Gibraltar Government to the rescue

Part 1: Mortgages

Barclays finally announced last September that it was to end its 125 year association with Gibraltar and close its local branch. Barring some business for the very largest of customers, Barclays has essentially ceased providing mortgages into the local market.

Norwich & Peterborough Building Society announced in February 2014 that it is to close its operations at the end of this year. No more mortgages.

NatWest Gibraltar has stated that it intends to “pause from taking new business bookings until we have dealt with our significant backlogs and then fully assess the impact of the announcements on our business and our own capacity to accept additional new business,”

A Chesterton client tried this week to apply for a mortgage at one of the two remaining building societies. He was given a meeting time of two month’s hence, no available slots before.

Those who meet the requirements of the local private banks that are active in the local mortgage market: SG Hambros, Jyske Bank, and Credit Suisse, can still obtain debt finance for a local property purchase. However, the minimum requirements for opening an account at these banks are too high for many.

It was in December 2013 when the Gibraltar Government announced that it had approved the establishment of a new credit institution to be known as the Gibraltar International Bank (“GIB”). GIB intends to offer a full range of banking services including the opening of current and deposit accounts, mortgages and overdrafts, together with the issue of debit and prepaid cards. It is anticipated that GIB will open in the final quarter of 2014.

The lack of mortgage availability we currently face in Gibraltar is not a new phenomenon. The 2008 credit crunch reduced mortgage availability considerably by forcing up the amount of the deposit required by buyers. This was the key driver behind the shift of would-be purchasers into the rental sector.

Figures from the official English Housing Survey published in February 2014 showed that the number of households living in the UK private rented sector in 2012 /13 overtook those in social housing for the first time since records began in 1980. Furthermore, the proportion of homes lived in by owner-occupiers has dropped to 65% in 2013, down from 71% in 2003 and its lowest level since 1987. These falling ownership levels in the UK have been driven down by rising prices and tougher mortgage criteria.

Could that be the same structural shift as we are witnessing in Gibraltar albeit for slightly different reasons?

However, the UK Housing Survey was undertaken before the impact of the UK Government’s ‘Help to Buy’ scheme had a chance to have any impact. Under Help to Buy, the Government lends a prospective home buyer up to 20 per cent of the cost of their new-build home so a buyer needs only a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest.

Originally due to end in 2016, the Help to Buy scheme was extended in March 2014 until 2020 with an extra £6bn being allocated by the UK Government. This extension is aiming to contribute an extra 120,000 homes to the housing stock in Britain.

It is most welcome that the Gibraltar Government has come to the rescue to assist in the provision of mortgages in the local market. Perhaps not a Help to Buy scheme, but another option for purchasers and as important, a welcome competition for the existing mortgage providers, none of whom want to have market share much above 25%.

Part 2: Boosting housing supply

Property prices at the cheaper end of the Gibraltar property market have probably increased by at least 7% in the last year. The recent launch of the Government’s Mons Calpe Mews and Beach View Terraces schemes should help dampen this price growth in due course. Just under 900 flats will become available, and priority will be given to those on the Housing list, with the choice of full or co-ownership left up to the purchaser.

However, we need the private sector to play its part in the residential property sector on a wider scale. The taxpayer cannot be expected to be the sole funder of lower cost housing.

Being part of an international estate agency network, we follow the UK housing market quite closely. Chesterton, like other property specialists, published their budget wish list to the UK Government ahead of the UK Budget on 19 March 2014.

Here are some of the recommendations made by Chesterton in the UK on how to ensure a significant and rapid boost to the UK housing supply. I quote verbatim:

• Make land available to develop at below market rates in return for taking a share of any future profit made by the developer / investor

• The planning process needs further refining: the time and cost of getting a large scheme through planning needs to be reduced

• Developers should be penalised for sitting on land banks unless they can demonstrate a valid reason for doing so

Could the above UK recommendations be something which might also benefit Gibraltar?