Brian Murphy is head of lending at Mortgage Advice Bureau
The UK mortgage and housing markets turned a corner in 2013 with lending increasing significantly and house prices rising steadily, particularly in London and the South East.
The resurgence of the market can be largely attributed to the unprecedented government interventions to support the market and stimulate activity.
Funding for Lending, introduced in August 2012, delivered in terms of what it was set up to do in lowering mortgage rates. Help to Buy, an initiative not in the public domain twelve months ago, has really provided the housing market with the injection of steroids it so badly needed to move it on to the next level.
Most brokers would have seen a pick-up in business activity throughout 2012, but the market remained constrained by the lack of risk appetite and confidence that would enable lenders to move back into lending high loan-to-value mortgages.
This is evidenced, to a degree, by the fact that gross mortgage lending in the first half of 2013 was only approximately 10% higher than the first half of 2012 and much of this was in the South East.
Mortgage lending to all types of borrowers grew last year, with a particular revival in lending to first-time buyers, and this trend looks set to continue.
Help to Buy in both its Shared Equity form and latterly through the Mortgage Guarantee have once again enabled mortgage borrowers with more modest deposits to access home ownership.
The number of lenders who are now providing products to support the scheme has really ratcheted up in recent weeks providing more choice and competition for borrowers. What has also been apparent is the emergence of high loan-to-value mortgages, particularly from the Yorkshire Building Society group through its range of brands, all of which sit outside of the Help to Buy scheme.
This really demonstrates lenders’ willingness to once again compete in this sector which has been dormant for too long, and we expect others to follow suit during 2015.
A number of the more regional building societies have been active in the high loan-to-value market for several years, and as brokers we are extremely grateful for their support in this underserved sector, however, they are significantly limited in how much business they can conduct, due to operational capacity, capital constraints and BSA rules etc.
Remortgage borrowers have also been active in 2014 and although no-one is expecting rate rises in the short term, the early withdrawal of the Funding for Lending scheme funding costs for lenders may start to increase marginally, which may see rates come off their current all-time low levels.
This clearly opens up significant further remortgage opportunities in the year ahead. Forecasters, as always, have differing views on when we might see a base rate increase, with the majority now suggesting mid-2015. But several are more circumspect believing that faster economic growth and a rapidly reducing unemployment rate may allow a rise during 2014.
Rising property prices will also allow more existing borrowers the opportunity to remortgage onto attractive rates, many have been in limbo due to equity levels and some remain as mortgage prisoners – stuck with their lender because they do not have the equity required to remortgage.
Although Hep to Buy Mortgage Guarantee product parameters set out by the Government allow the scheme to be used for remortgage purposes, we believe that the only lender offering this facility at present is Aldermore. Further increases in the availability of higher loan-to-value mortgages, coupled with increases in house valuations, should improve the choices available for these borrowers.
With interest rates at all-time low levels and with rates in the future likely to only really go in one direction, it is not surprising that nine in ten borrowers who remortgaged in 2013 chose the security of a fixed rate deal.
We have also seen an increase in the proportion of borrowers in the second half of 2013 who are electing to fix for longer, and we would envisage that this trend may gain further momentum as we move further into 2014.
Predictions for average UK-wide property price increases for 2014 typically range from 5% to around 8%, but significant regional variances will remain. The latest Office for National Statistics (ONS) data suggests prices nationally rose by 5.4% in the twelve months to November 2013, but if London and the South East are excluded price rises were at a more modest 3.9%.
London and the South East are likely to see further strong price growth, particularly if instructions coming onto the market do not materially pick up.
The early curtailment of the Funding for Lending Scheme (for mortgages) demonstrates the Bank of England’s commitment in ensuring that the UK housing and mortgage markets continue to grow back towards their normal historical level of transactional activity, but in a controlled and sustainable manner.
Help to Buy has many critics, and if prices were to start to gather momentum in a manner that was deemed to threaten financial stability, I am sure that the BoE would have no hesitation in taking action to reign back the parameters of Help to Buy, or even signal its early curtailment.