News Review: Market Outlook The UK mortgage market may well have hit the bottom


by Charles Haresnape, managing director - residential mortgages, Aldermore


the latest data to be pub- lished by the council of mortgage Lenders seems to indicate that the uK mortgage market may well have hit the bottom of the cycle. gross mortgage lending


fell by 6% in december, from £11.7bn to £11bn. this is 18% lower than december 2009 when the figure was £13.9bn and it’s the lowest december level for a decade. in the fourth quarter of last year, lending totalled £34.4bn, down from £37.9bn in quar- ter three and for the whole of 2010 gross mortgage lending was £136.5bn. again, this is the lowest annual total for a decade (in 2000 gross lending was £119.8bn). So where from here? Well,


the cmL is forecasting that gross lending will remain subdued throughout 2011 and anticipates that this year’s figures will stay at the same level as last year’s. in terms of number of housing trans- actions, that translates into approximately 900,000 deals (down from 1.6 million) and the cmL believes that the number of transaction will fall even further during 2011 to 860,000. Which means that, on average, the uK’s stock of 18 million homes will change hands at a rate of once every 20 years. the reasons for this lack-


lustre outlook are fairly obvi- ous: public sector spending cuts are hitting both jobs and the economy, consumer


confidence remains fragile and the big six banks, who dominate the mortgage mar- ket, continue to be reluctant lenders as they rebuild their balance sheets. But i don’t want to be the


bearer of purely bad news; there are bright spots on the horizon and the remortgage and buy-to-let markets are amongst them. remortgaging has been one


of the casualties of the credit crunch. Financially stretched and cautious consumers have been happy to sit tight, espe- cially the two-thirds of hom- eowners who have been en- joying the benefits of variable rate mortgages linked to the lowest Bank Base rate in liv- ing memory. there has been little incentive to remortgage and many of those who have tried have realised that getting a mortgage is not quite as easy as it was just a couple of years ago. the depressed remortgage


market has been a particu- larly bitter blow for mortgage brokers because, prior to the onset of the credit crunch, it provided their bread and but- ter business and accounted for the lion’s share of their in- come. Well, remortgaging may be about to make a comeback, as more homeowners become aware that 2011 (rather than 2012) could well be the year in which interest rates start to move upwards once again. the media is currently full


of speculation that the Bank of england may have to gradu- ally start moving interest rates up in order to keep inflation under control and consumers are only too well aware that when interest rates rise, so will their mortgage payments.


and it’s not just the media


who believe rates are going to rise. Swap rates, which are the basis on which lenders fund fixed rate mortgage deals, have been steadily rising, which means that the city is also anticipating higher rates in the future. at the time of writing, five year swaps were priced at 2.9%, up from 2%


“Remortgaging may be about to make a comeback, as more homeowners become aware that 2011 (rather than 2012) could well be the year in which in- terest rates start to move upwards once again.”


less than three months ago. Brokers have seen the direct effect of this, as a number of lenders have repriced many of their fixed rate deals upwards. Homeowners are starting


to wake-up to the fact that it may make sense to remort- gage sooner rather than later and lock into a competitively priced deal while they’re still available. if ever there was a time for brokers to consider promoting remortgages to their clients, then this is it. the buy-to-let market also


offers prospects of growth during the year ahead. unlike remortgaging, the buy-to-let market has been one of the more positive mortgage mar- ket news stories of 2010 and there are good reasons to be- lieve this trend will continue throughout 2011 and beyond. First time buyers continue


to struggle to get a foot on the first rung of the housing ladder and higher university fees are going to make that challenge even tougher in the future. renting therefore remains a popular option. What’s more, in a low interest rate environment, the yields generated on buy-to-let prop- erty are an attractive option to investors who are finding it almost impossible to achieve inflation beating returns from ordinary deposit accounts, even if they are willing to tie- up their money for four years or longer. our own research at al-


dermore also indicates that mortgage brokers see both buy-to-let and remortgaging as growth markers during 2011. Just prior to christmas we commissioned indepen- dent research so that we could understand how brokers see the future. Just over half the brokers questioned said they expect the market to remain static this year, with 41% say- ing they believe demand for mortgages will increase. they also said the greatest demand would be for buy-to-let mort- gages, with remortaging also being on the increase. they say the first-time buyer mar- ket will be the slowest to re- cover. 2011 is, therefore, not go-


ing to be a year of significant change, but it may well be one where brokers see an upturn in both remortgage and buy to let business. i believe the mortgage market is now at the turning point and, although, it will be several years before the market recovers to pre-credit crunch levels, there are very good reasons to be optimistic about the future.


mortgage introducer FEBRUARY 2011 19


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