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Mortgage lending to hit 10-year high as affordability improves: IMLA

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Mortgage lending will reach the highest level for 10 years this year, a white paper from the Intermediary Mortgage Lenders Association predicts.

The paper, entitled ‘The new normal – prospects for 2017’ – predicts that gross mortgage lending will reach 260bn this year, 5.9 per cent higher than the £245bn reported by the CML for 2016.

IMLA expects net mortgage lending to hit £45bn this year, the highest level recorded since 2007 suggesting the total stock of mortgage debt will grow by 3.4 per cent this year – slightly outpacing the growth of disposable income expected by the Office for Budget Responsibility (OBR).

IMLA says that the mortgage market has been resilient in the wake of the macroeconomic uncertainty resulting from the Brexit vote.

The body says that this is due to several reasons, including the imbalance between supply and demand within the housing market.

“Borrowers have also benefitted from modest rises in inflation coupled with a low Bank of England Base Rate, which have improved mortgage affordability and made consumers more relaxed about taking on greater levels of debt,” the paper says

It says that this improving affordability is illustrated by the fact that the amount borrowers spend on paying off mortgage interest is at a low; in 2016 home movers spent an average of 7.2 per cent of their income on interest payments, while first-time buyers spent an average of 9.1 per cent. With the Bank of England Base Rate unlikely to rise soon, and the economic outlook remaining stable, these good conditions are likely to persist and contribute to continued growth in mortgage lending.

IMLA executive director Peter Williams (pictured) says: “The mortgage market shook off uncertainty and turbulence to register another solid year in 2016, and IMLA predicts that the market is set to do the same again in 2017.

“There are many factors that have contributed to the continued strength of the mortgage market and are likely to support its growth over the rest the year. The market has been supported by high levels of public demand for housing from a variety of different customer profiles. Furthermore, low mortgage rates and relatively modest levels of inflation have instilled borrowers with confidence, and made them willing to take out loans for purchase.

“Looking ahead, this momentum in the market is unlikely to be derailed any time soon. While the General Election in June could lead to further uncertainty, and the outcome of the Brexit negotiations are still unclear, the mortgage market is in rude health and the strong fundamentals underpinning it are unlikely to change.”

Remortgage and buy-to-let

The paper predicts that the remortgage market will continue to be the most buoyant part of the market over the remainder of 2017 and into 2018. In total, IMLA expects remortgage lending to reach £90bn in 2017, 35 per cent of overall lending. In 2018, remortgage lending is forecast to grow to a total of £92bn. Over the past few years, rising housing equity and record low mortgage rates have encouraged growing numbers of borrowers to switch deals.

The buy-to-let market has struggled under the burden of increased regulatory scrutiny over the last year, with the restriction on landlords’ mortgage interest deductibility and the 3 per cent Stamp Duty surcharge both affecting its performance.

IMLA predicts that gross buy-to-let lending will decline by 6 per cent year-on-year to £38bn in 2017. This decline has been driven by a fall in buy-to-let lending for house purchase, which IMLA expects will fall by nearly 17 per cent in 2017 to £12.4bn. However, IMLA believes that the buy-to-let market has bottomed out, and that lending will rise modestly to £40bn in 2018.

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