Tuesday, 31 March 2020

"Supporting the housing market"

From the BBC:

On Tuesday, Nationwide - one of the UK's biggest lenders - effectively pulled out of new deals... Nationwide will now only offer home loans to those with 25% equity or more.

It rules out first-time borrowers or existing homeowners with little equity in their home... [this] will allow it to "focus on supporting existing mortgage members, while continuing to process ongoing applications", it said.

Nationwide blamed "an extremely high number of enquiries about existing mortgages and ongoing applications... That is why we have taken this decision on a temporary basis although, by continuing to offer home loans up to 75% LTV [loan to value], we can continue supporting the housing market."

Other lenders that have taken similar action include Santander and Skipton Building Society but many have gone further, by reducing the loan-to-value ratio to 60%.

On a practical level, you can see why they have retrenched a bit. By "supporting the housing market", what they actually mean is "keeping house prices as high as possible".

In the short term, if potential sellers expect things to return to normal and prices to rebound, then they will hold off selling and we would expect the number of transactions to plummet, Zoopla says by as much as 60%.

But... what if all lenders increased the deposit requirement to 25% or even 40% (call it 30% on average) on a permanent basis? First time buyers have a fixed amount of cash to put down as a deposit, and sooner or later, the Bank of Mum & Dad will run out of things to remortgage. According to this, average FTB deposits are 15% of selling prices. The deposit is a limited/fixed amount of cash, so we would expect selling prices to halve.

Which would be great news for every tenant in their twenties and thirties!


Lola said...

I was going to make a relevant comment, but I really can't be arsed any longer...

Mark Wadsworth said...

L, I like to indulge in a bit of wishful thinking every now and then

We both know HM Govt will just crank up Help To Sell to ridiculous levels and then conveniently forget to scrap this once everything is back to normal.

Lola said...

'Back to normal'! I sincerely hope not. That 'normal' ain't 'normal'.

Mark Wadsworth said...

L, actually I meant everybody is back at work = normal.

(Home-Owner-Ists assume that high and ever increasing selling prices are normal. And seeing as they run the country, that is what will happen. Like tractor production. If Stalin says we will make a million tractors then we will make a million tractors. And that is normal.)

Lola said...

MW hahahaha. that's an excellent analogy.

James Higham said...

First thought when you wrote that was 44% I’d read somewhere. What a game to be in - homebuying - at this time.

Mark Wadsworth said...

JH, which figure do you think should be 44%?