Five key talking points from the CML annual conference
Published: 11 November 2016
The CML’s annual conference took place in London on Wednesday, bringing together – as in previous years – all the industry’s key figures, and many voices and opinions on the mortgage market and the challenges it faces.
Here are the five main talking points from the conference:
1. Kasar Ayub, of The Northview Group, won the third annual ‘rising stars’ challenge.
Around 20 industry professionals submitted ideas for our third annual “X Factor” style ‘rising stars’ competition – and four finalists presented their ideas to the conference. This year, we were after innovative ideas in response to the theme ‘Older borrowers would be better served by the mortgage industry if…’.
After voting by the audience and a judge’s panel, Kasar Ayub, a quality assurance test analyst for The Northview Group, won with his idea for mortgage products that would enable lenders to work with charities and housing associations to help older people downsize without moving home.
The other finalists in this year’s ‘rising stars’ challenge were Ben Deeley, a senior business auditor with the Yorkshire Building Society group, Claire Hodson, channel planning and reporting manager for Lloyds Banking Group, and John Houlton, product design manager for the Royal Bank of Scotland.
Under Kasar’s proposal, older people would be able to sell part of their home for occupation by someone else. For example, a three-bedroom, two-story house could be split into two separate one- or two-bedroom units. One would be occupied by the original home-owners, enabling theme to downsize, while the other could provide accommodation through the social housing sector.
We congratulate Kasar on his winning idea – and he will be setting out more details of his plan in a forthcoming News & Views article.
2. Despite market uncertainties, home-ownership remains a high priority for people in the UK.
The desire for home-ownership in the UK remains undiminished, according to research findings presented by our chief economist, Bob Pannell.
A survey commissioned by the CML in the month after the EU referendum found that 72% of adults wanted to be home-owners in two years, with 80% hoping to be in the tenure in 10 years’ time. Those findings are in line with the average from surveys we have conducted extending back for more than 30 years.
The most recent survey included those already owning their home, suggesting that owner-occupiers remain happy with their choice of tenure.
Among those who are not currently home-owners, 41% – representing more than four million households – would like to be owner-occupiers within two years’ time. Looking 10 years ahead, 60% of those who do not own their home, or more than six million households, would like to become owner-occupiers.
There is, however, a realistic perception of the barriers to this aspiration. For much of the last 50 years, the house price to earnings ratio has been steadily rising before beginning to increase even more rapidly over the last 15 years or so.
The number of first-time buyers has recovered, but remains around one-third lower than the average over the two decades preceding the credit crunch. It is also still below the 400,000 or so that demographics suggest would be a normal, healthy total.
The housing market is likely to continue to be a high profile issue, with the government continuing to prioritise the provision of new-build property, and first-time buyers. And even with the policy brakes being applied to private rented sector, there is unlikely to be a dramatic increase in rates of home-ownership, which may stabilise at a little above 60%.
3. Lenders need re-assurances from regulators over a common sense approach towards last time buyers.
The CML’s head of policy, June Deasy, outlined the challenges for lenders as the UK’s population continues to age.
Carrying debt into retirement is a relatively recent phenomenon, but more than a third of all loans currently advanced will extend beyond the borrower’s 65th birthday – and the proportion has been rising. Traditional mortgage products remain the main option for borrowers aged between 55 and 69, while take-up of lifetime mortgages is more common in those aged over 70.
Lending to older consumers presents considerable challenges, and firms would like assurances from regulators that they will not retrospectively take a negative view of sensible lending into retirement.
Over time, there will be a clearer understanding of the wider effects of pension reform. Meanwhile, the range of financial choices for older borrowers – and the provision of services to them from different providers – continue to present challenges in co-ordinating the existing advice regimes.
Looking ahead, we will continue to work with the Financial Conduct Authority (FCA), the Money Advice Service, government and others to help meet these challenges.
4. The lending industry needs to embrace innovation enthusiastically – but not uncritically.
The CML’s head of member and external relations, Sue Anderson, looked at the need for innovation in the mortgage market – and the challenges for firms and regulators. Lenders and the FCA must take a forensic approach to analysing the pros and cons of innovation, with careful scrutiny and assessment of outlier practices.
The regulator has shown strong commitment to engage with, and be open to, innovation through a range of projects and initiatives. Lenders should see this as an opportunity and increase their engagement with the regulator though this work.
Sue also reflected on historical innovation in the mortgage market, in which there were many examples of new developments delivering real consumer benefit.
Almost all borrowing, for example, was once on a standard variable rate, but the introduction of fixed-rate mortgages has helped make financial planning more certain for consumers – even in an era in which interest rates are generally much more stable. Today, around 90% of borrowers take out a mortgage with a fixed rate.
For its part, the regulator has mapped out a route based on encouraging responsible behaviour by consumers, a proper understanding of their needs and the incentivising of appropriate behaviour. Mortgage funding is now readily available, but more tightly controlled, and innovation needs to work within this context.
There are also uncertainties, in the wider economy, in bridging the gap between housing demand and supply, and in lending to vulnerable groups of consumers like older borrowers. But there is also potential for the right kind of innovation to thrive. Necessity can be the mother of invention – and many mainstream features of today’s mortgage market were innovative once.
5. A chronic shortage of housing persists – but builders are on course to deliver a million homes over the lifetime of this parliament.
It has been estimated that the UK currently has a shortage of more than a million homes – with home-ownership declining, particularly for younger people, and 1.4 million households on the waiting list for social housing.
But in his presentation, Stewart Baseley, of the Home Builders Federation (HBF), said that the construction sector was on target to deliver the government’s target of one million new homes over the lifetime on this parliament.
He said that the National Planning Policy Framework, although still too bureaucratic and costly, was now delivering permission for 275,000 homes a year and making an important contribution to increasing supply.
The sector was also benefiting from initiatives like the £3 billion home builders’ fund, the £2 billion accelerated construction fund, the promotion of brownfield land and urban regeneration – and with more expected in the chancellor’s forthcoming autumn statement.
On the demand side, the Help to Buy initiative had made a significant contribution in addressing affordability constraints.
The construction sector had also responded with 171,000 net additions to the housing stock in England in the year to April 2015. And the HBF was on course to deliver 200,000 new homes a year over the next 24 months.
Stewart did not see Brexit as a game-changer, and there were no reasons why supply and demand should not be sustained. The fundamentals remained encouraging, with a continuing acute need for housing, a pro-development policy environment, historically low interest rates, the continuing Help to Buy equity loan scheme, and the availability of funding for the construction sector.
Housing would remain at the top of the agenda, and Stewart concluded it would be up to the construction sector to maintain quality and a positive image.