Mortgage market in the UK set to reach it highest lending level since economic downturn

The mortgage market in the UK is expected to see the highest level of gross lending since before the financial crisis this year as affordability for borrowers also hits a new high.

According to a new white paper from the Intermediary Mortgage Lenders Association (IMLA) total gross mortgage lending will reach £260 billion in 2017, some 5.9% higher than the £245 billion recorded by the Council of Mortgage Lenders (CML) in 2016.

But it predicts that the remortgage sector will be the most buoyant while the buy to let mortgage market will continue to contract in 2017 before growing modestly in 2018.

Meanwhile, the IMLA expects net mortgage lending to hit £45 billion this year, which is the highest level recorded since 2007. It says that this suggests the total stock of mortgage debt will grow by 3.4% this year, slightly outpacing the growth of disposable income expected by the Office for Budget Responsibility (OBR).

The document explains that, like the broader economy, the mortgage market has been resilient in the wake of the macroeconomic uncertainty resulting from the Brexit vote.

But several different factors have contributed to the continued strength of the mortgage market. For one thing, there remains an imbalance between supply and demand within the housing market. Borrowers have also benefitted from modest rises in inflation coupled with a low Bank of England Base Rate, which have improved mortgage affordability and made consumers more relaxed about taking on greater levels of debt.

It also says that this improving affordability is illustrated by the fact that the amount borrowers spend on paying off mortgage interest is at a low. In 2016 home movers spent an average of 7.2% of their income on interest payments, while first time buyers spent an average of 9.1%.

And it adds that with the Bank of England base rate unlikely to rise soon, and the economic outlook remaining stable, these good conditions are likely to persist and contribute to continued growth in mortgage lending.

‘The mortgage market shook off uncertainty and turbulence to register another solid year in 2016, and the IMLA predicts that the market is set to do the same again in 2017. There are many factors that have contributed to the continued strength of the mortgage market and are likely to support its growth over the rest the year,’ said Peter Williams, IMLA’s executive director.

‘The market has been supported by high levels of public demand for housing from a variety of different customer profiles. Furthermore, low mortgage rates and relatively modest levels of inflation have instilled borrowers with confidence, and made them willing to take out loans for purchase,’ he explained.

Looking ahead, he said that this momentum in the market is unlikely to be derailed any time soon. ‘While the general election in June could lead to further uncertainty, and the outcome of the Brexit negotiations are still unclear, the mortgage market is in rude health and the strong fundamentals underpinning it are unlikely to change,’ Williams added.

IMLA’s paper predicts that the remortgage market will continue to be the most buoyant part of the market over the remainder of 2017 and into 2018. In total, it expects remortgage lending to reach £90 billion in 2017, which is 35% of overall lending. In 2018, remortgage lending is forecast to grow to a total of £92 billion. Over the past few years, rising housing equity and record low mortgage rates have encouraged growing numbers of borrowers to switch deals.

It acknowledges that the buy to let market has struggled under the burden of increased regulatory scrutiny over the last year, with the restriction on landlords’ mortgage interest deductibility and the 3% stamp duty surcharge both affecting its performance.

The IMLA predicts that gross buy to let lending will decline by 6% year on year to £38 billion in 2017. This decline has been driven by a fall in buy to let lending for house purchase, which the IMLA expects will fall by nearly 17% in 2017 to £12.4 billion. However, it also believes that the buy to let market has bottomed out and that lending will rise modestly to £40 billion in 2018.

While policy changes are likely to continue slowing buy to let lending for purchase, they could stimulate buy to let remortgage lending, the report points out, as the restriction on the deduction of mortgage interest will increase higher rate taxpayers’ incentive to seek out lower mortgage rates. In 2016, buy to let remortgage lending hit a record £25 billion, which represents 62% of all buy to let lending and 31% of all remortgage lending.

‘Different segments of the mortgage market had contrasting years in 2016. The remortage market performed very well, with existing borrowers eager to take advantage of rising house prices and low rates by securing a new deal. However, with lenders increasingly encouraging product transfers, it will be interesting to see if the remortgage market maintains this momentum in the long term,’ Williams explained.

‘The buy to let market suffered under the changes introduced by the Cameron Government, but ultimately demand for private rented accommodation means that lending volumes are likely to rise again in the future. While the changes have certainly made things more difficult for landlords, property remains an attractive and comparably stable investment, which will support long term growth in the sector,’ he added.


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