Brexit and rate cut great news for borrowers?
Up until the surprise EU referendum result, the mortgage sector was settling into a pattern of encouraging new growth and innovation.
Lending figures were consistent for the most part, with the exception of seasonal adjustments and of course the Spring spike due to landlords rushing to beat the stamp duty hike. So a month after the Brexit vote, where does the market stand?
I think it is still too early to tell definitively, but everything indicates that the sector is continuing to make good progress, in spite of what some doom-mongers will have you believe.
It is, of course, easy to speculate. But in reality no-one can accurately predict the future. At best, only educated guesses can be made, based on available evidence.
And as I write this, the monetary policy committee (MPC), have decided to reduce the Bank of England (BoE) base rate to a record 0.25 per cent – as many economists predicted in July, following governor, Mark Carney’s, broad earlier hint.
On the face of it, that’s great news for borrowers. We now await the response from lenders. Could lending practices be reigned-in, making it more difficult for consumers to obtain a loan?
Deciding how the mortgage and housing market will re-shape itself in the wake of Brexit and the interest cut is impossible to predict right now, especially as many buyers brought forward their decisions to purchase ahead of the stamp duty changes.
That being said, there are plenty of positives for the adviser community. Whilst the vote and upcoming negotiations to ensure ‘Brexit means Brexit’ are causing some uncertainty, demand for property is, and will remain high.
There is already an enormous shortage of housing in the UK and aspirations of owning a home are still paramount on the vast majority of peoples’ minds. However, the Construction Products Association (CPA), predict a slowdown in growth for the construction industry, which indicates that any hoped-for increase in housing stock is not happening soon.
One thing is for certain though: advisers will be busy, as the new record-low interest rate will make buying a home more affordable.
In addition, there will be no shortage of funds to lend responsibly, after Mr Carney’s recent announcement of a potential £150bn injection into the economy.
People currently on tracker rates will benefit immediately, and others will be seeking advice to take advantage of cheaper interest rates, as lenders continue to battle over business. The re-mortgage market could be a hive of activity, regardless of the direction of house prices.
On the other hand, if the base rate was to be increased in the future to bring inflation under control, this may also prompt many existing mortgage holders to seek advice.
In this battle for business, lenders are innovating like never before. ‘Intergenerational’ mortgages and equity-release are starting to become common terms in the profession. New products continue to be launched, such as the range of new 10-year fixed-rate deals. And lending criteria carry on being tweaked to cater for borrowers’ more intricate needs, such as borrowing in later life, which is starting to become less difficult as lenders remove or extend maximum age limits.
So as things continue to unfold, let’s allow ourselves to be cautiously optimistic? Keeping consumers at the heart of what we do, lending responsibly, and of course protecting what matters to our clients.
Lee Travis, head of professional development, Society of Mortgage Professionals