UK Finance, the industry body for finance and banking, is carefully monitoring the impact of recent legislative changes on the buy to let market.
It is liaising closely with the Government, the Opposition, and other key stakeholders on the other major challenges and opportunities facing the industry, UK Finance chief executive Stephen Jones told its annual lunch.
He told the audience that there are challenges ahead for residential lending. ‘In particular, we have seen a recent fall in buy to let investment, driven by recent tax and legislative changes. Our analysis shows the number of buy to let mortgages fell to 74,900 in 2017, down 27% on the previous year,’ he said.
But he explained that this impact isn’t being felt equally across the country. Investment has been more resilient in areas with higher yields, particularly in Northern England and Wales.
However in the high value, low yield regions, particularly in London and the South of England, investment is falling. ‘This risks putting upward pressure on rents in areas and supply of privately rented homes in areas where many people still can’t afford to buy their own home,’ he added.
Jones pointed out that there are also challenges due to Brexit which could have a ‘significant impact’ on the mortgage industry. ‘Any impact on business confidence and the economy will also be felt in the housing market. It could also impact on access to capital markets, an issue I know some of our members have raised,’ he explained.
‘So UK Finance is working closely with the government and the European Union to look at how to minimise disruption to firms and their customers. I gave evidence to the House of Commons Brexit Committee as part of an energetic programme of policy and advocacy work representing the interests of all types of UK Finance members including mortgage lenders,’ he told the audience.
‘We have proposed a credible model to ensure that the flow of financial services between the EU and UK can continue, including access to capital markets. And we continue to push for a transition deal that is certain so we have sufficient time to adapt to our relationship with the EU,’ he added.
The meeting heard that last year lenders helped 365,000 first time buyers get a foot on the housing ladder, the highest number in a decade and in total there are now an estimated 8.6 million owner-occupied homes in the UK with a mortgage.
Looking ahead, Jackie Bennett, director of mortgages at UK Finance, said it expects gross lending to be around £260 billion in 2018, the highest figure for a decade, and to grow modestly in 2019 to around £271 billion.
This is not back to the level of the heady days of the mid-2000s which is probably a good thing. We have a strong market which meets the needs of consumers and is probably one of the most innovative in Europe, if not the world,’ she said.
She pointed out that remortgaging figures are strong too, with the £76 billion of business last year the strongest since 2008. ‘It’s worth noting that around 94% of those remortgaging are taking out a fixed rate mortgage, suggesting that customers are locking themselves into a fixed rate in anticipation of a Bank of England base rate rise, which may or may not happen in May,’ she explained.
She also pointed out that more people are taking longer terms fixes with more five and 10 year fixes available in the market at competitive rates. So far this year nearly half of new fixed rate business has been at five years or more, compared to around a third over the last few years, she told the audience.
Arrears were at a historic low in 2017 with 89,000 people with arrears balances of 2.5% or more of their outstanding mortgage, but Bennett said UK Finance is expecting those numbers to increase this year as some households come under pressure from base rate rises and others will be affected by the changes in Support for Mortgage Interest.
‘For those who are not aware, the long standing support that people can get from the government if they are out of work or receiving pension credit, changed from a benefit to a loan earlier this month. Claimants have to sign up for the loan and, so far, out of the 90,000 eligible, the vast majority have not,’ she said.
‘UK Finance has been coordinating efforts with lenders, debt advice charities and others to try to ensure recipients are made aware of the changes and take action. We have also been liaising closely with the government. Lenders have been contacting customers and discussing options with them for making up the payments if they do not want to take out the loan,’ she added.
