Examination of Witnesses (Questions 380-399)|
WEDNESDAY 5 DECEMBER 2001
380. But if there is actually a fairly limited
number of valuers in quite a few neighbourhoods, therefore the
valuers that are doing the valuing are doing it on behalf of a
wide range of lenders, in a sense it is the prices that those
valuers put on the property that have most impact. My guess is
that in quite a few neighbourhoods there is a very small number
of valuers who do a lot of valuations in that area.
(Ms Bennett) That is possibly true but lenders use
different valuers, lenders have their own panels of valuers.
381. The panels tend to overlap, do they not?
(Ms Bennett) It is true that they will work for a
number of lenders but, as Peter has said, in almost all areas
you will find a lender who will lend on a property.
382. You would find somebody for the properties
the Committee saw in Burnley, which looked pretty difficult to
get rid of?
(Mr Williams) That is exactly where we have got to
on things like home swaps. The problem there we have is that there
are now formally being demarcated by local authorities, central
government and quangos, areas which are deemed very high risk,
and it is clearly the case that a lender would be very foolish
to consider lending in those areas without appropriate safeguards.
Of that there is no doubt. Clearly lenders take advice from local
valuers, their staff valuers, from market trends and from all
the information they can get. It is not the case, Chairman, that,
if you like, a single valuer controls an area. Different lenders,
because it is a competitive market, will use a variety of people.
383. They do not like to disagree with each
other all that much.
(Mr Williams) I think valuation is not a science but
an art and, indeed, there are acute contradictions in terms of
price. You will find that two valuers will often give very different
384. What impacts would a major programme of
demolition in a private sector area of low demand have on lending
policies in the rest of the area?
(Mr Williams) What is striking about those areas of
low demand is that lending has already been going on in those
areas. If I use examples of places I have visited in Salford,
the issue there is that there are mortgages outstanding in those
areas so lenders have been lending in those areas. One of the
questions of demolition is how that will change it. Is the underlying
issue over-supply? I fear in some of these cases it is not a question
of over-supply but poor and failing local economies. The danger
here is you have a policy response which is housing driven when
the policy response should be economic driven. Clearance can help
but it may not itself provide the sole solution.
(Ms Bennett) It has to be part of a wider strategy
and there has to be a clear purpose behind the clearance and a
clear idea of what is going to happen after that. If it is part
of a wider strategy that would give lenders confidence in that
385. There is some evidence, certainly in Liverpool,
and I am sure it applies in other areas, that people move house
when they get better off and the economy is getting better. What
should the lender do to prevent that?
(Mr Williams) Should they prevent people moving to
386. Your point was that it was the economic
failure of the neighbourhood which led to failure in the housing
market and the point Louise is making to you is the evidence in
Liverpool is that the success at creating jobs in that area further
damaged the housing market because people, better off, chose to
move out and commute into Liverpool.
(Mr Williams) In the hands of the lender, forgive
me for not understanding the point, there is very little the lender
can do. Clearly the issue turns on the attractiveness of the area
relative to other places. People's own aspirations will drive
those choices. Home ownership at the end of the day is primarily
market driven by choice. There is very little lenders can be expected
to do about that. At the same time, clearly, turnover in an area
is a factor and that is, in a sense, something that local authorities
would need to be concerned with. There is an issue for lenders
about whether they should be engaged in wider regeneration in
those areas and that is an issue we are beginning to explore with
387. What avenues is that discussion taking?
(Mr Williams) Frustratingly, there are two competing
initiatives operating within the Government at the moment; urban
regeneration companies and housing regeneration companies. It
is not clear to us exactly how they are progressing. Certainly
neither concept has been discussed with the lending industry on
their launch and neither has been discussed with the lending industry
subsequently. We recognise that an area approach does have some
prospects. We have regularly tried to ask that we be engaged in
388. What would you have added to those discussions?
(Mr Williams) They are both interventions in housing
markets and logically, as indeed this questioning is suggesting,
those are markets in which private lenders and the private market
is significant. What we typically are finding is that a lot of
these initiatives are public sector led about the private market
without any understanding in depth of the private market. To us
that seems inadequate.
