tony's blog

Wednesday, March 20, 2013

The Budget 2013 – the birth of a British Fannie Mae?

Well the Chancellor seems to have done well in achieving a balance with limited resources available. I’m sure a careful reading of the detail will reveal if this impression is correct or not. Very little room to manoeuvre given the deficit. Forecasts of increasing debt to GDP ratios from a current 75.9% to the mid 85% range by 2015 isn’t encouraging and with OBR reductions in both domestic and Eurozone GDP I think the Chancellor recognised that whilst he can’t throw his deficit reduction strategy out of the window he must do something to address the lack of economic  growth.
So it was interesting to see these initiatives mentioned: Funding For Lending (FLS) is due to end for drawings in January 2014 but it looks as though there may be extensions to this and also perhaps there maybe some targeting of the scheme to key risk areas such as SMEs and first time buyers although it will be interesting to see how this will be achieved without offending the Eurocrats and the State Aid Rules. Then there is the question of non-banks lenders and will they be allowed into a modified FLS? In truth, non-bank lenders are a very small proportion of the market today but it is just possible that by allowing them in the may have a disproportionate impact on key areas and much lobbying has been done to include them so we need to wait and see. I’m not surprised that the detail wasn’t mentioned today. Furious work will be going on behind the scenes as we speak.
Of mores significance to the mortgage industry will be the two schemes launched under the “Help to Buy” banner. The first is effectively an extension of the First Buy shared equity scheme aimed at all rather than just first time buyers. It looks like the Government is picking up the tab for al of this lending rather than sharing it with house builders but detailed information is scarce as I write this. The second is the modification of the New Buy scheme to give us our first “Fannie Mae” type of scheme whereby the Government is prepared to provide a guarantee for mortgage loans up to 95%. Importantly this applies to new loans, remortgages and second hand properties as well as new build. This is potential a game changing scheme providing the banks can get capital relief from the regulator. Is it a coincidence that this looks almost Canadian in its structure I wonder?
The Chancellor couldn’t resist having a go at the banks: the LIBOR fines being directed to the military should be a popular move and from a PR perspective is a mark of genius and the levy on banks will be increased for a sixth time to ensure lenders don’t benefit from a cut in corporation tax. Outside of the banking markets who will complain about this?
No change to deficit reduction focus and an attempt to stimulate growth in SMEs and the housing market make this a positive budget in my view. Time will tell. Now we just have to wait and see whether Standard and Poor’s and Fitch downgrade us.