Why the mortgage market will bounce back: IMLA

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Despite wider macro-uncertainty, the mortgage market has proved resilient; even the BTL sector will bounce back

Our latest white paper – The new ‘normal’ – prospects for 2017: is the march back to a sustainable market back on track? – predicts that total gross mortgage lending will reach £260bn in 2017.

This will be the seventh successive year of growth since the financial crisis. Indeed, despite wider macro-uncertainty, the mortgage market has proved resilient. This momentum has largely been driven by low mortgage rates and relatively modest inflation, instilling borrowers with confidence and making them more willing to take out loans. These strong foundations are likely to withstand further uncertainty that may arise from the upcoming general election and Brexit negotiations.

For borrowers, mortgage affordability has hit a new high, measured by the proportion of income the average homebuyer spends on mortgage interest. In 2016, homeowners spent a record-low 7.2 per cent of their household income on interest, while first-time buyers spent 9.1 per cent.

Remortgage activity has been a big driver of this growth and we predict total remortgaging of £90bn this year, which equates to 35 per cent of overall gross mortgage lending. Good market conditions over the past few years have encouraged existing borrowers to remortgage despite the growing popularity of product transfers, with many keen to take advantage of growing equity and low rates.

Imla’s white paper also predicts a fall in buy-to-let lending by as much as 6 per cent year-on-year in 2017, before recovering to £40bn in 2018.

The BTL market has struggled under the burden of increased regulatory scrutiny over the past year, with the restriction on landlords’ mortgage interest deductibility and the 3 per cent stamp duty surcharge both affecting its performance.

However, we predict that the market will bounce back, with strong demand for private rental accommodation likely to cause modest rises in lending in 2018.

Peter Williams is executive director of the Intermediary Mortgage Lenders Association