The Council of Mortgage Lenders, which represents the vast majority of home lenders in the UK, has revised its forecast for 2017 downwards from previous expectations of a year ago.
It say that the change reflects economic uncertainties as well as new tax burdens and regulatory changes in the housing and mortgage markets but it does not expect property prices to fall.
The CML now expects gross lending of £248 billion in 2017 and £252 billion in 2018, with net lending of £30 billion in each of those years.
‘Overall, the mortgage market remains resilient but is likely to plateau rather than grow much for the next couple of years. Gross lending is likely to hover around the £250 billion mark in 2016, 2017 and 2018. Property transactions look set to drift down slightly, although we do not expect house prices to fall, and net lending seems unlikely to get above £30 billion next year,’ said CML director general Paul Smee.
He explained that while the housing market is relatively well insulated from direct Brexit effects as most activity is driven domestically, it is not immune from more generalised economic uncertainty. ‘We expect any modest strengthening in home owner lending to be rather offset by a less active house purchase market in buy to let, as both tax and regulatory changes bite on landlords,’ he pointed out.
‘Our forecasts are more pessimistic about the future than a year ago, partly relating to the economic uncertainty from the European Union referendum, but also because of tax and regulatory changes in the housing and mortgage market,’ he added.
The CML is also expecting the current weakness in the supply of homes to the market, from existing and new build, to continue. The current rate of new build properties is only expected to increase modestly, while the trend of few home owners putting properties up for sale is not expected to reverse in the current climate, given high transaction costs and weak house price inflation.
Stamp duty and regulatory changes are both likely to weigh on activity in the buy to let and the CML is forecasting that 2015 will be seen as a high watermark for buy to let house purchase activity, with 2016 weaker and the next two years also likely to be weaker.
It also forecasts that arrears and possessions will deteriorate slightly in 2017 and 2018, as the majority of borrowers cope with harsher economic conditions, resulting in forecast figures which compare favourably to the recent past.
In working out its forecasts the CML said there is more uncertainty that usual due to the timing and outcome of the negotiations surrounding the UK leaving the EU and it making calculations it has assumed a two year negotiating window from March 2017 when UK Prime Minister Theresa May has said the formal process will begin.
It expects that the UK will go through an adjustment period during the negotiations and inflation and unemployment are both expected to rise. This could reverse some of the gains in the jobs market and lead to flat or negative growth in real earnings over the next few years.
The CML forecast report also points out that first time buyers and home movers face affordability pressures and high transaction costs and relatively few properties on the market are also holding back activity.
While first time buyers have been supported somewhat by various government schemes, which have helped their numbers increase by 116% year on year since the lows of 2009, the report says that the real weakness is coming from second steppers and other home movers, whose activity continues to be subdued since the financial crisis, shown by the fact mover numbers have grown by only 44% over the same period.
The CML expects sales in 2017 to fall back to 2014/2015 levels and remain at the same level in 2018.
In the buy to let sector a lot will be determined by how landlords react to income tax changes from April. Recent CML research showed that only half of buy to let landlords felt they had at least a fairly good understanding of these changes.
The CML expects limited or slower growth in landlord’s portfolios but there could be less demand for buy to let mortgages. Over the last few years buy to let has been a big driver of net lending but the report says that given the weaker outlook for buy to let house purchases, first time buyers could make up a large portion of net lending going forward.
