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					The current environment and the
outlook for 2010


Victoria Barnard
Mortgage Policy Advisor, BSA
                                Summary


•   A look back at 2009
    –   The economy
    –   House prices
    –   Lending
    –   Arrears & Possessions

•   The outlook for 2010
    –   The economy
    –   House prices
    –   Lending
    –   Regulatory landscape
    –   Arrears & Possessions

•   Conclusions
A look back at 2009
                                      A look back at 2009
                                            The economy
•   Interest Rates were cut to a historic low of 0.50% in March
    2009

•   The drop in interest rates resulted in variable rate
    borrowers seeing a reduction in mortgage interest
    payments.

•   The UK emerged from recession in Q4 2009, with the
    economy expanding by 0.3%.

•   Overall in 2009 there was a reduction of 6% off economic
    output since 2007.

•   2009 represented the worst year for GDP output growth
    since 1921
      -3.0
             -2.5
                                         -2.0
                                                                      -1.5
                                                                             -1.0
                                                                                    -0.5
                                                                                           0.0
                                                                                                 0.5
                                                                                                       1.0
                                                                                                              1.5
                                                                                                                    2.0
1989 Q1
1990 Q1
1991 Q1
1992 Q1
1993 Q1
1994 Q1
1995 Q1
1996 Q1
1997 Q1
1998 Q1
1999 Q1
2000 Q1
2001 Q1
                                            GDP (Qtr on qtr)% (LHS)



2002 Q1
               Unemployment rate (RHS)



2003 Q1
2004 Q1
2005 Q1
2006 Q1
2007 Q1
2008 Q1
2009 Q1
      0
                                 2
                                                                        4
                                                                                    6
                                                                                                 8
                                                                                                         10
                                                                                                                    12
                                                                                                                                The economy
                                                                                                                          A look back at 2009
                                   A look back at 2009
                                         The economy

•   The unemployment rate the last two quarters of 2009
    was 7.8%.

•   The number of unemployed people fell by 3,000 over Q4
    2009 to reach 2.46 million.

•   The number of people unemployed for more than 12
    months increased by 37,000 over the quarter to reach
    663,000, the highest figure since the three months to
    September 1997.
A look back at 2009
      The economy
                                         A look back at 2009
                                               House Prices


•   The average price of a typical UK property was 5.9% higher at the
    end of 2009 than at the end of 2008

•   Prices were still 12.2% lower than their peak in October 2007
                                                                                A look back at 2009
                                                                                      House Prices
30.0%
                                                                                                                  Highest forecasts
25.0%
                                                                                                                  Lowest forecasts
20.0%                                                                                                             Nationwide
15.0%

10.0%

 5.0%

 0.0%

 -5.0%

-10.0%

-15.0%

-20.0%
         1992
                1993
                       1994
                              1995
                                     1996
                                            1997
                                                   1998
                                                          1999
                                                                 2000
                                                                        2001
                                                                               2002
                                                                                      2003
                                                                                             2004
                                                                                                    2005
                                                                                                           2006
                                                                                                                   2007
                                                                                                                          2008
                                                                                                                                 2009
                                                                                                                                        2010
                                                    Nationw ide, Quarterly year on year; Forecasts compiled by HMT
                                           A look back at 2009
                                                      Lending
•   Gross lending in 2009 £143 billion, a 44% reduction on 2008

•   £22 billion lent by Building Societies compared to £45 billion in
    2008

•   Net lending for the total market was £11.5 billion in 2009,
    compared to £41.1 billion in 2008

•   Approvals for remortgaging totalled £45 billion, a little over a third
    of the £128 billion approved in 2008
                                     A look back at 2009
                                  Arrears & Possessions
•   The CML predicted 75,000 repossessions at the beginning of 2009

•   Government implemented two schemes (Mortgage Rescue and
    HMS) with the aim of reducing the number of repossessions

•   SMI criteria was amended to reduce waiting times and to extend
    the number of eligible households

•   Government, advice agencies, borrowers and the media started to
    focus on lender forbearance

•   The FSA completed the second part of their Thematic Review into
    arrears with five lenders referred for enforcement action.
                                       A look back at 2009
                                    Arrears & Possessions
•   2009 ended with 46,000 repossessions according to the CML

•   Repossessions have been concentrated to particular geo
    demographic groups

•   During 2009, repossessions have been concentrated to particular
    geo-demographic groups, such as the ‘credit hungry’ and those
    characterised by higher risk lending practices (self cert, high LTI)
   A look back at 2009
Arrears & Possessions
                                       A look back at 2009
                                    Arrears & Possessions
•   CLG published HMS data showing only 15 people had been
    placed on the scheme

•   6,000 people had been helped by equivalent lender schemes,
    overall 135,000 borrowers had an arrangement in place with their
    lender.

