Home lending down sharply year on year on UK, but due to stamp duty rush in 2016

Gross mortgage lending in the UK reached £21.4 billion in March, up 19% from the previous month but 19% lower than a year ago, the latest data shows.

However, the Council of Mortgage Lenders pointed out that the sharp fall in year on year lending was expected as March last year saw significant rises in activity as borrowers rushed to beat the introduction of an extra 3% rate of stamp duty on additional homes.

Gross mortgage lending for the first quarter of 2017 was therefore an estimated £59.1 billion, down 4% decrease on the fourth quarter of last year and a 6% decrease on the £63 billion lent in the first quarter of 2016.

‘Mortgage lending appears to be in neutral gear. Our gross estimate for March is £21.4 billion and this is broadly in line with average monthly lending over the past year. Within this aggregate level, there has been a shift towards first time buyer and remortgage customers, away from home movers and buy to let landlords,’ said CML senior economist Mohammad Jamei.

‘We expect this profile to continue over the short term, as low mortgage rates encourage existing borrowers to remortgage and government schemes help first time buyers. We do not expect any marked effect from the General Election,’ he added.

But Mark Dyason, director of UK wide independent mortgage broker, Edinburgh Mortgage Advice, believes there is substantial pent up demand from first time buyers.

‘For so long landlords have held all the cards but with the various tax changes applied to buy to let first time buyers are firmly in the driving seat. With people increasingly wary of rate rises, remortgage levels also remain high. Inflationary pressure to come means the first rate rise in a long time may no longer be too far off,’ he said.

He thinks that Brexit related uncertainty continues to affect the market with would-be movers putting of any decision and also he does believe that the General Election could have an effect in terms of even more conservatism in the months ahead.

‘Dire supply levels are also damaging demand. There’s very little on the market and people aren’t in a hurry to buy homes they sense are languishing rather than electrifying. At the high end of the market there has been an influx of cash buyers over the past nine months given the weakness of the Pound. But with Sterling seemingly in bounce back mode, we may see this trend tail off,’ he explained.

‘The irony is that the overall neutral market may be good news for the consumer as lenders will miss their targets and so drop rates to make their products look more attractive,’ he added.

According to John Eastgate, sales and marketing director of OneSavings Bank, while mortgage activity may have dipped in the first quarter and the forthcoming election could add some complexity to the year, the last few years have demonstrated very clearly that the mortgage market can negotiate the even the trickiest political landscapes.

‘With interest rates looking set fair to stay low, relatively strong levels of demand will persist. However, long term constraints still provide a note of caution. Demand still outweighs supply, adding pressure to the purchase market. If we don’t see supply increase, then affordability stretch will remain the stumbling block for prospective buyers,’ he explained.

The coming months may tell an entirely different story for the housing market, according to John Goodall, chief executive officer of buy to let specialist Landbay. ‘Following the recent changes to buy to let tax relief and the introduction of tighter underwriting criteria, it is becoming even more complicated for aspiring home owners and landlords to access the finance they need,’ he said.

‘What we now need are some firm commitments from the government to tackle the housing crisis. Positive measures aimed at encouraging the development of high quality rented properties will target the lack of supply across both sales and lettings in the housing market,’ he added.

Henry Woodcock, principal mortgage consultant at IRESS, also believes that the outlook for gross lending doesn’t look rosy. ‘In addition to the snap general election announcement, which may result in people delaying significant financial commitments in the short term, there are also a few other factors at play that might dampen mortgage activity,’ he said.

‘Although unemployment remains low at under 5%, inflation is starting to eat into wage growth and is above the Government’s 2% inflation target. The recent Royal Institution of Chartered Surveyors (RICS) monthly survey shows that stock levels are at a new record low and the number of people interested in buying a property, and the number of sales, were also stagnant in March,’ he pointed out.

‘With the prospect of a rise in the Bank of England base rate, consumers may decide to delay buying that new home or changing mortgages until the economic picture is clearer,’ he concluded.

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