Introducer Today

Letter Box

As the housing bubble begins to show signs of bursting, Introducer Today asked 'Is The Housing Market Heading For A Crash, Or A Natural Correction.'  Here are a few of your responses,

I agree with a lot of the article about the above, in the way it is worded. I am both a mortgage adviser and also own an estate agency in a small village in Essex.  There is too much negative media coverage predicting and forecasting a “crash” in house price. The markets are tougher at the moment and despite all of the information and surveys published, there is little evidence that this is being carried out by people in the front line. The market is, I believe, going through a price adjustment. There are still properties coming to the market and there are still genuine buyers in the market. The situation we are going through is, in my opinion, caused by the following factors:

Interest rate increases over the last 18 months.
Introduction of HIPs
The credit crunch 
 
With the above, it was certain to cause unrest amongst consumers who rely on the media to form an opinion. The Northern Rock saga was incorrectly reported everywhere. The vast majority of interviewers had no understanding of the business model that was being run. A classic example was on GMTV, when Fiona Phillips interviewed Adam Applegarth. She had no understanding of how Northern Rock operate and this was evident from her interview. She should have done some research. This interview was in the first few days after the Bank of England assistance came to light and I believe added to the hysteria of people queuing to withdraw savings.

Home Information Packs are now coming into effect from 14th December for all new properties coming to the market, following on from 3 & 4+ bedroom properties. If a property is marketed before any of the deadlines, it can still be marketed without a HIP. This has been a fiasco since day one on the government’s part and it still continues. This has cost companies such as mine thousands in preparation in terms of advertising to make the public aware, attending courses, new systems and each time as the date approaches, they either advise they are being further delayed or make further changes. When will the government be big enough to stand up and say HIPs are now for all properties. The public are not interested in looking at these packs but it has had an adverse effect on the housing market. As a member of the National Association of Estate Agents, this is clear from surveys being conducted; however the government seems to think the opposite. Perhaps they should come and work on the front line!

Interest rates will always play a part in the property and mortgage market as part of the world economical situation, but with interest rates expected to fall next year, this will go some way to boosting consumer confidence.

I think 2008 will be a tough year, particularly during quarters 1 & 2, and there will be signs of improvement during the second half as interest rates fall, the credit crunch issues subside and the public recognise that having a HIP to sell a home is the normal now, in much the same way you need a Solicitor/Conveyancer to sell and buy houses.

Lawrence Ladbrook 

Kid yourself no more.

House prices in the UK are definitely too high, if one looks at average earnings.

Health. Banks and Insurance are so big that they have lost the art of management.

Very soon the bubble will burst then unfortunately young people will have to learn the art of trading again.

Paul Ryland

Another factor that a lot of people / pundits have not factored in is the proposed change in CGT. In effect, this will increase the tax from 10% (with full Taper Relief) up to 18% (if Alistair Darling gets his way).

This will exasperate the problem up to April because Landlords who are finding it tight & not making the loads of money that they thought they would, will know this and offload there ‘Buy to Let’s’ making the problem worse with a domino effect all along the chain. I hope I am wrong, but all the ingredients are there!

S. M Rowland

It appears that most of you have strong opinions regarding the position of the media at this volatile time in the mortgage market. Here are just a few of your responses to our article, ‘Is a Scaremongering News Industry Healthy in the Current Climate?’

The broker has a difficult balance to maintain. On the one hand, if all of us talk about the negative too much, we may precipitate lack of confidence and hence produce falling property prices. On the other hand , if we do not tell the client that the payment shock in the next few months to sub prime borrowers presents  a definite risk to them in high loan to value purchases , especially new build, we are letting them down.
 
