Transcript PW Protect July 2016 - Protect Association

Rethinking the Outlook for the housing market
Peter Williams, Executive Director, IMLA and University of
Cambridge
My presentation
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From positive to negative!
Complex dynamics at work
Many unknowns!
Conclusions
The Economy
Many negatives;
• Uncertainty for sustained period
• Rising inflation
• Weak Pound
• Even lower interest rates and for longer?
• Employment and wage outlook uncertain
• A Government? An Election? Scotland?
The Economy
• The question is not whether the UK will adjust but
rather how quickly and how well.
• Bank is active – funds available and easing of
countercyclical buffer
• The MPC will make an initial assessment on 14
July,
• and a full assessment complete with a new
forecast in the August Inflation Report.
• MPC will also discuss further the range of
instruments.
The Economy
• No Emergency Budget
• Likely to see stimulus measures –housing could
benefit and not least affordable housing
• Still have Qs re Europe
• Concern re Current Account deficit
• Cuts still to come through? – on people, sectors
and local government
Impacts of BREXIT
Geography of BREXIT shock
Impacts as per HMT
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Premia rise on government debt, steepening the government yield curve
and raising bank funding costs.
Corporate borrowing spreads would rise due to uncertainty and the
steepening government yield curve.
Uncertainty would lead to tighter financial conditions, a reduction in real
economy lending and higher mortgage rates.
Triggers reduction in consumption and investment and weigh on asset
prices. Amplifies economic shock.
A fall in asset prices would have a wealth effect. For households this would
reduce spending and for businesses increase the cost of capital.
Demand for housing would fall due to the higher cost of lending, The
immediate economic impact of leaving would be around 10% lower relative
to a vote to remain in the EU. In the severe shock scenario, house prices
would be around 18% lower.
and so to housing and mortgages!
• And government (in England)
• We have the Manifesto with Commitments
on housing supply and home ownership
• Will it/they remain? Reshuffle but we think
so
• Starter Homes - more of a question – still
not operational
Chart A.24 Home builders’ share prices have fallen sharply since the
referendum
FTSE All-Share and home construction share indices, 17 June–1 July 2016(a)
Sources: Bloomberg and Bank calculations.
(a) 100 = closing price on 23 June.
(b) Market capitalisation weighted index of the eleven largest UK home builders in the FTSE 350 Household Goods and Home Construction Index.
So what do we know?
• Market was already slowing as buyers
moved ahead to avoid SDLT changes
• London likewise
• Some evidence re renegotiations/hold by
buyers/sellers
• Mortgage pricing has eased and more
competition
• Prices may drop but demand might rise!
Policy can make a difference!
So what do we know?
• FCA says all regulations continue but ESIS
transition?
• Housing supply might falter as builders cover their
risks by reducing output
• We were on course to meet 1 million target ( new
build plus conversions etc)
• Still assuming mortgage gtee goes at end of year
but…..?
• And moves against BtL continue
• And uncertainty is the watchword!
Chart A.22 There is evidence of increased ‘bunching’ of mortgage
lending flows at LTI ratios just below 4.5
Distribution of owner-occupier mortgage flows by LTI(a)
Sources: FCA Product Sales Database and Bank calculations.
(a) FCA Product Sales Database includes regulated mortgage contracts only. Loan to income (LTI) ratio calculated as loan value divided by the total reported gross income for
all named borrowers. Chart excludes lifetime mortgages, advances for business purposes and remortgages with no change in the amount borrowed.
Chart A Gross advances for buy-to-let lending
Sources: Council of Mortgage Lenders, firm lending plans and Bank calculations.
Chart A.23 Recent uncertainty may have driven a fall in new buyer
enquiries
New buyer enquiries(a)
Source: Royal Institution of Chartered Surveyors (RICS).
(a) The percentage balance of respondents reporting an increase in new buyer enquiries over the past month less the percentage reporting reduced enquiries. Series are
seasonally adjusted
Conclusions
• Forecasting unhelpful at the moment
• CML sticking with previous numbers for
the present
• June house price indices will be interesting
but BREXIT late in the day
• Uncertainty is the new normal!
• Underlying demand remains strong
CML Forecast December 2015
Conclusions
• Housing issues unresolved and tensions
growing around prices/affordability and
availability
• Govt will feel under even more pressure to
respond and not least as housing is strong
boost
CBRE Report; The Long Goodbye
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Leave vote doesn’t reduce the pent-up demand in UK housing market.
The prospects for mainstream residential hinges on consumer confidence.
Expect a quiet summer for sales as buyers consider the wider economic
implications.
If economy were to slow sharply, low interest rates mean forced sales are
unlikely.
Don’t expect a marked negative impact on property prices. Indeed if
developers scale back and new housing supply contracts significantly, there
may even be upward pressure on prices.
Prime London is most exposed to greater risk, but the underlying
fundamentals remain robust.
Overseas investors may benefit from a weaker pound, including institutions
investing in large scale build to rent and individual investors.
http://www.cbre.eu/portal/page/portal/uk-en/services/eureferendum#prcltByu29hk8