View more on these topics

Green shoots ahoy!

Business minister Baroness Vadera did herself no favours recently when she said she could see green shoots of economic recovery. But Gary Styles, strategy, risk and economics director at Hometrack, says the green stuff could sprout in the remortgage business by the end of 2009

Producing forecasts is always fraught with difficulties but it is made far more challenging by the present uncertainties surrounding the world economy, financial sector and the likely policy responses.

This is aptly demonstrated by the dramatic shift in the Bank of England’s assessment of inflation prospects between the August and November. In the space of three months we moved from a fear of inflation to talk of deflation. Figure 2 shows the dramatic shift in inflation expectations.

Looking at this shift and quantifying the likely impact on mortgage and housing demand and supply is a challenge for anyone. But the question is too important to duck and probably too difficult to answer with much confidence.

During the course of 2008 we gradually reduced our forecasts for mortgage lending. Our decision was based on tightening mortgage supply compound-ed by a reduction in demand as consumers withdrew from the market in the face of falling house prices and bleak property forecasts .

As we all know, consumers like market stability and predictability and 2008 provided neither of these things. For consumers who could wait to buy or move the decision to temporarily leave the market was rational. For those who had to move or sell the consequences were lower achieved prices, difficult to acquire mortgages and often broken housing chains.

Thus 2008 represented the lowest level of house moving activity since 1974 and if we adjust the figures for the higher level of owner-occupied housing today the situation is more reminiscent of the 1950s. It should be no surprise that both buyers and sellers found moving house difficult.

So where are we at the start of 2009? Latest data from the Bank on mortgage lending does not make happy reading. Figure 1 summarises the sharp fall in lending that was seen in all categories during 2008.

Until Q2 2008 the remortgage market appeared to be holding up pretty well but the latest data shows lending falling in both the house purchase and the remortgaging markets.

Interestingly, this seems to be fairly uniform across the sectors, with banks and building societies seeing similar overall falls.

However, when you look closer several big banks and building societies are continuing to grow their market shares in this market by focusing on the mortgage segments they feel most comfortable with. As interest rates fall further and capital strength increases in importance it will be the lenders with the strongest balance sheets and market insight that will win through.

If the global economy shows some stability in the next six months and rises in unemployment remain contained there is no reason why remortgage lending should not see some green shoots of recovery by the end of the year.

Key to this will be leadership from larger players to restore confidence in the market and encourage sustainable pricing in the medium term. We have seen a big structural shift in the market towards lower risk lending and it will be from this bedrock that the lending market will recover.

The house purchase market looks set to remain in the doldrums for the next 18 months as house prices continue to fall and repossessions rise sharply.

The transformation of the mortgage sector in the past 18 months from a vibrant and innovative market to a risk-adverse one has been breathtaking. I doubt any scenarios being looked at two years ago would have shown such a huge move in such a short period. It is for this reason that there is the potential for the market to overshoot before returning to a more sustainable long-term path.

We will not see lending return to 2007 levels but we can expect lending to return to sufficient levels to enable customers to move house when they need to and to release equity from their properties when appropriate. Let’s hope 2009 marks the start of the turnaround we all want to see.


AIFA calls for probe into FSA’s spending

The Association of Independent Financial Advisers is calling on the National Audit Office to look into whether the Financial Services Authority offers value for money.

Stay cool on the high street

Julien Holmes, managing director of Crown Mortgage Management, looks at what is happening on the high street and says the demise of some well known brands is no cause for general alarm

Network fees could treble, warns AMI

Robert Sinclair, director of the Association of Mortgage Intermediaries has warned that some networks will see their Financial Services Authority fees treble and could be forced to hike member fees to meet the cost.


News and expert analysis straight to your inbox

Sign up