From Right to Buy to Mansion Tax, the headline differences in the housing policies of the major political parties merely mask the fact that, below the surface there is little daylight between their housing strategies, both of which are only partially formed and hang on the central tenet of pledging to increase supply. But, with a healthy housing market central to the economic prosperity of the UK, whoever wins the keys to Downing Street next month will be hoping that the recent slowdown in the market proves to be just the typical pre-election hiatus. And some signs of hope can be found in the most recent data from the market.
The downturn was confirmed by figures which showed lending to first-time buyers and existing homeowners fell in February. A total of 40,600 loans were made, 6 per cent lower than February last year. Buy-to-let loans were down 13 per cent from January, but up 11 per cent from a year earlier. But it's far from clear whether the latest downturn is indicative of a longer-term trend. Significantly, while first-time buyer lending In February was the second highest monthly total since 2007, loans to first-time buyers during 2014 were still 13 per cent below the total registered in 2007. This comes despite record lows in mortgage rates and an array of incentives spearheaded by the Help-to-Buy scheme.
Tightening up on lending criteria has certainly left its mark, but keeping a lid on the lending market looks like a sensible way of avoiding the reckless lending and runaway house price inflation that contributed to the crash in 2008. Mortgages are cheap, but anaemic wage growth and higher prices have stretched loan-to-income ratios, also confining many aspiring property owners to the sidelines. But such affordability issues are starting to show some semblance of easing. Affordability changed in February, with first-time buyers typically borrowing 3.37 times their gross income, a tiny improvement from 3.38 in January. At the same time, the typical loan fell from £124,700 to £124,000. This could be an indication of increased savings, but could also reflect the continued slowdown in house price inflation, which, according to the Office for National Statistics (ONS), narrowed to 7.2 per cent in February from 8.4 per cent in January, the smallest increase for more than a year. And the trend outside London and the south-east was even more pronounced, with inflation falling below 6 per cent. But lower house price inflation almost certainly owes something to potential buyers being squeezed out of the market by restricting access to finance. Lenders are much more picky when assessing a couple or an individual's ability to afford the repayments on a mortgage.
Crucially, the typical gross income of a first-time buyer household moved up marginally to £38,500. This, together with improved loan-to-income ratios, is indicative of a positive trend, but only if sustained. For existing homeowners, though, last month's small movements were negative, with loan-to-value and the size of mortgages up slightly, although average income was also higher. As a result, the payment burden, as a ratio of household income, fell slightly to 18.3 per cent, and remains substantially below the 23.8 per cent peak registered in December 2007. Separately, remortgaging fell by 16 per cent from January and was down 14 per cent from February last year.
Political point scoring ahead of the election has only served to cloud the picture, and there has been little advance on the need to create a fully formed housing strategy. Labour party proposals include some form of taxation on so-called mansions, although outside London this is unlikely to have much relevance. For its part, the Conservative party is proposing to extend the Right to Buy scheme, whereby council house and housing association tenants will be allowed to buy their house at a discounted price. However, there has been little beyond aspirations to accelerate the number of homes being built, a need that risks being exacerbated by a fall in the number of rental homes available if the Right to Buy scheme were enacted. Council homes remain the primary source of accommodation for those unable to afford a house through the private rental sector.
These are the last set of monthly data that will be released before the election takes place, and only towards the middle of the year will it be possible to establish whether affordability issues are really improving and the pre-election hiatus was just that. For home movers and first-time buyers, perhaps the worst political outcome would be some form of minority government and the prospect of another bruising contest later in the year.
