Lack of mortgage lending to first time buyers (FTBs) is having a major "hidden" impact on British retail and on jobs. Genworth, provider of mortgage insurance, and the British Retail Consortium (BRC), say that enabling prudent mortgage lending to FTBs will help reverse declining sales in DIY, gardening, home wares, furniture and floor coverings that accounted for £34 billion in sales last year. Trend analysis over an eight-year period (2005-2012) shows a strong relationship between lack of mortgage lending and falling sales on the high street.
Angel Mas, CEO of Genworth's mortgage insurance business in Europe, said: "A lack of lending leads to lack of productive spending that's impacting the economy and jobs. Close examination of the data we have on mortgage lending uncannily mirrors falling retail sales on the high street over the same period and this is statistically relevant. In particular, sales of DIY, gardening, home wares, furniture and floor covering products have fallen by five per cent since the start of this year and could have fallen by more than 10 per cent by the end of 2012."
He continued: "First time buyers are the lifeblood of the housing market. From an economic perspective, it's not in our best interests to disenfranchise a generation of aspiring home owners who could afford to repay their mortgages but are excluded because they can't meet a prohibitively high deposit threshold. What needs to happen – and quickly in order to stimulate the economy as well as protect jobs – is that lending to FTBs should be increased in a prudent way. Appropriate risk mitigation measures that protect lenders, such as mortgage insurance, can play a fundamental part in minimising the risks of this kind of lending to commercially acceptable levels."
Stephen Robertson, Director General, British Retail Consortium (BRC) added: "Home ownership and the availability of mortgage credit are crucial to macro-economic recovery, together with the three million jobs in the retail sector – the largest private sector employer in the UK. BRC data demonstrate just how strongly house-buying drives the sales of furnishings and homewares. Our latest figures show housing-related retail sales are the worst in over a year, confirming that renewed weakness in the housing market is having a deep impact on high street spending levels, which in turn affects jobs in retailers and suppliers. If measures announced to support construction, by relaxing planning rules, boost the housing market recovery they will also help retail sector."
Genworth and the BRC predict that the current depressed levels of mortgage lending will not only lead to more retail casualties but threaten thousands of retail jobs. These fears were confirmed by a recent poll of MPs commissioned by Genworth that explored their attitudes towards various aspects of mortgage finance and the impact it was having on the economy, where 87 per cent of MPs surveyed said that more needed to be done to help FTBs get on the housing ladder than what was being proposed (May 2012). Both Genworth and the BRC have welcomed schemes such as Funding for Lending as well as other initiatives announced this month, but it's the private sector that holds the key to kick starting recovery and first time buyers are very important in this regard.
Banks and building societies have an opportunity to acquire new customers as well as have a significant impact – more than any other measure currently being considered – to stimulate retail sales in the DIY and home improvement sector and potentially help create new job opportunities for workers in the UK.