•   Mortgage Rescue continued to gain momentum

•   Further changes were made to the pre-action protocol to require
    lenders to notify the local authority and potential tenants of court
    hearing
The outlook for 2010
                                        The outlook for 2010
                                              The economy

•   Interest rates are expected to remain at 0.50% during 2010, with
    increases starting from early 2011

•   Overall there is likely to be zero to marginal growth in economic
    output in 2010

•   Unemployment is likely to increase in the first half of 2010 as we
    see the effects of major companies making cut backs (Corus,
    Cadbury etc)
                                       The outlook for 2010
                                              House Prices
•   House prices fell by 1% month on month in February 2010,
    according to Nationwide

•   Price decline attributed to adverse weather and the expiry of the
    stamp duty extension.

•   Nationwide predict 2010 will see no significant house price
    movements in either direction.

•   59%, of respondents to the BSA Property Tracker in March
    believed that house prices would rise over the next twelve
    months.
                                      The outlook for 2010
                                             House Prices
•   The average forecast for house prices was an increase of 2.2%
    over the next twelve months.

             Chart 2: Average 12 month property
                 price predictions over time


                                               3.0%
                                                           2.2%
                                   1.6%
                       0.6%




           -6.1%


          Mar-09      Jun-09      Sep 09      Dec-09      Mar-10
                                        The outlook for 2010
                                               House Prices
•   The three main factors seen as a barrier to property purchase are:

     –   accessing a large enough mortgage or accessing a mortgage
         at all (57%

     –   raising a deposit (56%)

     –   a lack of job security (56%)
                                                                                       The outlook for 2010
                                                                                              House Prices

Chart 4: Perceived barriers to property purchase                                                         Finding the right property
    4%          4%            3%             4%             6%           6%             7%       7%
  4%            6%            3%             5%             6%           7%            7%
   12%                        10%            9%                                                   5%     Complexity of the property buying
                 1
                1%                                                       12%           9%        9%
                              7%             8%            13%
   16%           1
                1%                                         10%          10%            1%
                                                                                       1         14%     process
                             40%            31%                          17%            20%     18%
                                                           22%                                           Legal, valuation and other
    46%       51%
                                            31%                          39%           39%      39%
                                                                                                         "official" costs
                                                          33%
                             37%                                                                         Stamp Duty costs
              54%                           49%
    70%                                                    52%                         56%      56%
                             40%                                         52%                             Concern about future falls in
                                                                                                         property prices
              42%
                             56%            58%            55%           49%                             Affordability of monthly mortgage
    47%                                                                                55%      57%
                                                                                                         repayments
              57%                                                                                        Raising a deposit
    49%                                     61%           61%
                             58%                                        58%            60%      56%
              28%                                                                                        Access to a large enough
    12%
                                                                                                         mortgage/ to a mortgage at all
Jun-08      Sep-08         Dec-08         Mar-09         Jun-09        Sep-09          Dec-09   Mar-10   Lack of job security
  Respondent s can choose t hree f actors so percent ages do not sum t o one hundred
                                                                                  The outlook for 2010
                                                                                              Lending
•   There is likely to be little growth in gross lending due to
    continued funding constraints and a weak labour market

•   Gross lending is predicted as £150 billion in 2010

                                                                UK gross lending
                                            400
                                                                                  345   363
                                            350
                Gorss lending (£ billion)




                                            300                     277 291 288
                                                                                              254
                                            250               221
                                            200         160
                                                                                                    144 150
                                            150   120
                                            100
                                            50
                                            -
                                                  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
                                          The outlook for 2010
                                          Regulatory changes
•   2010 will see a significant amount of new and amended regulation

•   Already moving forward is:
     –   Specialist Sourcebook for Building Societies
     –   Mortgage Market Review: Consultations already issued on arrears
         and approved persons
     –   Pre-action protocol
     –   Tenants Bill
     –   Homeowner Debt Protection Act (Scotland)


•   All will have cost and operational implications which will have an
    impact on the type and volume of lending from lenders.
                                    The outlook for 2010
                                  Arrears & Possessions
•   Low interest rates are helping to keep arrears and possessions
    relatively low

•   Recent data from the CML shows that the number of households
    with lower levels of payment difficulty has fallen, while the
    number with more serious arrears problems has remained
    broadly unchanged.

•   The CML predict the number of borrowers in arrears to be
    205,000, and the number of repossessions to total 53,000.

•   A number of factors will affect the numbers
     – Interest rates
     – Labour markets
     – Housing markets
                                                  Conclusions

•   Interest rates are likely to remain low for some time

•   The timing of interest rate rises will be crucial in keep
    arrears and possessions to a minimum

•   The outlook for the labour remains uncertain

•   Consumer confidence appears to be returning, with
    consumers becoming less concerned about job security

•   A return to the boom years of lending seen in 2006 are far
    off, but perhaps with good reason.

•   Increased levels of regulation and continued funding
    constraints will continue to impact on lending levels
The current environment and the
outlook for 2010


Victoria Barnard
Mortgage Policy Advisor, BSA

				
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