Brian Murphy is head of lending at Mortgage Advice Bureau
As the mortgage market began its traditional seasonal slowdown at the end of last year a number of key trends began to emerge, and I believe these developments are likely to provide a strong indication as to how the market is likely to develop in 2012.
Continued preference for fixed-rate deals
It is a sad fact that current activity in the mortgage market in the UK remains depressed compared to the market prior to the financial crisis. And all the indicators suggest that we are unlikely to see a significant increase in total volumes in 2012. Indeed, the Council of Mortgage Lenders has said it’s expecting activity levels to fall further this year as a result of ongoing consumer concerns around unemployment and the pressure on disposable incomes.
Our own figures reflect these concerns, and we have found the number of applicants choosing a fixed rate over a variable rate deal has increased over the past 12 months. As an indication of how confident people are feeling there is a correlation between how worried people feel about their personal finances and the increase in those prepared to pay a higher rate for the privilege of guaranteeing the monthly repayments for a certain length of time.
At the end of 2010 the average percentage of fixed rate applications stood at 70.9%, but during the course of 2011 this increased to finish the year at 75.8%. With three quarters of borrowers in the UK now choosing to fix their mortgage payments it is clear that many borrowers are not confident the economic situation won’t deteriorate causing lenders to increase rates, and we see this continuing into 2012.
Increasingly competitive products in 2012
However, while the news about the wider economy has continued to be downbeat in January then, barring disaster in the European markets, this year I would actually expect to see a gradual continuation towards greater stability and confidence among lenders in the mortgage market.
Indeed, for those people who are looking for a mortgage they are likely to find greater choice and price competition among lenders than for a number of years. Our figures show the average loan to value on mortgage applications was 70.7% in 2011, but we should see the return (to a certain degree) of first-time buyers and borrowers with smaller deposits in 2012. In December we saw a growing number of lenders moving back up the risk curve and into 90%+ LTV territory – Woolwich and Nationwide both launched to 90% LTV deals before the New Year, and they have now been joined by Accord which has just launched into 90% LTV lending.
Adding weight to this argument that lenders appetite is returning, a number of building societies have said they want to boost activity levels and that their lending targets for 2012 have actually increased. As such we can expect to see more mutual brands follow the lead of Newcastle Building Society – which released a 95% LTV product earlier this month – in refreshing and re-pricing their ranges for 2012.
To a certain degree, my outlook for 2012 is framed in part by what we are doing ourselves as a business. The Mortgage Advice Bureau has identified a number of opportunities for growth this year, many of which first presented themselves late last year and are expected to come to completion in the coming months.
The mortgage industry has had a tough couple of years but there are some real opportunities for growth in 2012 for those prepared to go out and find them.