The Future Is…

A report has been written for the building societies to enable them to prepare for the future.  They have tried to predict market conditions in 2020 whilst at the same time reflecting on developments over the last hundred years.  They acknowledge flexibility and mortgage term changes during the last century, but they have concluded that the standard variable rate mortgage still dominates the market just as it did then.

 

The Building Societies Association (BSA) have decided that accelerating prices over the last decade, combined with the ever changing lifestyles of potential homeowners mean the present model is no longer as effective, relevant or accessible as it once was.  The old model of people leaving school and getting a job for life and entering the housing market before age 25, often with a partner, is no longer reflective of the society we live in.

 

Young people today remain single for longer, are happy to move around the country or go abroad to work.  They also appear to delay the start of their careers for longer by extending their education or looking at new experiences travelling.  Therefore they are willing to rent, whether out of choice or necessity, rather than buy.  It is reasonable to say that first time buyers enter the market later than they once did.  This could mean they find themselves taking out shorter term mortgages or paying their mortgages after normal retirement age.

 

The Building Societies are aware that even with house prices having weakened over the last couple of years, a growing number of twenty and thirty year olds are finding it difficult to enter the housing market.  It could be that they are earning less than their parents did as they are entering the job market later.  However, the main reason for this situation is the high level of deposit which is required from the first time buyer.  The report predicts that although stabilisation of the current situation may occur, pressures will remain with the lenders into the future.  This will mean that home ownership levels will fall.

 

To try and help counter the potential fall in home ownership levels, the report suggests looking at the Islamic Home Finance model.  The BSA report believes it could benefit the mainstream housing market with a rent to own approach that underpins the Islamic structured product market.  Also, the author suggests an incentive for first time buyers to save, to help stimulate the market.  For both of the above suggestions Government intervention would be needed to facilitate and fund these markets properly.

 

Finally, the report refers to a new group of super prime borrowers who will emerge.  There will be intense competition for these customers who will likely have very good credit records, low loan to values and very secure employer prospects.  The prime mortgage customers will be able to access the market but it won’t be easy.  For none prime and sub prime, the report concludes the landscape looks bleak for the future.  It is possible that these categories for the medium term could form part of a growing rental market.

 

Overall, as you can see from the above, the BSA report veers towards negativity.  This is due to the vision of a constrained, heavily controlled market with less funding and products.  But, they could be wrong and other lenders from areas away from financial services could emerge if they see opportunities and the future may be somewhat brighter.

 

If the findings of this report are implemented it is going to become increasingly difficult to find a mortgage and therefore it may become increasingly important to have a good credit record in the future.  Consult an Independent Financial Adviser (IFA) now to help you ensure your credit record is A1.  Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.

 

Kieron Bassett CertPFS

15th June 2009