The Bigger Issue
2012: Europe, regulation Are we in for another flat as a pancake year in the mortgage market?
Flat as a pancake, moribund, unexciting and dull. Am I being optimistic about the mortgage market in 2012? Given all the Eurozone gloom, exaggerated by newspaper headlines, maybe I am?
On balance I believe the mortgage market will continue much as it has done this year. While there are signs of an increased number and range of affordable mortgage deals especially for first-time buyers, other factors are exerting a negative influence. High unemployment continues to be the biggest negative issue and the fear of unemployment, which extends to many more than those who actually become unemployed, is pervasive. This kills off many potential plans to buy a first home or purchase a bigger one.
Another negative factor will be the restoration of the lower end stamp duty next year. While this may result in a spike in demand for purchase in the first quarter, there is likely to be a big lull in the months after its restoration. This will compound the dearth of housing transactions in the middle of the year, especially at the bottom end of the market (which is so important for the health of the market as a whole).
While the Olympics may generate a feel good factor in the summer I do not see this as having any significant impact on the housing market. While I foresee very little or no growth in mortgages for house purchases, the more sustainable trend to remortgage will continue. With another recession pending, the benefit of saving potentially hundreds of pounds annually on a better mortgage deal is both significant and important. But in terms of housing market transactions and the overall total value of mortgage balances any extra remortgage activity will have little effect.
Most importantly I see more initiatives to incentivise lenders to
offer high LTV products to first-time buyers. As we get to the end of next year I believe we will see some light at the end of the gloomy tunnel. In my view interest rates will remain low and the mortgage funding market will continue to steadily improve. This will help support improved mortgage availability.
John Wriglesworth, managing director, Wriglesworth
Let’s assume that the Euro doesn’t implode and that the Germans and the French manage to calm the world’s jitters, my take on the UK mortgage market is that it will be very challenging but for some people it will be an opportunity in heavy disguise. At a macro level the cost of mortgages is going to increase as funding, both retail and wholesale continue to be hard to come by. Bank base rate staying flat might hold rates for many existing mortgage borrowers but new borrowers will need to think carefully about what type of mortgage to go for. Libor is tracking upwards and at the end of 2011 was at 1.06% so variable rates relative to fixed rates are starting to look increasingly expensive. 2-year swaps however, are down at the moment at around 1.30% so I expect to see lots of fixed rates in Q1. If I were borrowing now I would opt for the best fixed rate I could get. I am expecting overall mortgage volumes to be similar to 2011 at around £130-135bn but the threat of direct lenders on the intermediaries’ share of the mortgage market is becoming more intense. In 2007 intermediaries wrote 62% of all mortgages but this had declined to just 47% in Q3 2011, I expect AMI and the mortgage networks to start a fight back to ensure that this decline does not continue. More lenders will eye up the buy-to-let market with a view to maintaining their margins which are coming under increasing pressure from the mini price war in low loan to value prime and I expect others to follow Santander’s recent move into buy-to-let.
The private rental sector will increase relative to home ownership, further driving up rental yields and due to a chronic shortage of suitable properties landlords will continue to increase their portfolios to maximise this opportunity. This will push up demand for buy-to-let mortgages as well as short-term lending, which will continue to grow in popularity for both lenders and brokers. If rental demand keeps its current pace this could be a very dynamic market and possibly the highlight.
Alan Cleary, managing director, Precise Mortgages
Our experts have had their say, now it’s your turn to have yours. Visit
www.mortgageintroducer.com and vote for the expert you think makes most 24 mortgagE introducEr JANUARY 2012
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