Category: housing

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More Trouble at t’ Equity Release Mill

Last week’s (4 October 2022) Daily Telegraph had a nice article by Charlotte Gifford on the impact of higher loan rates and a possible house price fall on the equity release sector:

Equity release market in trouble as rates rise and house prices wobble

‘It will all come crashing down’, warns economics professor

It’s worth a read.

In essence, higher rates and a possible house price fall are not good news for the sector. Says the econ professor “if the Bank Rate hits 6pc and house prices fall by 15pc, then the loss to the lender is … 28 percent of the loan. If house prices fall even more, by 40pc, then the loss would be … 41percent of the overall loan.”

But then again, the ER people are still pretty upbeat, so perhaps it will all go away.

We noticed a couple of flies in the ointment, however.

Continue reading “More Trouble at t’ Equity Release Mill”

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Extremely accommodating financial conditions

Source: Nationwide, Dallas Fed

There has been a pile of stuff in the media about the house price boom.  The FT is concerned that “House prices are booming in almost every major economy in the wake of the coronavirus pandemic, forging the broadest rally for more than two decades and reviving economists’ concerns over potential threats to financial stability”, and now seems to recognise that it is low interest rates to blame (“Extremely accommodating financial conditions”), although other pundits raise the usual concerns about affordability and the need to carpet green space with housing.

Continue reading “Extremely accommodating financial conditions”

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Who should pay the UK’s housing repair bill?

“After the Grenfell fire: who should pay the UK’s housing repair bill?”, Jonathan Ford, Financial Times, 30 March 2021.

The cost to make buildings safe can only yet be guessed at, but research by a parliamentary select committee suggested that it might run to more than £15bn. Under pressure from its own backbench MPs, the government has tried to appease angry homeowners. Last month, Robert Jenrick, the housing secretary, announced £3.6bn of extra cash for its Buildings Safety Fund to strip flammable cladding from buildings more than 18 metres high, taking the total to £5.1bn. Those in lower buildings could be offered long-term loans to make repairs with monthly payments capped at £50. Part of the extra money will come from a tax on the building industry designed to bring in £2bn over 10 years. A levy on high buildings has also been proposed.

Yet campaigners have decried these plans as unfair for leaving much of the burden on owners. “If you bought a car and all its wheels fell off, would you really expect to have to pay to put the problem right?” says Dean Buckner of the Leasehold Knowledge Partnership, a body that campaigns for flat residents. “It’s those who caused the problem — and that’s in great part the industry — who should be made to pay.”

[…]

The Leasehold Knowledge Partnership has now devised its own solution. It would replace the loan scheme with a levy on developers, landlords and manufacturers to raise a fund sufficient to bankroll the cost of remediation, including non-cladding defects, beyond the proposed government grants. It would include a 1-2 per cent levy on all new-build properties over the next 10 years. “Firms need a clear message that if they are part of an industry that created this problem, then they need to take ownership of it,” says Dean Buckner of the LKP.

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Could cladding scandal trigger new bank crisis?

Blimey,  reports the Daily Mail.

The building safety scandal could lead to the next banking crisis if leaseholders are forced to pay for repairs, MPs were warned yesterday.  Former Bank of England economist Dean Buckner said widespread mortgage defaults could spark a Northern Rock-style run on the banks. His dire warning came after campaigners told the Commons Housing Select Committee that ministers needed to ask them for a spreadsheet of building safety data because they ‘had no handle’ on the scandal themselves.

The Housecom hearing is on Parliament TV here. 

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Il ritorno d’Ulisse in patria

Question from Lord German in the Lords yesterday.

My Lords, I rent a flat in a block of unsafe flats in London, and I am surrounded by leaseholders who suffer greatly as a result of the turmoil and fear of the consequences. Does the Minister agree that it is now time for a comprehensive financial solution to these matters, not one that tinkers around the edges? Will he tell the House what consideration he has given to the proposal he received last week from lawyers and financial advisers on behalf of leaseholders for a special purpose vehicle that would provide the £12 billion shortfall that the Government say they are unable to meet from public funds?

Reply from Lord Greenhalgh:

My Lords, I am happy to report that I spent a considerable amount of time being briefed by Dean Buckner, who is at the heart of those proposals, the Leasehold Knowledge Partnership, and the APPG on Leasehold and Commonhold Reform. I can also say that Michael Wade has been asked by my right honourable friend to look into this matter. There was a huge amount of similarity in thinking on how to move forward. In fact, we learned a lot from the discussions. At the moment, I cannot say exactly what will be put forward. That matter is obviously above my pay grade, but we are getting there.

Blimey.

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Eumaeus Guide, 2nd Edition

Eumaeus is pleased to announce the release of the second edition of our equity release valuation report, THE EUMAEUS GUIDE TO EQUITY RELEASE VALUATION Restating the Case for a Market Consistent Approach.

The new edition involves some simplification and tidying up, including: a simpler treatment of volatility estimation; a simpler treatment of the Market Consistent approach reflecting our more recent work on option pricing (of which more later); a brief discussion of Professor Mario Wüthrich’s 2011 European Actuarial Journal article on market consistent valuation; and a discussion of the IFoA Equity Release Working Party’s magnificently flawed approach (“A Discussion Note on the Economic Valuation of Equity Release Mortgages as Part of the PRA’s Effective Value Test”) to the PRA’s Principle III (“The present value of deferred possession of a property should be less than the value of immediate possession”).

As always, we thank the many people who have contributed to it.

Please keep the comments flowing in through our contact box.

 

 

 

 

 

 

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Boomers again

An intriguing article in the FT the other day (paywall). Over-65s, i.e. the boomer generation, account for almost half of UK housing wealth.

The generation of people born before the mid 1950s own £1.7tn of residential property by value, or 46 per cent of all housing equity held by owner-occupiers, according to an analysis of official data by Savills, the estate agents. 1

Continue reading “Boomers again”

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The value of merged interests

The BBC leasehold programme will be broadcast on Moneybox today at 12:04.  The accompanying article is already available here, and has already attracted the ire of ‘property guru’ Richard Lovell on Twitter.

The ignorance of a BoE regulator is frightening … The principle of merged interests being worth more than the sum of the individual parts is well known in finance and commerce. It’s the justification for M&A! What quality regulation?

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Bits and pieces

A fair bit going on in Eumaeus world right now. More later. For the moment:

  • The Radio 4 Moneybox programme at 12:00 tomorrow will have an item on the Law Commission report on leasehold enfranchisement published on Thursday. I (DB) am featured trying to explain the no-arbitrage principle without using any technical term such as time value, discount rate etc.
  • Ian Mulheirn has a great piece out here on a recent Bank working paper by Victoria Monro and David Miles, the main conclusion of which is that, relative to incomes, the rise in house prices between 1985 and 2018 “can be more than accounted for by the decline in the real risk-free interest rate observed over the period”. Ian comments “Stop me if you’ve heard that before”. Indeed, and see our post from September 2018 on the same subject.