ROOF Blog archive

Government spending cuts on construction risk deepening the recession and making it harder for the economy to recover in future, the CBI employers’ organisation have warned.

Every £1 spent on construction generates a £2.84 increase in national income according to a report by the CBI’s UK Contractors’ Group, and cuts would diminish gross domestic product (GDP) to the same extent.

John McDonough, chief executive of Carillion and chairman of the CBI’s construction council, said the sector was likely to be in the line of fire when the government attempts to narrow its yawning budget deficit:

‘The public purse can’t afford what it has afforded in the past, but we need to be prepared for what’s going to happen in the next 12 months,’ he said.

‘Construction makes up around 8 per cent of UK GDP and a similar proportion of employment, but it has been hit hard by the recession.

‘Its rate of redundancy, at 28 per 1,000 employees is the highest of any sector, and the short-term nature of much construction work means that the true decline in employment is likely to be greater.’

Fitch, one of the world’s most influential ratings agencies, said that the reforms proposed by the Financial Services Authority (FSA) could result in higher costs and greater inefficiencies in the mortgage market.

The rating agency said the FSA’s Mortgage Market Review ‘could have negative financial implications for mortgage customers instead of the intended benefits’.

Fitch said its concerns were specifically around the proposals for arrears management, which it said were too prescriptive and would take away ‘flexibility’.

Robbie Sargent, director in Fitch’s European structured finance operational risk group, said:

‘The assessment of borrowing capacity, and disposable income, along with the verification of income for all applications, will require a detailed methodology, and in all likelihood, the provision of some form of manual underwriting for all loan applications.

‘This will almost inevitably lengthen the mortgage application process and push up costs for the lender, which may in turn be passed on to the borrowers in the form of higher interest rates and/or product fees,’ said Sargent.

The unexpected ‘mini-boom’ in house prices continued in September, according to the latest official figures, but analysts say that a slowdown in the pace of the recent rebound has begun.

Figures from the Land Registry showed a rise of 0.9 per cent in prices last month, taking the price of the average house in England and Wales to £158,377 and bringing the annual decline to 5.6 per cent.

However, estate agents have said that transaction levels remain low and have sunk further in the first few weeks of October as homebuyers and sellers begin to hunker down in the run-up to Christmas.

Rightmove reported that the number of new listings had fallen to 94,629 in October from 105,924 in September, and the Royal Institution of Chartered Surveyors reported slight softening in demand last month.

Abbey has announced a sharp increase in its share of the mortgage market in the past three months.

The group lifted pre-tax profits by more than 30 per cent to £1.16bn in the third quarter of 2009.

Although mortgage approvals and house prices have been recovering in recent months, they remain well off the highs of the housing boom that ended two years ago.

And think-tank Oxford Economics reports that there is a significant risk of renewed falls in house prices next year and in 2011.

Neil Blake, director of economic analysis, said that the rises in house prices since 2001 can only be explained by an explosion in the availability of credit rather than any fundamentals of supply and demand. Now that credit is hard to come by, house prices risk a ‘double dip’.

He added, ‘Our research suggests that had we not experienced the massive expansion in credit after 2001 there would have been barely any growth in house prices in real terms.

‘Credit conditions are key to the housing market, but even a strong recovery in credit will not be sufficient to prevent house prices dipping again next year.’

MPs would be banned from receiving taxpayers’ money to pay the mortgage interest on their second homes, under proposals to be published next week.

Sir Christopher Kelly, the chairman of the Committee on Standards in Public Life, has briefed opposition party leaders about his report, which says that in future MPs will have to rent, not buy, their second home if they wish to receive taxpayer support.

Kelly is also to make it more difficult for MPs living in the south-east to claim for a second home, so more of them will have to commute to and from parliament.

It is possible he will rule that MPs living within a 60-minute commuting radius will not be able to claim for a second home, joining the small group of London MPs that are already banned from receiving a second home allowance.

Previously MPs could claim as much as £24,000 a year in mortgage interest payments on their second home, often allowing them to live in homes which were much larger than they required.

In a speech to the Royal Institute of British Architects (RIBA), Environment, Food and Rural Affairs Secretary Hilary Benn is expected to call for a greater focus on adapting, or ‘retrofitting’ houses.

The Government has set a target for all new homes to be carbon neutral by 2020, in a bid to cut down on households’ carbon emissions. However, of the 25 million houses in the UK‚ new builds account for less than one per cent of the housing stock.

By 2050, the vast majority of the housing stock is expected to be buildings that have already been constructed.

Mr Benn, ahead of the speech, said: ‘Architecture must take account of carbon and adaptation to create climate resilient buildings, infrastructure and places’.

So-called retrofitting is considered by architects to be a far more ecologically friendly way to improve the quality of the housing stock, rather than rip down poor-quality buildings and replace them with carbon-neutral new builds.

