Mortgage lending growth set to continue in UK in 2018 and 2019 but faces challenges
Growth in mortgage lending in the UK is forecast to rise in 2018 for an eighth year in a row to reach its highest level since 2007 and to continue doing so into 2019 despite Brexit uncertainties.
However, despite the best performance for a decade, the mortgage market continues to be challenged by a combination of a shortage of properties, very low levels of turnover and obstacles to both first time buyers and second steppers, according to the fifth annual market review from the Intermediary Mortgage Lenders Association (IMLA).
The report suggests that gross mortgage lending will reach £265 billion with net mortgage lending of £47 billion and remortgage activity will continue to be more buoyant than lending for house purchase, with total remortgaging reaching £94 billion, up 4.4% to reach 35.5% of total lending.
It also forecasts that gross buy to let lending will recover in 2018 and 2019 despite the adverse tax changes for landlords. This not only reflects continued strong remortgage activity but an improvement in house purchase lending brought about by a higher level of churn in the market.
Lending via intermediaries will continue to increase its share of lending, rising to £158 billion this year and £164 billion in 2019, a share of 72.2% compared to 71.3% in 2017, it adds.
The IMLA’s analysis shows that the proportion of funding for new house purchases that came via mortgages fell from 52% in 2006 to 41% in 2016, with only a slight uptick to 41.5% in 2017.
It points out that the aggregate loan to value (LTV) ratio of the housing market has now fallen to below pre-financial crisis levels at 26%, as home owners’ increasing equity reduces the role of mortgage debt in the overall housing market.
These trends have been influenced by the changing face of the UK home owner in recent years, whose average age has increased from 52 in 1996 to 57 in 2016. The report explains that this increase is far more rapid than the rate of ageing across the UK population as a whole. In 2016 some 76% of all owner occupiers were aged 45 or above, compared to 62% in 1996.
Furthermore, an increasing concentration of home ownership among older people, many of whom have paid off their mortgages, has translated into a historic low level of housing turnover. The average UK household now moves once every 19.2 years, compared to once every 7.4 years when housing transactions peaked in 1988.
This increase in overall housing equity among older home owners has reduced dependence on borrowing. New mortgages made up just 10.6% of the total stock of mortgages in 2017, less than half 2003’s peak of 24.2%.
The number of first time buyers has increased in recent years to reach 366,000 in 2017, buoyed by factors including cash inheritances, the Bank of Mum and Dad helping to supplement deposits and Government schemes such as Help to Buy, which have helped more aspiring home owners make their first step onto the ladder.
However, home owners looking to make subsequent moves are feeling the effects of an illiquid market. Despite 377,200 second steppers in 2017, this overall number is down 42% since 2007, as many struggle to meet stricter mortgage affordability criteria on larger homes, despite any price appreciation on their first home and equity gains as a result.
‘While the mortgage market currently appears resilient, it is clear that a number of structural factors have been changing our perceptions of what normal looks like. We are witnessing a step change in the market, as the shifting demographics of home ownership and the housing supply shortage create a structural break with what has been the norm,’ said Kate Davies, IMLA executive director.
‘Despite the recovery of the housing market and the availability of mortgage finance since the last recession, stricter affordability rules are limiting activity by those who would otherwise be highly leveraged. Transactions levels have fallen and there is evidence of more cash being injected into home purchase. People are moving less often, whether by choice or constraint,’ she explained.
‘Increased housing wealth can benefit older homeowners relying on a buoyant property market to help fund their retirements, along with first time buyers who can access the Bank of Mum and Dad for help towards a deposit. But a chronic housing supply shortage is contributing to an increasingly illiquid market. Home movers in particular face a number of hurdles including high house prices relative to earnings, stricter mortgage affordability criteria and a lack of suitable home, holding back housing turnover and transaction volumes,’ she pointed out.
She believes that it is important that the Government now recognises the demographic and socio-economic changes that have influenced the direction and makeup of the housing market.
‘Whilst home ownership remains the ultimate goal for many, there will be significant numbers of people who will choose or need to rent at some point in their lives. The market needs to work for everyone and Government, lenders and the housing industry should work together to adopt new approaches that can increase the supply of homes suitable for all ages and tenures,’ she added.