389. So what is it then that you would have
added to those discussions about the markets?
(Mr Williams) We would have brought to that some understanding
of the nature of the private market, the nature of choice, the
nature of lender behaviour, the nature of lender reactions to
initiatives that might support and sustain local markets.
390. Are there any particular areas where you
think the current policies are deficient in terms of housing companies
(Mr Williams) As I say, I think the fact that in a
sense they are making interventions about the private sector without
understanding the private market and engaging the private market
in what those interventions may mean is itself a great deficiency.
There is a risk that local authorities and others will take steps
which will make things worse (because they do not understand the
market) rather than make it better.
391. Could you give me examples of where you
think they are going down the wrong track and you could have put
(Mr Williams) The example we gave earlier of clearance.
There may be cases where clearance is being opted for as a strategy
whereas in fact the issue may be wider than that. One of the problems
lenders have is that there is a riskfor example new supply,
we have got examples of where through government agencies there
has been increased supply in some of these areas of new property
when clearly there is a surplus of existing property. If they
are not aware of that I think that is one of the things that discussions
with market professionals would have made it clearer to them that
was the position.
392. What changes would you like to see in CPO
(Ms Bennett) I think there are proposals to make CPOs
much clearer and easier to use for local authorities and I think
they have been over-restrictive in the past and it has made it
very difficult. What we would like to see is that used again as
part of a wider strategy for the area. There must be a clear purpose
to using the CPOs and a clear vision of what is going to happen
to the area after those properties have been purchased.
(Mr Williams) I think one of the problems of CPO legislation
is in many ways it is very old-fashioned now. As you know, CPOs
basically compensate the person for property. That was fine in
the 19th Century sense when probably very few mortgages would
exist in those areas. What we have now under CPO practice is that
we instantly take the person into deep negative equity. The example
of Salford is the obvious one; a person who under the CPO will
receive £8,000 for their property, they might already have
a mortgage outstanding on that property, for the sake of example,
of £24,000. That negative equity is crystallised by the compulsory
purchase order. CPO legislation now needs to reflect the fact
that we are in a predominantly home-owned society where many people
have mortgages and where the CPO can act and materially disadvantage
that household outside of anything they themselves can do.
393. Given the building society put a valuation
on it, should the building society take the risk?
(Ms Bennett) As they do, Chairman, in many circumstances.
This one is a risk which is triggered by local authority action
on the CPO and the collapse of those marketsand I take
your point as a generalityhas been so rapid and so dramatic
in a sense, even under a normal risk-based approach, that most
people have been caught out. I think that is a point you would
394. In terms of your experience of the impact
of demolition and clearance, where you have had a situation where
an entire area has been cleared and been replaced with lower density
houses, given a lot of the houses were small terraced properties
in the past, have you had any experience of follow through in
housing market terms? Have you created an entirely new paradigm
for that area or have you just got the same problems in a new
(Mr Williams) I do not think we have any substantial
experience to draw upon. Clearance has been so limited. We are
now assuming houses last many thousands of years and the rate
of clearance has been so slow. I think the figure is 2,000 properties
cleared last year. Mass clearance in the sense you have described
has not happened since the 1960s. There are examples certainly
of where there has been relatively, in those terms, large scale
clearance replaced by new units but within an existing envelope
if you like, of deteriorated property. I think in some cases that
has certainly not solved the problems. Indeed, sometimes shared
ownership has been created there and many of those units themselves
(Ms Bennett) Again it comes back to the fact it is
not necessarily just about housing, there have to be schools developed
alongside that and other infrastructure put in placetransport,
shopsin order for it to operate at normal rates again.
