Examination of Witnesses
(Questions 20-39)
MR PETER
WILLIAMS AND
MR BOB
PANNELL
28 NOVEMBER 2005
Q20 Martin Horwood: You are the ones
that are doing the lending, and if you are lending more, the flurry
of lending is making more . . .
Mr Williams: Sure. Can I turn
it around? Would you like to suggest that the lending ceases?
Q21 Martin Horwood: Not ceases, but if
in effect what you are doing is just, in one phrase, enabling
people to stand on financial tiptoe, you are not actually making
the market really more affordable for them and it will have the
effect of raising prices.
Mr Williams: That is clearly the
risk that is run.
Mr Pannell: What it does do is
ensure that the market is very efficient and fair for everybody
that is able to enter home ownership on a sustainable basis. What
we are doing is very much broadening the tenure as wide as we
prudently can.
Q22 Martin Horwood: From April, the Government
is allowing housing to be included in personal pension plans.
Do you think there is also a risk of that being inflationary?
Mr Williams: There is a risk,
but all the evidence suggests it is over-stated. The evidence
that has been put in the public domain is very limited. We would
have liked to see the Treasury publish its own impact assessment.
It would be helpful, I think, to calm the debate that is obviously
raging in the marketplace about what impact it has, but the collective
view across lenders is that the effect is over-stated. There may
be some sub-market effects but generally I think people are more
confident that it will not have the impact that has been argued.
Q23 Martin Horwood: But it will have
some impact.
Mr Williams: At the margin, yes.
Q24 Mr Betts: Going on to the issue about
supply, the Government clearly believes that one of the solutions
to all this difficulty is to get a million more homes for people
to buy as home owners in the next five years. Do you have concerns
about that? Do you have a degree of scepticism that it actually
is achievable?
Mr Williams: It probably is achievable,
simply because we know that net something like 200,000 households
a year move into home ownership and over five years therefore
you could climb to a million. We saw a million and a half households
become home owners over the period 1997-2003, so it is probably
achievable. What we are saying is that there is some evidence
to suggest that the demand side is changing. The work we have
done on potential first-time buyers does indicate something of
a sea shift in the profile of people coming forward. We know households
are getting older before they enter home ownership, we know there
are issues about job mobility, we know there are issues about
debt, and all of that is beginning to change, we believe, some
of the preferences around home ownership such that one cannot
automatically assume the future is like the past. So the reason
for our slightly cautious remarks in our submission was to reflect
that, that we do not think it is a given in quite the way that
some people may easily suggest.
Q25 Mr Betts: Is there a danger—this
is something that has been raised over the last 20 years—that
some people have been encouraged and enticed into owner occupation
who probably would be best suited by other tenures, particularly
in light of their personal circumstances, but it is presented
as almost the one and only thing that you really ought to try
and achieve?
Mr Williams: We are very clearly
strongly interested in people, if they enter home ownership, being
able to sustain home ownership, as I am sure you would agree,
and obviously, in the past a whole variety of issues were there.
Tax relief would be an example of ways that may have encouraged
people to enter the tenure earlier than they might have done.
Certainly, going forward, given the way the world has changed
in terms of the labour market, more contract-based employment,
more self-employment, etc, people clearly should enter the market
at a point where they think they can sustain the tenure, and there
is less support now, with no tax relief, with a somewhat diminished
income support for mortgage interest regime, there is less support
for people who then fall away in that process. We therefore think
people do need to approach it with a degree of care, which they
always should have done, but that is even more true of the future.
Q26 Mr Betts: Is there an optimal level
for home ownership? Are we about there or are we close to getting
there?
Mr Pannell: It is actually an
area where there has been relatively little work done on the potential
limits of home ownership. The last robust assessment was made
in the late 1990s, when it was suggested that home ownership could
comfortably grow to something like 72-73%. That may have moved
out a little bit more in the intervening period. Probably, once
you start looking much beyond the mid 70s, you are not likely
to move much beyond the mid 70s within the foreseeable future.
That may be a natural limit.
Q27 Mr Betts: So that is the limit of
people at any one time, but because of this delay in people moving
on to the home ownership ladder, ultimately probably only 80%
will become home owners at some time?
Mr Williams: That is right. Over
the life cycle, probably 80% of people will have been home owners
and, of course, we know Britain is 13th in the European home ownership
league table. There are a number of countries at 90% plus. There
are a number of countries at 80% plus. We are close to the EU
average, so if we are succeeding in economic growth terms, logically
you would expect home ownership to be able to rise.
