EXECUTIVE SUMMARY UK PROPERTY MARKET
E.1 The Government believes that everyone should have access to a decent home at a price they can afford in communities where they want to live and work. Since 1997, there has been good progress towards this objective, with increasing housing supply, investment in social housing, and a stable macroeconomic environment, leading to 1.8 million more homeowners in the UK.
E.2 There are a number of ways in which people can have access to housing, and in the recent Housing Green Paper the Government set out measures to address all aspects of housing, including social housing, private rental and homeownership.1 This review focuses on the challenges of housing finance for homeowners and people wanting to become homeowners. The cost of a home is one of the largest financial commitments that people make throughout their lifetime. It is therefore vital that housing finance is widely available, affordable and allows borrowers to manage their financial risks appropriately.
E.3 Although homeownership brings many benefits, taking on a mortgage exposes individuals to risks. Risks include, for example, that house prices decline, interest rates increase or a member of the household becomes unemployed or experiences a decline in income. Financial institutions that supply mortgage finance are also exposed to risk, and these risks can spill over to the wider economy, as has been seen in the recent disruption in financial markets which was triggered by concerns about the US subprime mortgage market.
E.4 The Government and the Financial Services Authority (FSA) have done much in recent years to improve the way mortgage markets work for borrowers and mortgage lenders. There are still, however, challenges in the UK mortgage market. Given its centrality to housing affordability, the financial sector and the wider economy, the Chancellor in July 2007 announced that the Treasury would undertake a review of housing finance. The terms of reference of the review included an assessment of:
• the supply of and demand for financial instruments to allow the risks of mortgage prepayments to be hedged efficiently. This included an up to date
assessment of whether the UK Debt Management Office (DMO) could use ‘swaptions’ to manage better the Government’s debt portfolio;
• the residential asset-backed securities market, and assessing whether there are remaining obstacles or inefficiencies preventing further improvement in
liquidity allowing securitisation to become a greater source of housing finance; and
• the recent financial innovations aimed at re-packaging housing and funding related risks which tend to be aimed at consumers on higher incomes, and
assessing whether there may be important obstacles that prevent these opportunities from becoming more widely available. FULL INFORMATION
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