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In my opinion: Further market changes are a sure bet in 2014

2013 has seen stumulus schemes, a revamped regulator, a new BoE governor and a wider range of products. So what will happen next?

Andrew Doyle cropped for comment

It has been an interesting year for the mortgage industry. Not a moment seems to have gone by without a new development entering the mix, whilst other trends held steady and continued to shape the market’s structure. Here are a few issues that topped the charts during 2013.

10. Interest Rates

The Bank of England base rate has now been held at 0.5 per cent since March 2009, which is unprecedented. Furthermore, the Bank of England has introduced what Spencer Dale of the monetary policy committee terms “forward guidance” on the matter. It advised that it would not raise the interest rate until unemployment fell to less than 7 per cent – it currently stands at 7.7 per cent – barring signs of unmanageable inflation or overheating in the housing market. This has had a significant effect on other factors as discussed below.

9. Mortgage stability

The astoundingly low interest rates available are still having a positive effect for many mortgagors who might otherwise be struggling with their commitments. The CML confirmed that in the first six months of the year the number of possessions was the lowest it has been since the second half of 2007. The number of people in arrears of more than 2.5 per cent of the mortgage balance was the lowest it has been since near the end of 2008.

8. Mark Carney

Taking over from Mervyn King on 1 July 2013, the new Bank of England governor has been blessed with mostly good news coming out of the UK economy since that time. However, the aforementioned forward guidance has not had the effect on financial market confidence that he would have wished, and opinions remain split on new bank capital and liquidity rules. Despite this, with his established financial credentials and declaration that the Bank of England is “open for business”, the signs remain favourable that his tenure in the role will prove beneficial to the mortgage market.

7. UK Economy

This brings us to the economic picture, which has been so favourable to Carney. Figures from the ONS confirm that although the economy remains 3.3 per cent smaller than it was in 2008, economic growth has been confirmed at 1.1 per cent for the first half of the year.  This has helped to provide a solid financial base for lenders’ mortgage based activities. The Institute of Chartered Accountants in England and Wales has produced data suggesting that growth could reach 1.3 per cent in the final quarter of this year, meaning that we would be growing faster than any other western economy.

6. Funding For Lending Scheme 

The FLS allowed institutions to borrow money cheaply, which they have done to the tune of over £17.6bn so far. The aim was of course to promote lending, and whilst some sectors have not seen a lot of movement in this direction, our industry has been well supported so far. The appearance of more mortgage offers with better interest rates can be in part laid at the doorstep of FLS.

5. Help to Buy Scheme

This scheme has been the cause of much comment and debate. With the second phase of the scheme having been rolled out, it is possible to purchase a house of up to £600,000 in value and be afforded up to 20 per cent of its value as a government backed loan. This loan is interest free for the first five years, before an initial interest rate of 1.75 per cent is applied. While some have prophesised the creation of a housing bubble due to this policy, recently released information is encouraging. The government has stated that 75 per cent of applications have come from outside of London and the south-east, with an average property price of £163.000. If combined with future action to increase the supply of housing, Help to Buy may end up playing an important part in the recovery of the mortgage sector.

4. House Prices

House prices: fuel for naysayers or the return to a healthy market? All that we can be certain of is that house prices are currently rising at the fastest rate they have done in three years. Nationwide reported an annual increase in prices in October of 5.8 per cent, whereas Halifax was reporting a 6.2 per cent rise. While problems of pricing out first-time buyers can be raised, we also know that house price rises reduce the agonies of negative equity.

3. Equity Release

It’s tempting to say that this is the year that Equity Release products rose phoenix-like from the ashes of the eighties and nineties, as it finally found an appropriate nesting ground as a major tool for mortgage advisers. However, this is not the same bird as we knew before. New, innovative products such as the Hodge Lifetime Retirement Mortage (which is, I should confirm for reasons of full disclosure, serviced by Crown) have expanded the options available to prospective purchasers. We have also seen it receive discussions in the House of Lords and more coverage in the media. While not all have offered encomiums on the subject, the haze of misunderstanding has begun to be replaced with a dawning realisation that, for some, releasing equity is the right decision to make for their needs. Figures coming out of the industry suggest year by year growth in both product take-up and loan value, which Crown as the largest third party servicer of equity release mortgages can attest to.

2. The return of Securitisation

It is fair to say that securitisation has not been a massively popular option with financial institutions in the past few years. However, this has started to change in 2013. After its purchase of Oakwood, Pepper Group has made it clear that, once the right conditions are met, they will be looking at the issuance of mortgage backed securities. Yorkshire Building Society has already launched a £1.2bn securitisation, which it states will be used to fund mortgage lending. As new capital requirements hit lenders, securitisation will look increasingly attractive as a potential funding option.

1. Regulation

Like David Bowie said, it’s all about the Changes as we “turn and face” the ongoing evolution of mortgage regulation in the UK. The FSA is no more and has been replaced by the FCA and the PRA. On top of this, nearly everyone reading this will be enacting changes in preparation for the approaching MMR deadline of April 2014. We can be assured that after these changes are implemented, there will always be further guidelines to consider the next day, and we need to be ready for them.



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