However, a report published this week said that it could cost an average of £10,000 per home to fit the necessary insulation and other energy efficiency measures.

The Financial Services Authority (FSA) has called the buy-to-let market ‘unsustainable’, with high incidences of mortgage fraud and arrears a major reason for them to act as regulators.

If buy-to-let remained outside its remit, borrowers who were turned down for residential mortgages – which are already regulated and will be subject to tougher rules under the FSA’s proposals – may try to obtain unregulated buy-to-let loans instead; a process it called ‘gaming’.

The FSA said: ‘Bringing buy-to-let within regulation…would address an identified risk to market sustainability, strengthen oversight arrangements and offer the potential for protecting consumers making investment decisions on property’.

Extending the FSA’s scope to include buy-to-let mortgages would require approval from the Government.

Struggling buy-to-let landlords are eating humble pie when it comes to finding tenants.

Checks and references traditionally carried out on tenants to assess their reliability in paying up are now being reversed as renters seek assurances the owner of their new home is legitimate and not on the verge of being repossessed.

David Underwood, a lettings consultant at Darwoods in St Albans, Herts, has noticed a ‘marked shift’ in emphasis:

‘Tenants have been far more interested in landlords’ backgrounds and are asking more questions about where their deposit is being held,’ he says.

It would seem that tenants’ concerns are well founded. When the Council of Mortgage Lenders (CML) started compiling buy-to-let data in the second half of 2005, only 200 investment properties were in mortgage arrears of three months or more.

By the first half of this year, this had soared to 5,400. Repossessions of investment homes also climbed, from 400 to 2,800, during the same period.

Borrowers have been warned of soaring mortgage fees after the Financial Services Authority (FSA) called for lenders to assess income and spending in greater detail before approving loans.

Lenders are already under fire for introducing application charges of up to £1,000, which you lose if you back out or the loan offer is withdrawn – a problem not uncommon in today’s mortgage market.

Brokers say that plans by the Financial Services Authority (FSA) to make all borrowers pass an ‘affordability test’ that scrutinises their spending habits mean that fees could go even higher.

Savills Private Finance broker Melanie Bien said: ‘Any step-up in regulation means more cost, and higher costs tend to be passed on to consumers.

‘Lenders are likely to favour higher charges over the alternative option of increasing interest rates as it is a less visible way of raising costs.

‘This will be unhelpful, especially for first-time buyers, for whom every penny counts.’

Residents will have to pay extra for some local services after a London council voted to adopt a radical ‘easyJet model’ to deliver public services.

Under the so-called ‘easyCouncil model’ scheme, seen by many as a blueprint for a possible future Tory government, householders in the borough of Barnet who are seeking planning consent will be able to pay extra to jump the queue, just as budget airline customers can pay more to board the plane first.

Residents will also be able to pay more for services such as extra rubbish collections, while recipients of adult social care will be able to choose to spend a limited budget on respite care or on a cleaner.

Barnet council said the move was designed to bring private-sector flexibility and choice to the provision of public services – but the strategy has already hit some turbulence.

In September, the council’s attempts to end live-in wardens for older people in sheltered housing were suspended by the high court pending a judicial review.

Earlier this month, the high court allowed the review on the grounds that the council may have failed to adequately assess the impact the cuts would have on elderly and disabled residents.

A two-bedroom flat in County Durham has been labelled Britain’s cheapest flat after it was placed on the market for just £1000. Situated above a group of shops, the flat has an open-plan lounge and kitchen and is located in the heart of Catchgate, Stanley. But it has no water or electricity, rubble litters the floor, the walls have huge holes and the ceilings have crumbled leaving a corrugated iron roof to protect the rooms from wind and rain. The property was left to an unnamed woman in a divorce settlement, who realised it belonged to her after she began receiving council tax bills and other official letters. Estate agents are set to auction the first-floor flat, which they admit needs ‘refurbishing’.

Tenants who receive local housing allowance (LHA) will be able to choose to have their rent money paid directly to their landlord if the Conservatives win next year’s general election. Grant Shapps, shadow housing minister, will announce today at the Crisis national conference in Birmingham that a Conservative government will revert to the way housing benefits were handled before last year’s government reforms, which are due to be reviewed before April 2010. Shapps is expected to say that the current system is deterring landlords from renting property to tenants receiving LHA: ‘Fearful that rent money may never be paid, some landlords routinely include the words ‘No HB’ in their ads, further restricting the supply of housing for affordable rent.’

