BSA 2012: Mortgage market has a bleak future
Even if the overall economy recovers the revival of the mortgage market is unlikely to reach pre-crash heights according to economists at the Building Societies’ Association conference.
Robert Gardner, chief economist at Nationwide, said that mortgage market would only see a small trickle from any recovery of the nation's economy.
He said the key factors influencing the lack of growth in the mortgage market were driven by a lack of affordability due to high house prices and a struggling labour market.
Gardner said: "The house price to earnings ratio is still relatively high despite the downturn and remains above the historic long run average.
"If the economy was to recover then only a small amount of that will trickle through to the mortgage market as unemployment levels will take time to decrease."
Gardner added that pent up demand for housing would remain frustrated for some time.
He said: "Affordability will still be stretched reflecting supply constraints. The low level of transactions reflect a weak recovery and a weak labour market. House price inflation is also holding back loan sizes and thus reducing the scope for equity withdrawal.
"The extended period of low base rates will also reduce incentive for consumers to remortgage."
Nationwide's chief economist however promoted Buy-to-let as a far more resilient mortgage market sector.
He said: "Relatively low rates and higher rents are both providing strong support for buy-to-let. The sector also has more advantages over traditional residential mortgages, such as buy-to-let mortgages can be interest-only."
Jon Pain, UK head of financial services risk consulting at KPMG, said that the UK is on the precipice of a structural change of the mortgage marketplace. How the industry deals with it will be key.
He said: "There is a whole weight of regulation bearing down on the financial services industry. That weight is fundamentally driving a reshaping of the industry.
"Financial institutions, building societies and banks will all need to rethink their strategies in order to remain profitable in light of regulation. There's nothing I've seen which says that weight will be lifted. We are going to be in a deep and prolonged crisis.
"If we're lucky we'll see a 2% rate of growth."
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