Examination of Witnesses
(Questions 40-59)
MR PETER
WILLIAMS AND
MR BOB
PANNELL
28 NOVEMBER 2005
Q40 John Cummings: They have not?
Mr Williams: Not fully.
Q41 John Cummings: But they have responded
partly?
Mr Williams: Yes.
Q42 John Cummings: To your satisfaction?
Mr Williams: Not to my complete
satisfaction.
John Cummings: Bring out the rack!
Q43 Chair: One of our other witnesses
has suggested that some of the shared ownership schemes are being
used to help people trade up. Do you have evidence of that?
Mr Williams: I am surprised at
that comment, to trade up, because I think by and large, the people
entering the scheme have not been home owners before.
Q44 Anne Main: You said sustainable home
ownership in the shared equity scheme. Do you have a default rate
in terms of payment? Do you have many people who default on the
loans? Is it higher in that group than anywhere else or not?
Mr Williams: The evidence on this
is very mixed. This, again, is back actually to the previous point
of Mr Cummings about some of the tracking. There are no proper
performance indicators for low-cost home ownership. The picture
on arrears and repossessions in relation to low-cost home ownership
vis-a"-vis home ownership generally are not well substantiated.
There are bits of evidence but there is not the picture that we
need. That is back to the uncompleted business: an example, sir.
Q45 Mr Olner: You mentioned, Mr Williams,
the sustainability of mortgage repayments. Repossessions have
gone up considerably in the last year. How worried should we be?
Mr Pannell: We are certainly far
from complacent about the increase in repossessions. A lot of
media coverage relates to the figures produced by the Department
for Constitutional Affairs, which are judicial statistics, court
orders, actions and orders made.
Q46 Mr Olner: There has been a 66% rise.
Mr Pannell: Something like that,
yes, but in terms of the actual repossessions, the figure for
the 12 months ended the middle of this year was something below
8,000. There are very substantial differences between the DCA
figures and actual repossessions. Unfortunately, the DCA, because
of the way the statistics are compiled, it does not allow one
to very easily understand the full reasons why there is such a
gulf between those statistics. Certainly, with actual repossessions,
we have seen a modest increase over the last year or so, but it
is still the case that repossessions are very close to historical
lows, both in absolute terms and relative to the size of the home
ownership stock. We are forecasting a modest increase over the
next two years to something like 12,000 in 2007, which would still
be historically very low. Just to put that into context, a few
years ago ODPM research suggested that the equilibrium number
of repossessions was something like 30,000 per annum, so we are
significantly below that and certainly nobody that I know of is
suggesting an increase in repossessions of anything approaching
that magnitude.
Q47 Mr Olner: Can I put on record that
obviously, the figures are nowhere near that. They are low compared
to the figures of the early Nineties, but we surely learned some
lessons from the figures of the early Nineties. An awful lot of
people do not get into debt deliberately and I just wonder whether
the message that we are putting into place to assist people staying
in their homes, you had already started to exercise with this
current group of repossessions. It does not help anyone if somebody
is made homeless.
Mr Williams: No, absolutely. This
is one of the reasons why in 1999, with the Government, we launched
our sustainable home ownership initiative, which is very much
about trying to increase home buyers' awareness of the risks of
home ownership, of the need to look at ways they can manage their
mortgage account in the event of sickness, accident or unemployment;
why we have encouraged more people to take out payment protection
insurance; and when you look at lender behaviour going forward,
what is striking underlying the figures Bob has been talking about
is, both by lenders and borrowers, a degree of caution in terms
of, for example, loan to value ratios. If you look back at the
early Nineties/late Eighties, the number of 100% loans was strikingly
larger than it is now. There has been a ratcheting back on both
sides by buyers and lenders to manage exactly the risk you are
talking about.
Q48 Mr Olner: Surely, with five times
household income being lent to somebody as a norm, it is putting
tremendous pressure on household units, because household units
do not stay the same for ever.
Mr Williams: Sure.
Mr Pannell: If five times income
were the norm, then I would agree with you. The figures that we
have suggest that for first-time buyers, the median income multiple
was 3.2 in the middle of this year. That compares with something
like 2.4 10 years ago, and of course, what has happened in the
intervening period is the macroeconomic backdrop has changed dramatically,
particularly in terms of the interest rate environment. Interest
rates are well below half the level that was prevailing 10-12
years ago.
Q49 Mr Olner: But has that not just encouraged
you to lend people more money? There seems to be a fair amount
of entrapment within the money lending business. I know you denied
it in the first instance, but I actually think it has an awful
lot to do with driving the price of properties up.
Mr Pannell: We should not forget
that we have enjoyed more than ten years of continuous economic
growth. The jobs market is probably the strongest it has been
for many a generation. Interest rates are historically at very
low levels in nominal terms, and that creates a huge demand from
individuals, and mortgage lenders, for the most part, are meeting
the aspirations for home ownership.
