Response to the government's housing proposals

From Julian Bryson, unmodernised.com

"The government's 'Laying the Foundations' housing strategy for England, as a range of measures and incentives is a reasonable stab at fixing it.

"There are six main holes that the government is trying to plug here: first time buyers, non-deposits, housebuilders, non-building, non-fairness in social housing, non-utilised empty homes, non-investment in the private rental sector and non-choice in housing for the elderly.

"So, do these measures tick the boxes? In reverse order: If you can get the elderly a way to affordably release funding from their housing equity to adapt their homes, they can live longer at home: tick. If you can tickle some of the enormous wall of cash running scared of the markets, looking for an investment home, into buy-to-let portfolios via REIT's, that will help: tick. If you can incentivise empty home owners to bring these properties back on-stream, be it locally through increased taxes, or other carrot and stick measures, maybe they will: tick. If you can charge well-paid council house tenants market-rate rents, then do it; it's fair: tick.

"But then we come to the tricky ones. Get housebuilders building houses they aren't sure they can sell, and getting banks to lend to first time buyers who may or may not leave them with an asset worth less than the loan.

"If you can fix the second problem, you've fixed the first one. Create ready and willing, financed buyers, and the homes will be built. Market forces: tick. The one caveat here is the market itself; first time buyers are finding themselves increasingly priced out of the market in the South East, especially in London, and there may well be more that can be done as an incentive to first time buyer and housebuilders to tie the knot, ideally not involving the lender. But a market with freed-up lending should settle to a level which may involve some price reduction in these areas, acknowledging the traditional importance of the first time buyer in the chain.

"So how to get banks to lend to these buyers? The theory behind this announcement is that we have to pay them to. Underlying the first time buyer funding issue is the reluctance of banks to take on market risk, an overshoot of the recoil after the subprime debacle of 2008. But there are more structural issues at play in the first time buyer market, too; people are increasingly often self-employed, which is to be applauded, and this fits with the government's desire to boost new business creation and economic growth. However, it doesn't fit with the banks' desire to tick the box that says 'employed, preferably with a job for life', and meet its risk management requirement on that score. So no lending; how to fix this?

"Well, the government (ahem, us) and housebuilders underwriting the margin of deposit required by the buyer is a temporary kick-start, but it's a bribe, and something structural has to change in the way banks approach this lending. We aren't going back to the days of jobs for life. The first time buyer market is the addressable market. And banks need to lend to this market on sustainable terms.

"We know that 95% mortgages, 100% mortgages, 110% mortgages aren't sustainable; they're not the solution. Lending too much money to people who cannot afford to borrow it, and secured on a market-priced, therefore variable, asset is folly, and arguably got us into much of this trouble in the first place.

"No, the problem, and the solution, is in the thinking behind the lending. The lender needs to address the borrowing market that exists, not the market it would like to lend to. This is the long-term, structural change required. Find the right, fair and sustainable lending terms that fit the first time buyer, and we're back on track. The banks, meanwhile, have other issues that are blocking their mortgage-lending pipes, namely: survival.

"Unfortunately, as has been the case since 2008, it comes back down to one thing: you have to fix the banks.  And that is a box that may not be ticked for some time to come."

-Ends-

Notes to Editors:

Unmodernised.com Background

Unmodernised.com's founders, Julian Bryson and Richard Bartlett, started the portal as a solution to the persistent problem of finding unmodernised property easily online. The company began as unmodhomes.com in April 2011 as a daily blog on unmodernised properties new to the market; unmodernised.com is the natural progression of the blog to a full service unmodernised property portal.

Richard Bartlett is the owner of Unmod London Ltd, an estate agency specialising in the sale of unmodernised property which he founded in 2004. He has over 20 years' experience as an estate agent in London.

Julian Bryson is a property developer and investor. As well as properties in London, he has renovated and developed residential properties in Belgium and France.

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