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Opinion: Mortgage sector will weather coming challenges

               Greg Went HSBC 700

Back in 1954 Sir Roger Bannister became the first man to run a mile in under four minutes.

His recent passing and the subsequent celebration of his life are a stark reminder to us all as to what can be achieved through the power of positivity and perseverance. So, what do Bannister and the mortgage market both have in common? Resilience.

At the time of his endeavour, running a mile in less than four minutes was widely believed to be an impossible task and something which could never be achieved. In recent times, the mortgage market has also bared witness to many events which just ten years ago may have been perceived as unimaginable.

Gross lending in 2017 totalled an estimated £256bn according to UK Finance, levels which would have seemed unattainable in 2010 when gross lending was a mere £136.3bn. We have witnessed the re-birth of the mortgage market and a new digital age. Instead of the regulatory changes spelling disaster for our sector, as some predicted, the sector has emerged stronger. It can sometimes be easy to forget the sector’s achievements to date when we are faced with new challenges.

Rising rates

For over ten years up until last November, the UK had enjoyed a record low Bank of England Base Rate.  For many first-time buyers the increase to 0.50 per cent was the first time they had experienced a rate rise, so it is understandable this generated a lot of debate as to the impact it might have.

Our recent Beyond the Bricks The Value of Home survey however found that when it comes to finances, the majority of UK homeowners feel confident regarding the possibility of further rate rises.

Our survey of more than 10,000 people in 10 countries, examined what impact a significant rise in interest rates would have upon mortgage holders.  In the UK, only one in six – 16 per cent of homeowners – felt they would struggle, or not be able to meet their mortgage payments if they were faced with a two percentage point increase.

Only China had a lower percentage of homeowners, with 13 per cent saying they would struggle. This is reassuring given that many experts are expecting at least one more rate rise this year. The Bank of England appears to be adopting a slow and steady approach to any rate increase, meaning mortgage holders should have ample time to assess their individual circumstances.

This also creates remortgage opportunities for brokers. Remortgage business in January 2018 reached a nine-year high according to figures from UK Finance and remortgage and switcher products are currently some of the lowest we have seen over the last seven to eight years.

Affordability

Brokers are also well placed to benefit from a buoyant first-time buyer market with this type of borrower especially seeking the advice of a broker, whether digitally or through more traditional routes.

Much has been publicised about the current affordability challenges many FTBs face, especially in the South East of England and London. Rising house prices and stagnant wage growth mean that for some, finding a footing on the housing ladder is becoming increasingly difficult.

Nonetheless in many ways there has never been a better time to be a first-time buyer. 2017 saw the highest number of FTBs since 2006, with 365,000 transactions and our current FTB sentiment survey shows optimism is continuing to rise quarter on quarter.

The picture is a little different for home movers whose confidence is affected by Brexit uncertainty. Yet for potential FTBs, there is still a strong desire for homeownership and their current level of confidence at a five-year high.  Not only can FTBs benefit from no Stamp Duty and a free valuation with most lenders at present; rates are also at historic lows, with borrowers typically paying less than 2 per cent for a 90 per cent LTV deal.

The extension of the Help to Buy equity loan scheme to 2021 is also playing a pivotal role. We are finding budding FTBs are continually thinking outside of the box. In fact, according to our research, as many as 59 per cent would be open to the idea of buying with someone they do not know.

Challenges ahead

The FTB and remortgage markets may be robust but the sector still faces a number of obstacles. One thing the buoyancy of the remortgage market has done is highlight areas of concern in the conveyancing world. From an industry perspective there is a dearth of capacity for remortgage conveyancing. The key constraint I perceive won’t be finding new firms to process remortgage business but the time lag it takes to get them up to speed.

As with Bannister the biggest challenge in new achievements is often overcoming the mental barrier to redefine what is actually possible. The conveyancing market is an area where a can-do approach would benefit the sector as whole.

The buy-to-let sector has also experienced a rocky couple of years with yet more to come. The regulatory and tax changes have inevitably led to a downturn in business, though it’s important to remember that the BTL sector represents just one section of the overall mortgage market.

Ground work

Over the last couple of years, the government has been laying the foundations for a robust mortgage market and implemented a number of initiatives to ensure that it remains in liquidity.

Quantitative easing measures and the Funding for Lending Scheme have all offered lending institutions a good source of available funds and in turn competition has increased. This was demonstrated last year when following the rate increase, fixed and tracker rates essentially stayed the same.

This showed a real desire by lenders to continue supporting the housing market. A cloud of uncertainty may still loom over Brexit and what impact this will have on our sector but there is still very much a desire for homeownership in the UK and the measures the BoE and the government have implemented will ensure the sector continues to thrive.

Greg Went is head of mortgages at HSBC

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