changes in BTL tax relief and stamp duty. Stats released that very morning from the CML showed a record high in lending in the BTL market, though Terrington was quick to reassure the audience that this was a freak anomaly and cannot be expected to be replicated unless the market comes under an attack of similar severity in the future. Terrington was also comforted by the lack of sign of any panic buying from landlords, and simply put the ‘rush’ down to an acceleration of transactions that otherwise would have been scheduled for the second half of the year. Paragon’s chief executive revealed their predictions for the year; that BTL lending will either remain the same, or rise by up to 10%.

If this is the case, then why did the government implement the changes? Richard Dyson sees it as nothing more than a straightforward vote-winner from the Tories, and warned over “over-politicising” the property market. Osborne will be lauded by some for slowing down the growth of landlord profits, but very soon, the other crucial players in the Private Rented Sector will suffer: the tenants. Extra tax for landlords will do nothing to help the lack of supply to placate demand in the residential sector, and David Smith called the policy “badly implemented”. An audience member fought back, saying that Osborne’s intention was simply to “level the playing field” between First Time Buyers and landlords, but this point did not stand when commercial real estate was also brought into play. For example, commercial property investors do not have to pay Capital Gains Tax and as buy-to-let is a commercial activity, it should be given a fair level of taxation in this context.

BTL Tax Changes

Richard Lambert of the National Landlords Association weighed in from the audience, predicting that it is the amateur or consumer landlord who will really feel the pinch. They may not have the same networks of information and contacts in the sector as professionals, and therefore may not have prepared themselves appropriately for a drop in turnover (not just income). Lambert predicts a strong voice of contention when these affects are felt.

Panellists reminded the audience that the pre-war level of rental housing stood at 80% of tenure. Nick Leeming pointed out that we are getting closer to some of our continental counterparts and predicts the following tenure: 20% PRS; 65% owner-occupied and 15% social housing. With increasing socioeconomic mobility, and more people actively choosing to rent rather than buy, Leeming called for a “free market”.

The real change in the system lies in social housing, an area Smith describes as “confused”. He asked why the government has implemented policies for the PRS and for owner-occupied housing, but not for social housing? And Terrington reminded us that back in the ‘70s, a third of houses were council houses. Now housing associations are trying to pick up slack but their budgets are being slashed. This results in 25% of rent being funded by housing benefits and therefore the so-called ‘anti-BTL’ government is ironically driving more and more demand into the PRS. Additionally, as some Housing Association tenants will be eligible to purchase their homes, the social sector housing stock will be further reduced.

The government’s approach to housing appears to be binary, with policies centred around homeowners and the Private Rented Sector. We are yet to see plans for how the government is going to obtain enough money to support social housing, as it is clear that the plans for new builds will not be enough.

Bank of Mum and Dad

Dyson added a further dimension into the mix, by predicting a rise in the already substantial reliance on the Bank of Mum and Dad. The Telegraph personal finance editor urges us to keep an eye out for an increase in social divide between those who can and cannot rely on their parents.

When the question was posed, the audience were in almost unanimous agreement that levels of home ownership are unlikely to improve as however much the government tries to help first time buyers, the supply vs demand imbalance still stands.

John Tutte suggested an increase in planning support for SME builders, but Leeming warned that the planning system is “fraught with self-interest and delays”; we will need a dramatic shift in attitudes and legislation to make a real difference.

With many fingers pointing in all directions, Wriglesworth asked the question on everyone’s minds; who really is to blame for the lack of housing supply? Bureaucracy, integrity and even the Green Belt took a hit, but Westminster was the ultimate culprit.  

Politicians have a 5-year view, whilst housing policies need more like 20-30 years to be planned, executed and evaluated. The ideal, according to Terrington, would be an Independent Housing Ministry, akin to the Bank of England. Independent of the electorate cycle, long term strategies could be implemented effectively and sustainably.

We caught up with our Chief Lending Officer here at Landbay, Paul Clampin, to reflect on the discussion and what it means for Landbay’s market. Paul’s view is that whatever the outcome of the Brexit vote, and despite the recent tax changes in BTL, the fundamental need for the PRS remains strong. There is a consistent mismatch of demand to supply across the country, especially in cities and commuter hotspots. The PRS will increasingly fulfil a vital part of the demand, given the reduction of social housing stock. However, recent changes in the taxation treatment of BTL and the outcome of the upcoming PRA consultation document defining good underwriting standards may restrict or reduce some lenders’ appetites in particular areas of the market. 

An Open Letter From Our CEO: What Does Brexit Mean For Landbay?

Moving to Modular: The Future of Financial Services