Jeremy Warner's Outlook: Scarcer mortgages spell housing gloom

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The Independent Online

One hundred and twenty five per cent mortgages are already history, 100 per cent deals are fast disappearing, and according to some lenders it may soon be next to impossible to get even a 90-95 per cent mortgage.

The disappearance of these deals reflects both the funding difficulties mortgage lenders are having in wholesale markets and the generally much more risk-averse credit climate everyone now finds themselves in.

As it happens, the 125 per cent mortgage is not as crazy a top-of-the-market phenomenon as it seems. If a first-time buyer is going to take out a 100 per cent mortgage and then separately borrow another 25 per cent for furniture and fittings, in sunnier times it made sense to some lenders to try to consolidate the two and thereby gain all the buyer's business.

Still, these deals are now gone, at least until the next housing boom, with risk-control departments determined to concentrate what little funding they can get their hands on solely on low-risk, high-margin business. That largely means remortgaging existing householders with already substantial, accumulated equity.

Those who took out 100 per cent mortgages some years ago ought to be fine. House price inflation since should mean they now have a comfortable equity cushion. Yet for more recent purchasers, it is obviously a problem. As fixed-rate deals come to an end, they will be forced on to more expensively priced standard variable-rate mortgages.

That said, the numbers are probably not that big. It was largely first-time buyers or div-orcees who took out such extreme loan-to-value deals. Such buyers have been few and far between in recent years because of the growing unaffordability of housing.

Yet if the first-time buyer was scarce before, he'll now be frozen out of the market altogether. Only those with parental money or other sources of equity will be able to get mortgages. That's obviously got to be bad for house prices, notwithstanding the fact that we don't have the growing levels of unemployment usually associated with an outright crash, or at least not yet.

The big test for house prices is about to arrive. Was their ever onwards and upwards rise the result of growing prosperity and shortage of supply, as the bulls always insisted, or was it, as most of us half suspected, largely down to the abundant availability of cheap credit, an environment which now seems to be at an end?

The other big unanswered question is the degree to which rising house prices were supporting high levels of consumption through equity withdrawal and the feel-good factor. On both these questions, we are about to find out.

Tax receipt boost for the public finances

Good news at last for the Government on the public finances. After a bumper month for tax receipts, they are back on track. In fact, this only counts as good news if you think that meeting the Government's forecast of only last October that public borrowing for this financial year will hit a jaw-dropping £38bn is any kind of an achievement. As it happens, this forecast was some £4bn more than the previous one, which in turn was a lot higher than the one before that.

When he rises to the dispatch box next month for his first proper Budget speech, the Chancellor, Alistair Darling, will no doubt trot out the same old mantra as his predecessor of meeting the "golden rule" in a manner which underpins economic stability, though, courtesy of Northern Rock, he will no longer be able to boast the sustainable investment rule has also been adhered to.

Yet the bottom line is that public borrowing is really far too high for this stage of the economic cycle. Fiscal policy should be all about saving through the good times so that there's money in the bank to support the economy during the bad. Unfortunately, the Government has been practising the opposite.

In Aesop's fable, the ant works hard in the heat of the summer building his house and laying up supplies for the winter. The grasshopper thinks he's a fool, and laughs and parties through the summer months. Come the winter, the grasshopper has no food and shelter, and either dies of hunger and cold or is forced to fall back on the charity of the ant. We know who the grasshoppers are in this case, but if there are any ants left in Britain at all these days, it's hard to see them providing salvation.

Information blackout at Northern Rock

The Government is behaving in a characteristically Stalinist and unthinking fashion by attempting to exempt Northern Rock from Freedom of Information Act inquiry. In the absence of any convincing alternative explanation, it seems only reasonable to conclude that the Treasury has acted in this way because it has something to hide.

No other commercially driven organisation which is state-owned, including Royal Mail, the Tote and National Savings, carry the same exemption, nor does the excuse of commercial confidentiality carry any weight. The Government is perfectly entitled to refuse disclosure under the FIA on grounds of commercial confidentiality.

It is of course the case that privately owned companies are not required to make disclosures beyond statutory requirements either, but nor are they funded by the taxpayer. With the Rock, there is a legitimate public interest in understanding how our money is being managed and for what purposes it is being applied.

The Treasury insists there is nothing sinister about the exemption. The intention is only that the Rock be allowed to operate in the same way as any other commercially-driven bank without need to employ hundreds of lawyers to decide what information requests can be satisfied and which should be refused because of commercial confidentiality. There will be no shortage of public scrutiny from the Nat-ional Audit Office and others.

Even so, non-disclosure will only fuel the argument already being run by private-sector rivals of unfair state competition. Now that it is publicly owned, what precisely is the disclosure regime that will be applied to the Rock? Will it be the same as a plc, with regular trading updates and published accounts? Some banks are more fulsome than others in what they choose to publish. Where will Northern Rock stand? It scarcely needs saying that it will publish what the Treasury wants it to publish.

And what about the chairman, Ron Sandler. Will we be told what his business plan is to be, or how he is to be "incentivised" to achieve it? What of Granite, the shadowy offshore securitisation vehicle? Are its assets to be on or off the Government's books, and if off, is the taxpayer liable in the event of default?

The news blackout the Government seems intent on imposing on the Rock now it has been expropriated from the shareholders is a completely unacceptable state of affairs which directly contradicts the calls made by the Prime Minister and his Chancellor for greater transparency in the financial markets. While the markets face pressure for more openness and accountability, the Rock seems destined to become about as transparent as impenetrable granite.

A&L shares take another beating

Chris Rhodes, acting chief executive of Alliance & Leicester, is entitled to feel frustrated with the stock market's highly negative reaction to his annual profit statement.

He'd made a full disclosure of his sub-prime losses a while back, and there was little that was new on that front in what he had to say yesterday. Yet it's not last year's figures investors are worried about, but rather prospects going forward. These hardly look bright.

A&L is no Northern Rock, having taken steps to ensure it is fully funded through to next year. However, this funding has come at a cost, which the company puts at about £150m per annum more than in usual circumstances. With squeezed margins and little room for growth, A&L finds itself in an extremely difficult place.