Alan Cleary, managing director at Precise Mortgages, casts a critical eye over the industry
As we draw to a close on what is likely to go down in history as the year the mortgage market started its recovery I thought I would review some of the key indicators that will affect our industry in the coming year.
Without funding there is no mortgage market and just as investors were the first to react to the market crash, they are also at the front of the queue now that the worst is over.
The Funding for Lending Scheme has done what it set out to do, in that it was designed to restart the wholesale markets. Just like stabilisers on a child’s bike which are designed to give confidence to go it alone I think the withdrawal of FLS will not cause too much disruption.
On the positive side savers are likely to see a small increase in rates as competition from lenders for retail deposits intensifies.
Many people believe that you need first-time buyers in order to create movement in the housing market and whether that is strictly true or not there is no doubt that they are fuelling a large proportion of the increased activity.
Since the Government put the housing market back on the political agenda and introduced FirstBuy and Help to Buy housing transactions and the number of new properties being built have increased noticeably.
Also, there is plenty of evidence that Help to Buy 2 has restarted the higher LTV market before it has even officially launched. That would be quite an achievement and it is much better that the market takes the credit risk rather than taxpayers and hopefully the amount set aside to guarantee mortgages will not be needed.
At the peak the number of houses being bought was in excess of £1.6m per annum in 2007, this dropped to just over 800,000 in 2009. Looking back, 2010 through to 2012 was broadly flat but 2013 has reacted well to improved domestic economic data and government stimulus.
September saw the highest number of residential property transactions since 2009 and at 92,900 transactions was only 8 per cent off the peak of the market in 2007. Based on the data we should expect that property transactions will exceed £1m in 2014.
Buy to let
Buy to Let mortgages have been a strong part of the mortgage market for over a decade and normally represents 15 per cent of gross lending.
In the downturn buy-to-let mortgage transactions were effected worse than mainstream mortgages but has staged a strong recovery over the last couple of years.
Likely to be around £20bn this year and 12 per cent of gross lending, but 2014 could well get back towards 15 per cent.
I would expect to see more completions from lenders in this segment next year as the hunt for better margins and strong credit risk management make this an attractive part of the market.
Some may refer to this market as a second charge and it was almost wiped out following the downturn but has staged a remarkable recovery in 2013.
More lenders, many with very strong funding see this as a natural growth hotspot.
FCA regulation will force brokers and lenders to consider secured loans as an integral part of financial planning.
Many borrowers will be better off taking a secured loan rather than remortgaging.
There are four lenders with low cost of funds driving down pricing in this market and rates are now at a much more affordable level at around the 5.45 per cent per annum mark.
In my opinion this market has too much hype and not enough substance.
This will get rectified over the next couple of years as lenders with low cost of funds make this a much more palatable option for brokers to recommend.
Gone are the days when lenders were getting away with charging 2 per cent per month. Rates now start at 0.65 per month and may go lower.
While some may say that the market has some way to go before it gets back to normal I would say that relatively speaking 2013 was a good year for the mortgage market. Remember, just like any other market the housing market runs in cycles.
In 2014 we should see the market build on this strong momentum and barring any global shocks will be a year to remember for all the right reasons.