Redrow鈥檚 Steve Morgan warns of 鈥檔osedive鈥� as lending falls and tighter mortgage rules loom

Storm clouds approach a housing estate in Worcestershire UK in summer

The housebuilding industry is close to experiencing a second credit crunch, as mortgage lenders once again act to reduce lending ahead of the banking sector鈥檚 deadline to pay back 拢300bn to the Bank of England next year.

The evidence comes from several senior figures in the housing industry, including Steve Morgan, Redrow鈥檚 chief executive, ahead of a review of mortgage regulation that lenders fear could choke off more than half the remaining mortgage supply.

Morgan said the volume of mortgage lending had deteriorated rapidly just within the last few weeks, with lenders refusing to fund buyers they previously would have accepted. He said: 鈥淲e鈥檙e turning people away - normal people with nothing wrong with them - and we don鈥檛 know why. The industry is falling into a nosedive, and if we don鈥檛 watch out everything
in the papers about house price falls will become a self-fulfilling prophecy.鈥�

Morgan said he had no idea why lenders had changed their criteria suddenly. He said that in addition to requiring large deposits, lenders had begun to regularly downvalue properties after sales had been agreed, and were refusing to lend to anyone without a spotless credit record. He said: 鈥淲e had one guy who failed to get a mortgage because on one occasion, years previously, as a student, he鈥檇 failed to pay a single phone bill. In consequence we鈥檙e not taking as many reservations.鈥�

Under the terms of the Labour government鈥檚 2008 bailout of the banks, 拢300bn has to be repaid to the Bank of England next year. Trevor Beattie, strategy director at the Homes and Communities Agency, said he was very concerned about the issue. He said: 鈥淲e鈥檝e seen a sharp fall
[in lending] but it might turn into a sharper one if we can鈥檛 do anything about that missing 拢300bn.鈥�

September has been flat and I now expect October will be, too

John White, Persimmon

Stewart Baseley, executive chair of the Home Builders Federation, told the Housing Market Intelligence conference this week that mortgage restrictions 鈥渟eemed to be getting worse鈥� and were top of his list of concerns.

This comes on top of a week of further depressing news for housebuilders, with the Halifax reporting a record fall in prices in September, the RICS reporting quickening price falls, and the Council of Mortgage Lenders reporting falling lending volumes.

Last month 好色先生TV reported that private HBF figures had demonstrated that the expected autumn rebound in the housing market had failed to happen. John White, chair at Persimmon, said: 鈥淪eptember has been flat and I now expect October will be too.鈥�

However housebuilders fear current problems will be dwarfed by the impending reworking of mortgage regulation prompted by the Financial Services Authority鈥檚 Mortgage Market Review. Michael Coogan, director general of the Council of Mortgage Lenders, said the proposed restrictions on lending would make 51% of current lending impossible, and spell the 鈥渆nd of a golden age of home ownership鈥� if implemented.

FSA thunder will lead to mortgage drought

The Financial Services Authority鈥檚 review of mortgage lending has proposed a number of measures that lenders and housebuilders fear will wreak havoc on the market. These include effectively ruling out self-certification and
interest-only mortgages, and forcing banks to assume that prospective buyers with bad credit histories will suffer income falls of 20%. In addition, lenders will have to verify income in all cases, and 鈥渟tress test鈥� the ability to repay if interest rates rise. The FSA admits its modelling shows the proposals could cause 鈥渟ignificant鈥� falls in house prices, with 17% of current mortgages being ruled out. However, the Council of Mortgage Lenders says its own review of the proposals shows that 51% of mortgages would be jeopardised. Michael Coogan, director general, said this week that implementing the proposals would lead to 3.8 million homeowners unable to get a mortgage, but save just 200,000 people from getting into financial difficulty.

In response, housing minister Grant Shapps said the government would include the Financial Services Authority in the government鈥檚 separate review of the housing market and he would feed the concerns back to the Treasury, which will implement the mortgage review. He said: 鈥淢ortgages are clearly a problem right now. Mortgage lending isn鈥檛 going to improve until we鈥檝e introduced more competition into the market.鈥�

Shapps this week announced his intention to sweep away government red tape controlling the housebuilding industry with a radical review of regulation. He told the Housing Market Intelligence conference that one example of the new approach was likely to be the rationalising of the environmental standards expected between private and social housing.

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