395. Could you tell us about the Home Swap scheme
in Salford from the point of view of lenders and how the costs
of the scheme are split between the owner, the lender and the
(Mr Williams) On the last point we are literally finding
that out now. We recognised some while ago that there is a serious
issue of real disadvantage in terms of mortgage borrowers in some
of these sites which was then going to inhibit local authority
activity in those areas because they themselves recognised that
there was a problem of pushing those people into deep negative
equity from which they could never realistically recover. That
raised questions of human rights and a whole variety of other
issues. Over the last year we have been involved in long discussions
and work with the Local Government Association, the three cities
of Liverpool, Manchester Salford, and the Department for Transport,
Local Government and the Regions, as it now is, in terms of what
could be done in those areas. Where we have ended up with is this
model of Home Swap where, in effect, the lender agrees that the
mortgage should be transferred to a new property which is sold
to the current owner in a slightly better area. So the example
would be my property is now worth £8,000, the local authority
buys it, clears it as part of the regeneration strategy, I am
given a property worth £12,000 nearby and the lender moves
the mortgage to that property. There are still substantial attendant
risks to the lender in that. The household in the current property
servicing their debt was unproblematic and in some cases that
current owner was still wishing to remain there. Some of those
current owners have been promised change over many years and it
has not been delivered. They have been moved to another area with
the promise that something will be materially better. There is
a possibility, with an issue of duty of care for lenders here,
that having agreed that move and supported the acquisition of
this £12,000 property and the mortgage attached to it that,
looking forward, that property itself could decline and that mortgage
will still be exposed and the lender under their duty of care
will have agreed to that and will themselves be exposed. Literally
over this month the very first pilot of Home Swap is being developed
in Salford. The legalities, not least in relation to District
Audit questions and the vires of local authorities to do this,
have only just been settled. They are literately going forward
to look with ten selected households at their willingness to undertake
Home Swap. We have taken 18 months to get to the point where we
may have some individual families who can contemplate this choice.
It is only at that point we will have any feedback from lenders
as to the viability of that and the costs of that and the benefits
of that. I am afraid part of my answer says I do not know because
we have not quite got there.
396. So the chance of a scheme like this being
replicated anywhere else probably we need to wait and see?
(Mr Williams) We have deliberately done this as a
pilot because we hope we can find a model that can genuinely provide
some way out of the deep difficulties faced by individuals and
local authorities. Our aim if this is a successful pilotand
we have the commitment of a number of lenders and the Council
of Mortgage Lenders itselfis to try and then roll this
out as a programme across the country.
397. Is that Salford example not a little bit
of an exception? The amazing thing is that that land is within
300 yards of the whole of the Salford Quays complex, the Lowry
Centre, what was a successful football team until fairly recently,
all of that going for it and yet that housing market has collapsed
and we have a collapse of a housing market so close to what appears
to be successful economic regeneration.
(Mr Williams) I agree with you, Chairman, this points
up we have all got a great deal to learn and it does raise cautionary
bells about the scale of this across England and other countries.
398. Does it not also suggest that if the Home
Swap works there it may be more to do with the fact that this
should have been a good housing market than to do with the nature
of the scheme?
(Mr Williams) There is very little that lenders individually
control about the housing markets. Markets are markets. The lenders
are only part of that market. There is an issue of demand and
supply underneath that which lenders are responding to. Lenders
do not control housing markets, they are actors within housing
399. You have talked about the potential of
providing lending in low demand areas and one thing you mentioned
was the possibility of using American-style "capitalised
vehicles". Can you explain to us how they work and what their
strengths and weaknesses are and which markets they would be most
effective in and whether we could use them here in the UK?
(Mr Williams) I can only give you a brief outline
of this because it is a topic that I continue to develop my knowledge
of all the time. In the United States of America basically you
have a number of quasi government agencies, they are given some
weird acronyms like Fannie Mae and Freddie Mac, which basically
Chairman: We have a slight problem, we have
got a record going down.