Mark Bogard has expressed his concerns over industry-wide denial when it comes to housing market performance and interest rate levels.
Estate agents are continuing to claim “record” sales volumes despite the tapering stamp duty holiday, whilst the Bank of England has insisted rising inflation is "transitory" despite it overshooting the central bank's 2 per cent target for two consecutive months.
The Family Building Society’s chief executive said: “It worries me that estate agents and everyone seem to think the housing market will keep going. And it worries me that the Bank of England is being too hopeful in relation to interest rates.”
Bogard argued it was the lenders which were ensuring a “robustness” in the current market - both in terms of housing and interest rates (which are yet to be impacted by rising inflation).
“We have a regulatory conduct obligation to make sure people take on affordable mortgages,” he explained.
“If you take a five-year fixed mortgage then you need to be able to pay it across that period. If you take less than that then we have to stress the mortgage payments and the affordability for that individual, assuming quite a significant increase in interest rates.”
These rules, laid out by the central bank, “require quite a lot of robustness to be built into the individual affordability calculation for a borrower”, Bogard said.
Bogard's pleaded for “an integrated housing market”. He said: “You need some stability of housing ministers and thinking, and you need the whole thing to be integrated on the supply and demand. And we just haven’t seen that.”
Bogard's concerns about inflation and interest rates echoed the sentiments of Richard Carter, head of fixed interest research at Quilter Cheviot, who said earlier this week the latest inflation increase, up 2.5 per cent in a year to June, “could spell trouble” if inflation expectations become ingrained.
“If higher prices seep into the labour market on a sustained basis due to labour shortages, we could see sustained inflationary pressures.
“Likewise, if inflation expectations become ingrained among consumers and producers, this could spell trouble. It is in this situation that the Bank of England will be compelled to act swiftly to remove the inflationary pressures,” he said.
As for the housing market, signs of a dwindling market began in April, when UK house price growth slowed for the first time since the implementation of the stamp duty break in July.
Between March and April, the Office of National Statistics’ house price index showed average prices on a seasonally adjusted basis fell by 2.2 per cent.
It has since evened out, but the dip prompted Rob Barnard, Masthaven Bank’s intermediaries director to note the reality - which he said was “that the figures mask an underlying fragility”.
He added government initiatives “have been effective at fuelling much of the activity in the property market”, despite intermittent lockdowns and economic uncertainty.
Bogard recalled conversations with the Treasury, where Family BS “discovered the lady responsible for policy advice on mortgages at the Treasury didn’t have a mortgage”.
“We invited her down to our office so she could better understand the underwriting process,” he said. “It’s sort of like chipping away to make a sculpture. Lots of people have to chip away, but you can get there and you can influence the way people think.”
Previously a Barclays employee, Bogard found it hard to be heard by the government. But now, with a mutual firm behind, he said “they’re [politicians] actually interested in what you think”.
ruby.hinchliffe@ft.com
