Peter Curran: A year full of unknown quantities


There is no room for broker complacency as lenders become much slicker at retaining customers via online propositions

The long-running BBC programme A Question of Sport used to feature a round called ‘What happened next?’ – before the arrival of social media and 24-hour news – where teams were shown some sports footage and had to guess what unlikely occurrence had happened after the point when the clip was frozen.

It reminds me of the mortgage world we find ourselves in today, where the action feels paused while we all wait to see what happens next. Over the next few months, we will have plenty of topics to consider, including:

●    Brexit (or not)
●     The impact of stamp duty and other changes on the demand for buy-to-let (including the Bank of England’s involvement)
●     A storming first quarter for mortgage lending and applications
●     Lenders coming up with their own ideas for retention and remortgaging
●     House price growth continuing
●     Lending into retirement (or, perhaps more accurately, NOT lending into retirement, because I have yet to see any of the big players make much progress here).

It is highly likely that the first quarter of 2015 will prove the busiest and biggest quarter of the year in terms of mortgage lending. At the time of writing figures are not yet available, but
I have spoken with many lenders and all of them have had a highly active start to the year. But what will happen next? It is my guess we are set for another year of growth and a mortgage market that will march towards £240bn of gross lending. If we assume lender share will remain flat at around £70bn, this means the intermediary channel will once again take the growth.

Nothing is certain

How long this situation can continue nobody knows, but brokers should not become complacent because lenders are getting much slicker at retaining customers through online propositions – which, to be fair, are generally both fast and reasonably competitive.

I still believe that good brokers will be alert to this and be able, in most cases, to look after their customer with a better deal, although there will be times when advising the customer to stay where they are will be the right thing to do.

But what if we experience a slowdown exacerbated by pre-referendum jitters? I predict a natural reduction in demand from some buy-to-let investors, but many will remain active or continue to regard buy-to-let as the right investment for them, notwithstanding the additional stamp duty payable.

Underpinning both of these assumptions are the supply-side issues that remain by far the most important market factor.

I read recently that no fewer than 220,000 people extended or altered their home last year as an alternative to moving. This may be good news for DIY stores and local builders and tradespeople but it does not get the market moving and does not create any more housing stock.

But who can blame these homeowners? They have made the decision that extending is far more financially sensible than moving and, with stamp duty remaining the most significant lump sum alongside the deposit, this is natural.

The average house price outside London is approaching £200,000 while inside the capital it is a whopping £530,000. Even a 5 per cent deposit in London is £26,500, and it is followed by stamp duty, moving costs and the not insignificant factor of the affordability of a £500,000 mortgage. This may seem ‘normal’ in London but, given average salaries, it is a big stretch for many, especially first-time buyers.

Last year construction began on 143,500 homes in the UK. Although this figure is higher than in previous years, it is woefully short of where it needs to be to have a real impact on prices. And there are few signs that this will improve in the next couple of years. While demand continues to outstrip supply, and with no hint of that changing, it is hard to foresee a fall in house prices any time soon.