The number of households in fuel poverty, where at least 10 per cent of income is spent on gas and electricity, rose by 15 per cent to four million in 2007, statistics from the Department for Energy and Climate Change show. A projection for this year suggests there are 6.6 million British homes in fuel poverty, almost treble the number five years ago. Campaigners said ministers would miss their target of removing all households containing the elderly, disabled and poor from fuel poverty by next year. The biggest factor in the increase is the doubling of energy prices since 2002. Responding to these figures, the government announced a four-step plan to help the fuel poor, including forcing suppliers to increase insulation, funding energy efficiency makeovers for 90,000 homes, making social tariffs compulsory and toughening regulation to combat ‘market abuse’.

A student denied her degree because of alleged rent arrears has won her fight to be allowed to graduate. In an out-of-court settlement, the university has agreed that she can graduate and waived the £3,540 fees in back rent they said she owed. Maria Lavelle joined the University of Winchester as a 25-year-old mature student in 2008. She moved into student accommodation but asked if, as a mature student, she could not be housed with freshers as she thought the atmosphere would be too noisy. When she found she had been, she gave notice that she would be moving out and into private lodgings. However, the university said she had signed a contract to stay the whole year in student accommodation and argued she should pay back £3,540 in arrears. The National Union of Students described her case as an ‘extremely significant test case’, adding: ‘This is common practice among universities and it’s something we’ve been concerned about for a while.’

Shelter has been investigating sale and rent back companies who take out adverts in national and regional newspapers to check whether the companies that are advertising are signed up to the FSA’s tough new regulations. Results show that out of the 18 main companies that advertise regularly in the press, four are still not signed up to the regulation and are therefore operating illegally. Kay Boycott, Shelter’s director of policy and campaigns, said: ‘We are shocked to discover some rogue and unregulated companies have the nerve to advertise in national newspapers when they are operating completely outside of the law. If almost a quarter of the big firms who are advertising in national newspapers are unregulated, then it is highly likely that many more of the smaller companies are operating completely under the radar.’

The Governor of the Bank of England, Mervyn King has called for big banks to be broken up, in a speech to business leaders in Edinburgh. He suggested that ministers’ refusal to hive off the ‘casino’ investment arms from High Street banks could lead to a crisis ‘even worse than the one we have experienced’. And he warned that rapid increases in the national debt meant Britons would be paying to clear up the mess ‘for a generation’. His intervention came as official figures revealed public borrowing soared to a record £77.3 billion in the first six months of the financial year - the highest half-yearly figure since the Second World War.

Gross mortgage lending totalled an estimated £12.5 billion in September, a 2 per cent rise from the £12.3 billion in August but down 27 per cent from September 2008, according to new data from the Council of Mortgage Lenders (CML). Behind the modest improvement from August to September and the relative stability of recent months is the balance between the types of lending taking place - there has been a pick-up in house purchase activity, but this is off-set by the decline in remortgaging. Paul Samter, CML economist observed: ‘House buying activity is running at considerably higher levels than around the turn of the year. However, it remains weak on any historic comparison and is unlikely to rise much further given the constraints the lending community faces and a still difficult economic backdrop.’

The national homelessness charity Emmaus is marking the 60th anniversary of the Emmaus Movement by launching a campaign designed to allow the stories of homeless people to be heard. A newly launched website is asking people to tell their stories of significant moments in their lives and to add their voices to the stories already posted by the residents of Emmaus Communities. Contributors will receive a story in return and will play an important part in helping to make people who are often ignored to have a voice. The site has already attracted some high profile contributors such as Cherie Blair, Terry Waite and Fern Britton.

Peter Boggis, 78, has spent tens of thousands of pounds building earth barriers to protect his home at Easton Barriers, near Southwold, Suffolk, and those of his neighbours which are threatened by erosion to the cliffs on which they stand. But Natural England, the Government conservation agency, wants the fossil-rich cliffs to wear away, exposing strata of soil and rock for study. Mr Boggis had carried out the work carried out on the sea defences without planning permission, and the Court of Appeal said in its judgement that the only lawful course now open to Mr Boggis was to apply for permission and go through the correct planning process. Mr Boggis, whose house, The Warren, is 302ft from the cliff edge, says his defences have so far saved more than eight acres of land and four properties ‘at no cost to the nation’ and that his efforts would, if anything, slow down the expected loss of habitat on the wildlife site.

The City watchdog’s proposals for the mortgage market received a cautious welcome from the industry today. But trade bodies expressed concerns about how some of the Financial Services Authority’s (FSA) measures would be implemented, as well as the impact a ban on self-certification mortgages would have on certain borrowers. Paul Broadhead, head of mortgage policy at the Building Societies Association, said: ‘We need a sensible balance between appropriate regulation and allowing people to buy their own home when they can afford to do so.’ The Council of Mortgage Lenders said the FSA seemed to believe that regulation could not rely on borrowers behaving in their own interests, but that consumers instead needed measures to be introduced to protect them from themselves. However, Shelter, the housing and homelessness charity, called on the FSA to implement the changes it was proposing urgently to ensure the ‘dark days of reckless lending never return.’