Q28 Sir Paul Beresford: The difficulties
people see over pensions are part of the fact that they are using
housing as an alternative to an additional pension.
Mr Pannell: That is certainly
true on the part of many households.
Q29 Alison Seabeck: Talking about extending
home ownership, to pick up one of the points in your submission,
if Barker is successful in lowering real house price gains, will
this raise credit risk associated with loan to value advances
and therefore affect lenders' willingness to produce low-cost
home ownership packages? Surely, this will impact on the very
people who are striving to get on to the home ownership ladder.
What specific evidence do you have from lenders that this is a
likely outcome?
Mr Pannell: No specific evidence
as such, and I cannot remember the exact figures that Barker was
suggesting real house prices may be reduced by, but I think in
terms of orders of magnitude, it was something like halving the
real house price increase by two% down to one%. Given that the
mortgage business nowadays is very competitive and margins are
very fine, that is bound to have an effect on the risk-reward
calculations that all lenders need to take forwards. It will at
the margin reduce their risk appetite for certain propositions.
One of the examples of that would be some forms of low-cost home
ownership.
Q30 Anne Main: Just to tease out the
constraints imposed on lenders with respect to those who buy property
on exception sites, you seem to be unhappy about that. It does
seem to be unfortunate that at the lower end of the market there
seems to be the least choice. Are you saying that we should be
looking at improving the amount of choice for lending in the low-cost
home ownership programme?
Mr Williams: Yes, I think the
collective view of lenders is that the low-cost home ownership
programme in England has been neglected. There are specific issues
around section 106 sites in terms of the restrictive requirements
imposed upon them by PPG3 and its revisions. We have argued strongly
for some amendment to those over a period of time, that has not
been forthcoming, and the upshot is that lender appetite to lend
on some of those properties has diminished.
Q31 Anne Main: Those are at the lowest
end of the market, generally speaking.
Mr Williams: They can be at the
lowest, though not necessarily. Some of those sites are relatively
expensive. There is often second-hand property that is cheaper
elsewhere, but they are in chosen locations and particular groups
of people, so there is pressure for them, certainly, but I do
not think by any means they would necessarily be at the bottom
end of the market.
Q32 John Cummings: Do you have any concerns
over lenders being asked to underwrite the Government's Market
Homebuy scheme?
Mr Williams: No. We initiated
that discussion with the Government. We were very pleased to be
able to follow up just what I said in reply there, that we felt
the low-cost home ownership programme had been neglected, we were
keen to see ways in which it might be expanded, and we were therefore
comfortable with having discussions with the Government and we
hope announcements will be made shortly which fulfil that.
Q33 John Cummings: You therefore agree
that equity sharing schemes help reduce the problems of over-commitment?
Mr Williams: It can do, and it
is back to your point about the balance between supply and demand.
Clearly, if somebody can only afford 75% of a home, an equity
sharing scheme is helpful in assisting them into that market.
There are issues around equity loans. This is not the solution
to everything, by any means, but at the margins, it is a scheme
that does have potential to help more people enter home ownership
in a supportable and sustainable way.
Q34 John Cummings: In a sustainable way,
referring to the scheme, it is certainly helping the most appropriate
people?
Mr Williams: This is a scheme
yet to happen. The existing Homebuy scheme by and large achieves
its objectives. Some recent research published by ODPM supports
that, though there is a slight tendency for the households that
get it at the margins to have slightly better incomes than the
bottom of the market. There are reasons for that. I think this
is all about how the scheme operates, and I think, as we build
the low-cost home ownership sector, we can improve its targeting.
So yes, there is no reason at all why we cannot ensure that that
programme really does deliver low-cost home ownership to people
who want to become home owners and can over the long term sustain
home ownership, which is the key thing.
Q35 John Cummings: If you have identified
weaknesses in the scheme, have you made these known to the Department?
Mr Williams: Yes.
Q36 John Cummings: Have you had a favourable
response?
Mr Williams: No.
Q37 John Cummings: Have you had any response?
Mr Williams: The issues have been
raised over a number of years. They are raised in the Home Ownership
Task Force report and some of the work to be done in terms of
targeting of those schemes still needs to be completed.
Q38 John Cummings: But have you had any
response from the Department?
Mr Williams: The Department responded,
for example, to the Home Ownership Task Force report.
Q39 John Cummings: No, on those particular
issues that you have raised.
Mr Williams: No.
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