Home lending in UK remained resilient in 2016 but outlook for 2017 is less bullish

Mortgage lending in the UK increased towards the end of 2016 which turned out to be a year when Brexit and economic uncertainty weighed on the market.

The outlook for lending to home buyers is less bullish than it was a year ago but the market is proving to be resilient, according to the latest report from the Council of Mortgage Lenders (CML).

Overall home owners borrowed £11 billion in November 2016, up 5% month on month and 2% year on year, on a non adjusted basis.

A breakdown of the figures show that first time buyers borrowed £4.7 billion, up 4% on October and 9% on November last year while home movers borrowed £6.3 billion, up 7% on a month ago but down 5% compared to a year ago.

Remortgage activity totalled £5.8 billion, down 5% on October but up 14% compared to a year ago while landlords borrowed £3.2 billion, up 10% month on month but down 9% year on year.

‘November lending reflected stable market conditions. Overall, 2016 did not match recent years in terms of house purchase lending growth, but lending remained resilient through regulatory and political change and aspirations for home ownership remain strong in the UK,’ said Paul Smee, director general of the CML.

‘Our forecasts for 2017 may be less bullish than a year ago, as economic uncertainty weighs on the market, but we still predict 1.2 million transactions and a slight increase in gross lending to £248 billion,’ he pointed out.}

‘Buy to let lending, driven by remortgage activity, saw its strongest monthly lending level since the stamp duty changes on second properties introduced last April. Despite this, we expect buy to let lending levels in both 2016 and 2017 to prove lower than their 2015 recent peak as further tax changes take effect,’ he added.

First time buyers and remortgagors benefitted as the value and volume of loans rose annually, despite a rocky year both in political and economic terms, according to Andy Knee, chief executive of LMS.

But he predicts more turmoil for the mortgage markets in 2017 with the official move to leave the European Union happening by the end of March and rising inflation. ‘While appetite for and confidence in property will remain steady, it is highly likely that mortgage rates will rise in 2017. Higher inflation could also become the norm, putting extra pressure on household budgets. Home owners should take advantage of low rates and remortgage to secure reduced monthly repayments while they still can,’ he said.

According to Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), agrees that the market is showing signs of stability in the face of wider uncertainty and pointed out that there are clear winners and losers across different market segments.

He pointed out that first time buyers and remortgaging home owners were both able to access finance during November in greater numbers than a year earlier, buoyed by historically low rates. On the other hand, while home mover and buy to let activity enjoyed a growth spurt between October and November, both are noticeably more subdued than they were a year ago.

‘The fact that first time buyer lending grew faster year on year than first time buyer numbers, 9.3% compared to 7.9%, is a sign of the extra borrowing needed to access a market where the ONS House Price Index shows house prices rose by 6.7% annually. It is vital that the Government continues to support first time buyers now that the Help to Buy mortgage guarantee scheme has closed, as numbers still remain far below historic levels,’ he said.

He also pointed out that the buy to let market continues to be affected by the raft of changes made in 2016 and November’s spike in demand suggests some landlords saw the final quarter as a window of opportunity before a further tightening of lending criteria.

‘Looking ahead, it is vital that the UK retains a healthy private rented sector and the government should be working to support this. It is unfortunate that the result of the changes coming through is that rents will be higher and buyer deposits harder to build which in turn will do nothing to deliver higher rates of home ownership,’ he concluded.

The rush from buy to let landlords towards the end of the year was not a surprise, according to Mark Dyason, director of UK wide independent mortgage broker Edinburgh Mortgage Advice, as it has now become a lot more difficult for landlords to finance their properties, especially at higher loan to values.

‘What’s now very clear is that the absolute best rates have gone. Rates are still incredibly competitive, yes, but if people want to secure the best of what’s left, they need to act and soon. While we are seeing more remortgaging, there could be a lot more and homeowner apathy could catch many out further down the line,’ he explained.

‘The rate rise in America and rising inflation in the UK, which has hit 1.6%, mean interbank rates are rising. This in turn means product rates are rising. People are unsure how far rates could rise and so the preference is for slightly more expensive five year fixes,’ he added.

Simon Checkley, managing director at Private Finance, believes that tougher lending conditions for buy to let landlords will result in higher rents. ‘After what can only be described as an annus horribilis for the sector, lending remains subdued year on year. While lending has improved since the stamp duty changes were introduced, significant recovery in 2017 is unlikely as tightened lending criteria and tax changes begin to bite,’ he said.

‘An unfortunate side effect will be higher rents as landlords respond to rising borrowing costs. The latest ONS data shows there have already been 22 consecutive months of rent rises above 2%. This in turn could drive down first time buyer levels in the long term as borrowers struggle to save for a deposit,’ he added.