Reckless lending to first-time buyers remains endemic in the financial services industry. An investigation by ROOF into the practices of leading banks and a mortgage broker found a worker with an income of £28,000 could borrow more than £153,000 from one high street bank. The repayments would have put an impossible financial squeeze on the buyer, bringing a serious risk of repossession. The amount the banks were prepared to lend in relation to the value of the property was also huge. Many offered an 85 per cent loan and one went up to 95 per cent. Kay Boycott of Shelter said, ‘With latest figures showing over 270,000 mortgages in arrears, it’s shocking to see banks continuing to lend to new borrowers based on such basic checks on their ability to pay. People are being encouraged into home ownership that may not be sustainable and potentially unmanageable debt. There is absolutely no point in giving a mortgage to someone who cannot afford it - every day we see the human fall-out from the repossessions that often follow.’

Self-certified mortgages are to be banned and homebuyers applying for mortgages will have to undergo rigorous credit checks, under new rules unveiled by the UK’s financial regulator today. Hector Sants, chief executive of the Financial Services Authority (FSA), said the watchdog was seeking to ‘get rid of the irresponsible practices that put banks and consumers at risk.’ Lord Myners, the City minister, said the core of the problem was ‘irresponsible lending’ and stressed, ‘The FSA has some very strong sanctions and enforcement resources available if banks contravene the regulations.’ Setting out major reforms of the mortgage market, the FSA said this morning that it will make banks and other lenders liable for loans that cannot be repaid. It is forcing lenders to carry out thorough checks on people’s incomes before granting a mortgage, such as examining their spending habits and existing loans.

The average asking price for homes in England and Wales has recorded unusually strong growth in the past month, according to the property website Rightmove. The increase of 2.8 per cent in the four weeks to 10 October over the previous four-week period is one of the sharpest four-weekly rises Rightmove has ever recorded. It is the seventh time the website has recorded positive growth since February, compared with only two declines. The average asking price, at £230,184 is now 0.2 per cent higher than a year ago, when UK and global financial markets seized up. The largest increases are in London, where increased interest from buyers drove asking prices up by 6.5 per cent over the previous four weeks, says Rightmove.

Another £70 billion should be shaved off public spending to rebalance the budget, The Confederation of British Industry (CBI) has told the Treasury. The Treasury is planning to borrow £703 billion from 2009/10 to 2013/14, an unprecedented run of deficits that will push the national debt to £1.4 trillion. However, even that stark estimate may be too low because the economy will not rebound as fast as ministers hope, business leaders said. ‘With a lacklustre recovery in prospect and a structural loss in output, the CBI estimates that borrowing could even exceed this projection by £50 billion,’ the group said in a submission to the Treasury. In addition, another £70 billion will be needed over the following two years to balance the budget by 2015-16, the CBI said. The CBI has drawn up a detailed plan to significantly shrink the public sector, cutting costs and handing over many tasks to private companies. The group also wants public sector staff pay and benefits to be curbed.

One million homes are expected to be empty in the UK this year, despite 1.8 million Britons being on the waiting list for social housing. In 2008, there were more empty properties in the north-west of England than anywhere else in the country, with 129,073 houses lying vacant, says the charity the Empty Homes Agency. It is not illegal to leave a property empty, but the government has various ways to discourage it. Where the owner ignores calls to put the property to use, a local authority can make a compulsory purchase order under Housing Act powers. This means it will buy the property at the market rate and sell it on again or convert it into social housing. At the same time, however, the law encourages the practice of leaving properties empty by offering a council tax exemption on any dwellings that are vacant for up to six months.

Knight Frank yesterday forecast that prices would end this year 2 per cent higher than at the start, with the recovery being led from the South. The agent said, however, that the mainstream UK residential market was likely to see a modest price fall of about 3 per cent in 2010, before a limited rise in 2011 followed by more significant gains in 2012. ‘Continuing growth in unemployment, allied to wage freezes and tax rises, and a rise in average mortgage rates will force a number of sales which, in the absence of greater depth of demand, will see prices slipping back,’ said Liam Bailey, head of residential research.

House prices are showing their strongest rise for more than two years as a lack of supply continues to drive the market, according to a survey today. The Royal Institution of Chartered Surveyors (RICS) said its headline house price balance has reached its highest level since the onset of the credit crunch. It said that around 22 per cent more surveyors thought prices rose rather than fell during September, the highest proportion since May 2007. The improvement was driven by London and the south-east, where 79 per cent and 52 per cent respectively more surveyors reported price rises than falls. However, prices continued to decrease in other areas, with 18 per cent more surveyors seeing falls in Yorkshire and Humberside than those who saw rises, while 15 per cent reported price falls in Wales.