Essentially an organisation that sees the growth of the housing finance as fundamental to the sustained recovery of the market, the Council of Mortgage Lenders (CML) are continually influential on government policy making and are an important organisation for property investors to be aware of.  We were therefore very pleased to be able to speak to spokesman Bernard Clarke on a range of topics including the recent drop in house prices demonstrated by the Halifax; homeownership trends in the UK; the importance of the buy to let market; the BTL lending landscape moving forward into 2011; buy to let regulation / professionalism; new build lending; the implications of the low bank base rate; future inflationary pressures; some advice for new property investors amongst others.

1) Many economists and commentators were surprised to see the larger than expected dip from the Halifax property price index recently – what were/are your thoughts? Over the last couple of years we’ve given up on forecasting house prices due to the fact that there has been so much uncertainty in the aftermath of the credit crunch, both in terms of the implications for the housing market, and the extent and scale of the policy response to get the country out of its problems.  In addition, there are a small number of transactions which simply adds to difficulty of measuring house prices effectively.  Demand is weak for all sorts of reasons, such as a shortage of mortgage finance, a lack of confidence by buyers and there is a shortage of new property coming into the market which, we feel, makes price predictions even more difficult.  In short, we have no plans to return to predicting house prices.

2) How important does the CML view the buy-to-let market in relation to the UK’s housing industry from a long term perspective? We think it’s very important – the whole market is made up of three forms of tenure: owner-occupier, social housing and the private rented sector.  The Survey of English Housing showed that over the last 8 years of so home-ownership has declined from 71 percent to 68 percent.  Clearly there are pressures in the funding and supply of social housing sector – so the best option for meeting housing needs in the medium term is through the private rented sector, and the buy to let market has a very important role in meeting this demand.

3) Do you think the UK general public’s passion for home ownership is waning? We have just published research that shows that it is not the case.  Over a long period of time, we have asked people about their aspirations to be homeowners with the question “would you like to be a homeowner 10 years from now?” When we asked  again recently, we came back with the highest ever positive response to that question – even prior to the credit crunch – at 80 percent.  Short-term responses to the question have taken a dip, which we believe is due to what is happening in the housing market at the moment and the uncertainty towards the market on a general level.

4) As 2010 begins drawing to a close – where do you see the position of the main buy-to-let lenders moving forward into 2011, particularly when compared to prior to the credit crunch? Whilst we have had some very encouraging recent announcements from lenders such as Paragon and The Mortgage Works, who are looking to continue their expansion in the buy to let market, we expect the sector to be affected by the same issues as with the mainstream market – with the prominent one being a lack of funding.

5) Can we expect to see any major changes in the buy-to-let lending landscape in the near future? It is difficult to predict this, particularly in the current absence of funding, but, as far as lenders moving in and out of the market or launching new products, that is in the hands of individual firms and we do not know what their plans may be.  As a trade body, we work to create the best environment for lenders to operate within – but it is up to them how they want to make their commercial pitch.

6) Do you feel that there are enough professional standards within the buy-to-let sector? Yes, much of the evidence of the buy to let sector has pointed to improved standards in terms of choice, availability and quality of privately rented housing provision.

7) What are your thoughts on regulation of the buy to let industry? We have made it clear that we are not convinced about this.  There may be a need to look at the main causes of problems within the buy to let sector – this, however, is more about people’s decisions to invest in property rather than taking out a mortgage in order to do so.

8)It was recently announced that the CML will be joining forces with the NLA – why was this decision made? We work with all parties, agencies and representative bodies with an interest in the sector.  There is, as such, no specific plan for our work with the NLA – the objective is more to form a union of bodies representing the ever-changing agenda of the UK housing industry.

9) How do you feel about the current level of property investment / landlord education that exists at the moment? If you look at the evidence that may point to bad property investment education, it would be worth examining repossession / delinquency statistics – the buy to let sector is comparable with the mainstream mortgage market which would suggest that most investors and landlords are making the right kinds of decisions.

