The doom merchants are filling column inches with forecasts that would have us all believe that this is the year the housing market will grind to a halt, that first-time buyers are being squeezed out by greedy buy-to-let investors and that interest rates will climb steeply.
Of course they might be right, but it has been a long time since any such disasters hit our market. So let’s take a look at the facts.
The buy-to-let sector seems to be healthy and demand is strong, fuelled by an influx of immigrants which looks set to continue as long as Labour is in power. The student population is at an all-time high, divorces and separations continue to increase the number of single occupancy dwellings and first-timers are renting for longer.
The adverse market is a dead cert for growth this year. The two interest rate rises in 2006 will put some borrowers under pressure which will increase the number of people who have blemishes on their credit records. Bankruptcies and individual voluntary arrangements were also on the up in 2006, again filtering those borrowers into the adverse market in 2007.
This year will be tough for mainstream lenders as they continue to deal with cutthroat competition. The sub-base rate deals being sold over the past two or three years will be maturing this year and customers will face payment shocks.
Lenders’ retention policies will become more aggressive to try and control the churn. Some brokers will fall for the proc fee approach, not realising that they are making the gross lending market shrink and in the long run could be doing themselves out of jobs.
The new entrants of 2006 are no longer new entrants. They will have to prove that they are bringing something extra to the market to grab enough market share to make a profit. The extra competition they bring to the market will benefit brokers and customers in areas such as product innovation, technological advance and improved service.
The market will in general will have another strong year and will probably end up somewhere between 310bn and 330bn. The big balance sheet lenders will knock at least 10% off this figure as they become more desperate to retain borrowers.
At least three networks will disappear, probably as a result of being bought by bigger players. The intermediary sector will continue to take market share away from lenders’ direct to consumer propositions and the regulator will crack down on brokers and lenders abusing adverse borrowers.