Mr Williams: I am not seeking
sympathy in saying this, but I think lenders are classically between
a rock and a hard place on this one. If you try and help people
into home ownership, you are then accused of being too generous,
and I think the data evidence does show that actually, as Bob
has cited, and other evidence supports, the evidence shows a high
degree of caution, but I think it is by both borrowers and lenders.
Q50 Mr Olner: Is there any correlation
between people desperate to get out of tenanted property and taking
risks that are not sustainable at the end of the day?
Mr Williams: For example—and
I do not know whether this is quite the right example—under
the right to buy, the evidence in terms of default and repossession
is that there is very little difference.
Q51 Mr Olner: They gave them away, did
they not?
Mr Williams: There is no doubt
there is a protection element there. It is a troubling fact that
the level of advice given to those people on departing that tenure
into home ownership is perhaps less than it might be elsewhere
in terms of the advice and information available to them, which
is an issue that perhaps needs considering. As a generality, I
do not think we have any data really, particularly to talk of
failure, of people dropping out of home ownership who come in
as first-time buyers. Clearly, the biggest area of default is
the first two to three years on entering home ownership. That
is typically when budgets are most stretched, when people find
it most difficult, but I do not think that is particularly associated
with people coming out of social rented homes, if you like. Clearly,
they have come from somewhere. Some will have come from their
parental home, some will have come from the private rented sector,
some will have come from abroad. There is no particular pattern
that I have seen any evidence of there.
Q52 Anne Main: It is the flipside of
what Bill has just asked: if people default in the first one or
two years, do you have any concerns that this push to get people
into home ownership is taking away focus from providing social
housing for rent?
Mr Williams: Looking at government
expenditure, clearly, there is a huge amount and an increased
amount of government expenditure on the social rented sector.
I have already mentioned that the programme for low-cost ownership
had in fact been cut back. The Government is now keen to push
those programmes ahead again. I do not think those have been developed
at the expense of the social rented sector. I think the Government
is, however, responding to a choice agenda here. What it is saying
is that, reflecting low mobility, recruitment and retention, choice,
they feel the need—rightly, in our view—to respond
to the unmet demand for home ownership and they are putting a
limited amount of resource in there. We are helping them expand
that limited amount of resource by the shared equity programme
we are talking about so that deliberately, it is not an offset
taking away from the social rented sector. I think our collective
view is the Government is actually spending a lot of money on
social renting and its commitments to home ownership are relatively
limited but nonetheless very welcome.
Q53 Mr Olner: In the past you have expressed
serious concerns about modern methods of construction, particularly
in the prefabricated home sector. Have you resolved those concerns?
Mr Williams: We are in the process
of resolving those concerns. We are waiting for the publication
of LPS 2020, which will be the new certification standard for
modern methods of construction. We would like to see ODPM and
the Housing Corporation embrace that fully in a way that they
have yet to do. We and the insurers are confident that this will
provide a whole-life standard for new dwellings built by modern
methods which means they are sustainable and mortgageable over
the long term. In the absence of that standard, the risk is that
we will be getting people into hew homes which then have no long-term
life and our concern is that, if we are not careful, we will repeat
past mistakes, ones you are very well aware of and I hope others
in this room are too.
Q54 Mr Olner: But we are getting there?
Mr Williams: We believe we are
getting there.
Q55 Mr Olner: When do you think we will
reach that?
Mr Williams: It will be published
next year. The key question is adoption.
Q56 Mr Betts: What is the element of
doubt there?
Mr Williams: Adoption.
Q57 Mr Betts: That is ODPM and the Housing
Corporation?
Mr Williams: Yes.
Q58 Mr Betts: If they do not, the thing
is a dead loss.
Mr Williams: The danger is if
they do not, and they carry on where they are, which is some of
the properties being built and put into the social rented sector
but potentially then falling from the social rented sector into
home ownership through the right to buy, for example, right to
acquire, is that those properties, because they have a short life
built into them, with unknown lifetime characteristics, will become
unmortgageable in the future. You will have had the great success
of getting somebody a new home because they have bought it, and
then they will find they cannot mortgage it and sell it on to
anybody else. A success becomes a deep and dismal failure.
Q59 Alison Seabeck: What discussions
therefore have you been having with the ODPM about the pilots
being brought forward for the £60,000 house, which I assume
are using modern methods of construction, and which I assume they
will want to sell and therefore lenders ought to be involved in
it.
Mr Williams: I believe we are
involved. I do not know the details, I am afraid. I am happy to
reply by letter on that point.
Chair: That would be very helpful. If
you could reply to the Clerk, that would be extremely helpful.
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