I had a client last year who came to me wanting to buy  a new build buy to let at £200000. I made my lack of enthusiasm for the project evident and am pleased to say he did not go ahead as the same properties are now for sale at £160000. On the other hand I have recently done two 85% buy to lets on small properties for  a new investor who wants to keep them until her sons are ready for their own properties. In this case, the properties are far more suitable buy to let properties and whilst explaining that I did not feel it was a great time to be entering the market , I feel they will keep their head above water. I also explained the market conditions  to a 90% RTB borrower but they were  adamant they wished to own their own house so I have been pleased to help them.
 
Des Platt

Hallelujah!
 
I have been shouting about this ever since the "we are so righteous" TV news broke the story on Northern Rock!
 
I think the media have a lot to answer for and I now understand that they do not give their audience a balanced view. I know the saying that only "bad news sells". I don't agree. The fact of the matter is that they can say what they like because unlike our industry they do not have to be qualified in that particular subject to provide "information". The problem is that they only provide one view, that of their own. When I now listen to the news, I find myself asking, what haven't they told us?
 
I think it is outrageous that the media can ruin so many peoples lives by embellishing on the negatives of a story and promoting the "if this happens" scenario. I really do think that they are a law unto themselves and they think they are whiter than white.
 
The fact remains that I see the industry news via emails and see the negative affect it is having with job losses. I haven't heard them report this side of it or how criteria has now been changed and is much stricter.
 
There are now more people who will not meet lenders criteria who may need help but now cannot get it. They are not interested in knowing that the majority of lenders are very good with checking the affordability of a mortgage for a client and have been for quite a while now. They also do not want to understand that people can afford their mortgage when they apply for one, and once they have got it they then go out and get more credit via loans or credit cards. No, it is our fault for the debt, the mortgage broker and mortgage lender.
 
I listened, again on the TV, to someone knocking these sell and rent back schemes. Old people had lost their homes and were being kicked out. I agree it is disgraceful and bad for the image of the industry. If only those people had taken out a lifetime mortgage, they would still be in their properties today! Lifetime mortgages negatively promoted by the media because they don't understand or don't want to understand how these can be good for certain people. But because the media says they are bad, people believe them and end up looking for an alternative such as sell and rent back schemes and end up losing their homes!
 
The media have a responsibility to the people that keep them in a job. Their handling so far has been totally irresponsible and they must take some of the blame for the position we are in today. After all, they know what they are talking about, right? Unfortunately we are all gullible enough to believe them!
 
If they want to report and make judgements on regulated activities, MAKE THEM TAKE THE EXAMS. They might understand the subject a little bit better!
 
Why doesn't someone launch a "good news only" paper.....there is some around if you look hard enough!
 
Thanks for the opportunity to let off steam.......

Barry Wilderoder

Sadly always been the case particularly as they do not have to worry about regulation when making these statements, a very easy job to sell papers

David Smith

With consumer debt reaching record highs, Introducer Today decided to write a feature on 100% mortgage plus products. These products are providing some consumers with more than they can afford, and could leave them with negative equity if house prices fall. Here is just one of the responses to the article, '100% Mortgage Plus Products Creating Unnecessary Risk?' 

The issue of negative equity is only relevant if the borrower is unable to service his/her loan.  There is a fundamental shortfall in housing supply which will tend to increase prices over time, even though short term pressures may cause falls and result in negative equity.  The provision of 100%+ mortgages enables people to buy their own property and provides a long –term appreciating asset.  There is, however, an onus on the lender/broker to ensure affordability and appropriate protection against accident, sickness and redundancy should be mandatory at higher LTV’s.

Tim Walker 

After attending the Mortgage Intelligence Conference and hearing Michael Bolton's controversial speech it was interesting to report on the day and get your feedback. Here is one of the best responses we had with regards to the article, 'The Credit Crunch Affecting Lender Relationships?'

I witnessed Michael's performance. He was out-shone by rising industry star Mark Blackwell, who spoke with real understanding of the industry and a dignity more becoming of a senior representative of both C&G and soon to be Alliance & Leicester. After 40 years in the mortgage industry, I reckon I know a cornered rat when I hear one and it certainly wasn't Mark!