10) In terms of the lending on new build properties, many lenders we speak to remain aversive – either applying a stringent criteria or refusing to lend at all.  As long term indicators are pointing to an undersupply of housing in the UK – how long will this last for? Lenders are taking a risk averse approach to all types of transactions in the market at the moment – not solely for new builds – and where there are issues of over-supply and valuation, they are looking particularly keenly at the security of the loan.  We don’t expect any change in the housing finance environment.  WE have tried to create greater transparency by working on improved disclosure of incentives by developers (discounts and other transactional related benefits) – which has often occurred in regional markets where there is an over-supply of property.  What the lender needs is to have a clear understanding of the exact nature of the transaction and to make a decision accordingly.  We hope this transparency will help build confidence in the sector for everybody – uncertainty in an environment like this is not helpful.

11) Readers would be aware that the CML regularly announces repossession statistics – would you be able to provide a broad based forecast for the next 5 years on repossessions? I’m afraid we can’t!  One of the main reasons for this is the uncertainty we’ve already discussed which makes us reluctant to forecast too far ahead.  In the past we have predicted arrears two years ahead and have then revised our figures.  Whilst things are perhaps looking a little bit more stable now, the market since 2007 has been generally unstable and we have policy intervention on a large scale and a new government.  What we will be doing is looking at market forecasts towards the end of the year (for 2011) taking into account of the Comprehensive Spending Review and its implications.

12) Late last month Credit Action announced that some £10.9 billion worth of loans (both secured and unsecured) had been written off – do you expect to see this as a continuing pattern – and how will it affect the future of the secured loans market? Again, we will not be forecasting arrears until the end of the year.  I suspect the main reason why arrears have been kept in check is the very low interest rates, and also unemployment has not risen as high as many commentators feared – although there may be more uncertainty about that in the aftermath of the Comprehensive Spending Review.

13) With the UK base rate being historically low and many property owners benefiting from this fact, do you think the housing market is experiencing a calm before the storm? You could almost say it is a ‘calm after the storm’ due to the fact that we have a very low level of transactions and subdued levels of lending activity in the aftermath of the financial crisis in 2007 and 2008.  We do not expect to see any significant change in overall market direction in the months ahead.  When we finalise our forecasts for 2011, we will be looking ahead over 12 months to see if there are any changes to be expected.

14) In terms of the inflationary concerns that will mount sooner or later and there will have to be a base rate increase – how do you see the change then? Our study on negative equity concluded that approximately 900,000 people with the large majority having less than £10,000.  Within a few months of completing that analysis, however, house prices had begun to rise again and, in the spring of this year, we revised our figures to around 600,000.  There is still potential volatility in the marketplace and, therefore, it’s still difficult to predict the number of people who will be in negative equity.  Nevertheless, as long as homeowners are in negative equity but are still+ able to pay their mortgage – that should not create a problem.  The outlook for interest rates is that they will stay low – and when they do rise, most commentators believe it will be at a slow and gradual pace.

15) In terms of lenders working with borrowers more – that seems to be more commonplace in attempt to resolve issues better, would you agree? There has been a concerted effort for lenders to minimise the impact, which borrowers have responded well to – for example by making lenders aware of any payment difficulties they may be having, which gives everyone the best chance of working to a solution the suits the client’s individual circumstances.  The government has helped with measures to support homeowners in difficulty – but we’ve already seen a cut in the rate of support for mortgage interest from 6.08 percent to 3.63 percent. The qualification period for income support for mortgage interest was reduced by the last government from 39 to 13 weeks (which previously caused considerable arrears to accumulate).  We would urge the coalition government to keep these measurements in place – although there are costs there are also significant savings, such as the cost of re-housing people as a result of repossession.

16) What would be your advice to new property investors looking at entering the market in the next few years? The evidence from our arrears and repossession statistics suggests that the decisions made by property investors are broadly the right ones.  We will continue to see opportunities for investors to make the right kind of acquisitions but funding is clearly going to be a constraint in the buy to let sector, as it is in the mainstream mortgage market.

17) What is the ‘MICE’ event being run by the CML and how can readers find out more? MICE stands for the Mortgage Industry Conference and Exhibition which we hold annually.  The day will see a  debate  around a number of key issues in mortgage lending and housing markets, with contributions by some excellent speakers.  Please click on the following link for more information.