July 23 2014 Latest news:
Shaun Lowthorpe, Business editor
Tuesday, June 24, 2014
Government targets to build 240,000 new homes a year by 2016 are unrealistic and won’t be met according to the bosses of UK housebuilding firms.
Banks are preparing to squeeze mortgage approvals despite demand increasing “significantly”, according to a report by the Bank of England (BoE).
The central bank’s quarterly Credit Conditions Survey for the three months to the end of May found lenders forecast a “lower appetite for risk” in the sector over the next three months.
The move comes as Bank governor Mark Carney is expected to announce new rules on Thursday to further cut back on large and risky mortgage loans in a bid to head off the threat of a housing bubble.
Data from the Office of National Statistics last week showed London house prices surged 18.7% in the 12 months to April, while national UK values rose 9.9%.
The central bank’s survey found lenders expect the rate of household loan approvals to fall significantly in the third quarter of the year as a result of April changes to the Mortgage Market Review which forces lenders to more closely scrutinise borrowers’ income and outgoings to check if they can afford repayments if interest rates rise.
The report said: “Some lenders noted that changes introduced as a result of the Mortgage Market Review might reduce approval rates somewhat.”
It added: “In addition, some lenders suggested that a tightening in lending standards on large loans with high loan-to-income ratios may also push down their approval rate a little.”
In the second quarter of the year the Bank found mortgage approvals had increased slightly, while demand went up significantly and was expected to rise again in the next three month period. Lenders have reported rises in mortgage availability for the last two years.
Jonathan Harris, a director of mortgage broker Anderson Harris, said: “Demand is still strong as buyers remain confident of their ability to get a mortgage and their perception that now is a good time to buy, with more stock coming onto the market.”
Consumers’ appetite for credit card borrowing, meanwhile, fell slightly in the second quarter, and is expected to remain unchanged between July and September. Demand for other unsecured products, such as overdrafts and personal loans was unchanged in the second quarter, with banks expecting demand to rise in the third quarter.
Business demand for loans rose for a second straight quarter, with lenders saying that firms wanted loans to fund mergers and acquisitions and for investment in property.
Banks added they expected a further increase in demand for corporate lending in the third quarter.
However, in the second quarter of the year the availability of credit to small and medium sized firms was unchanged, with a slight rise in credit to large companies.
According to, Homes for All, a new study by business advisory and accountancy firm BDO, the lack of new homes coming onto the market will mean a continued squeeze for first time buyers and little chance of a significant correction in the housing market as demand continues to outstrip supply.
The BDO research reveals that 95pc of board level executives at UK housebuilders think that Government targets are unachievable, with 26pc doubting that they will ever be reached.
Bosses also said that planning red tape, constrained funding options and limited land availability were the biggest barriers to building in the UK.
And despite measures introduced to help speed up the planning process, it still is the biggest cause of delay to housebuilding in the UK, according to 61% of housebuilders.
Access to funding was the second biggest challenge, as long-term finance is harder to get as development schedules increase. While larger builders can fund developments from their own resources, small and medium sized builders lack the capital to acquire land.
Housebuilders also insist that an inadequate flow of sites with planning consent is at the heart of Britain’s housing problem.
The industry does however have views on how government can provide support. Faster planning procedures and fewer regulatory hurdles are at the top of builders’ wish list for government intervention. Housebuilders also wanted to see more imaginative and effective financial solutions to fill the funding gap and incentives to free up local authority and private land, in the short term.
Keith Ferguson, real estate partner at BDO in East Anglia, said: “We’ve reached a critical point in the UK housing sector; either fix the system or face the biggest housing shortfall since the 1950s.The current government targets are a long way from being met and there is little confidence that they will be in the short term. But all is not doom and gloom.”
The majority of those interviewed think that the government’s new homes target is a longer term goal, between three to 20 years away. The outlook on future growth is also looking brighter, according to bosses, with 93% planning output growth in 2015, and 61% aiming to raise output by 10% or more in the next year.
He added: “Leaders in the housebuilding sector are telling us that they want the government to boost development in the UK. Recent changes to the planning process are a step in the right direction but whether they go far enough remains to be seen. Housebuilders are positive about the future, but there is much to be done to shape a sustainable landscape in the housing sector.”
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