Anonymous

The Northern Rock crisis was heavily criticised. The feedback we received after we published our article, 'Turmoil Surrounding Northern Rock Could Have Been Prevented' was so immense that we decided to publish your thoughts. Here are just a few;

The problems at Northern Rock were not the fault of corrupt directors (allegedly at BCCI) or staff not doing their job properly (as at Barings).

Let us not forget that the bank operated within strict regulations formulated by the Treasury and administered by the FSA. If Northern Rock had collapsed the whole of financial governance in this country would have collapsed with it, along with this government and the reputation of Mr Prudence himself.

Clearly the regulations were either wrongly drawn up or wrongly applied. There must be a lesson in here somewhere.

Roy Taylor

I don't know whether anyone will agree with me, but I firmly believe that if the BBC news dept went back to relating the FACTS of the news only instead of requesting their reporter's opinions, we would not be seeing the panic with the Rock's customers.

Janice Reeve

The whole affair surrounding Northern Rock was handled in a manor of negligence on behalf of the government and most irresponsible and not at all truthfully transparent to the important customers of Northern Rock.
 
This has caused undue stress and alarm in the Financial Markets when stability should be the name of the game. Lessons must be learnt in the wake of this Fiasco and going forward FSA must take a prominent role with Lending institutions on their capacity to borrow and lend in the Financial markets.
 
May I say on another note that ex Fed chairman Alan Greenspan's comments about how fickle the UK economy could become are widely debateable and unfounded. At this stage to talk about double digit interest rates and failing educational system is most premature.
 
The responsibility for this recent debacle lies with the Government who have been most incompetent with this matter.

Anil Patel

This has been a self inflicted wound caused by customers' financial ignorance and the usual gutter press hype to try and sell more papers.  It was a non-event made into a completely avoidable disaster with consequences which all will suffer from for years to come.  Unfortunately authorities' credibility is now so despised by the public, that government and Banks' assurances are simply not believed - even when they occasionally tell the truth!
 
This is at the root of the problem - public distrust and ignorance inflamed by entirely disproportionate media reporting.
 
The answers are not so simple or quick - but they will certainly involve large bureaucracies and especially government, in starting to tell the truth, the whole truth and nothing but the truth - instead of the familiar spin culture they have embraced. Also required is education of some basic financial common sense in schools - once they have managed the reading and writing bit!
 
The savers of Northern Rock are not the victims - they are the perpetrators.  The victims will be the rest of the public, the financial services industry and above all, Northern Rock themselves.
 
Brian Davies

The government is not trusted by the public following all the spin and U turns that the government have made over recent years.  So when the Bank of England, FSA and government tries to reassure the public it doesn't make all that much difference.

Simon Hayes

This could have all been avoided in the first place if it hadn't been made a major public announcement!  After all, instead of short term borrowing on the money market, as they usually do, NR borrowed from the Bank of England.  So what's different? (apart from a higher rate of interest which will have reduced margins for a while)  T

Then, for good measure, the media decide to have a field day, instead of trying to understand exactly what this was about and then proceed to allay the fears.  I watched it happen on GMTV when Justin Urqhart-Stewart clearly explained what had happened, shortly after 6.00am and explained there was nothing to concern the nation.  15 minutes or so later Ben was at it again, scare-mongering as if he had not heard a word Justin had said only a few minutes earlier!

It happened again later with GMTV and BBC and ultimately the newspapers and I just could not believe it.  Totally irresponsible journalism in my view and they don't seem to be taking any of the blame!
 
Rob

The problem lies totally with the Bank of England which should have poured funds into the market when the Federal Bank, USA & European Bank did to provide plenty of liquidity. Instead it scorned the Fed & European bank as over reacting and the consequence is that 715,000 people have lost a great part of their investment in the shares of Northern Rock and, potentially, thousands of it’s employees could lose their jobs.

Cary Thornton