The government's Budget for financial year 2014/15 favoured housing-based construction measures – the extension of Help to Buy, finance for self-builders, GBP500 million for small house building firms, and a garden city in Ebbsfleet – in addition to increased Right to Buy discounts for social housing tenants announced in January.
The two-part Help to Buy scheme will be the premier driver of demand for mortgage lending: mortgage guarantees underwritten by the government will be in place until 2016, while 20% equity loans are now scheduled to last until 2020. Both have re-opened access to mortgages to borrowers with small deposits. Mortgages of more than 95% loan-to-value accounted for 5.7% of new approvals in 2007, and loans at 90-95% loan-to-value 8.5%. These proportions had fallen to 0.5% and 1.8%, respectively in 2013.
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This policy support, in tandem with a stronger economic recovery will underpin growth in mortgage lending in the five years to 2018. Timetric forecasts that lenders will advance GBP177.5 billion in home loans in 2014, rising to GBP225 billion in 2018. Despite this 26.8% rise over the period, lending will remain below levels recorded during the economic peak of 2007 and early 2008.
Gone are the years of lending based on high-income multiples, impaired credit histories and cheaper interest-only mortgages where borrowers lacked a credible repayment plan beyond an expectation of never-ending increases in house prices.
Fast-forward to 2014 and the tighter lending conditions elicited by the fallout from the financial crisis look set to endure. In addition to lender wariness towards risky customers, the measures recommended by the Financial Conduct Authority's (FCA) Mortgage Market Review were introduced on April 26, 2014 and place borrowers' financial credentials and ability to repay under higher interest rate scenarios under greater scrutiny.
This runs the risk of dampening sentiment towards the homebuying and mortgage process, with newspaper analysis honing in on the prospect of three-hour discussions with lenders, or outright refusal for the self-employed, those who have taken out a payday loan in the 12 months preceding application, or those planning to start a family in the years following approval.
Certainly, in spite of the high unemployment and slow wage growth which characterised the 2008–2013 period, record-low interest rates and the wealth effect of rising house prices amplified the effects of government-led drivers of housing demand, and robust demand stemming from Help to Buy has raised concerns that the housing market is displaying early signs of a bubble. The IMF has voiced approval of capping loan-to-value ratios at 90%, methods used to cool property markets in Sweden and Hong Kong in recent years. However, for such a policy to be implemented by the Bank of England, fast house price growth would have to become entrenched nationwide, rather than the wide regional variations currently recorded. It is difficult to judge when – or if – price dynamics will converge, but it is perhaps even more difficult to decide who would win the policy war: government sanction of high loan-to-value loans, or central bank desire to eliminate them.
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- This report provides market analysis, information and insights into the UK mortgage lending market
- It provides a global snapshot of market size
- It analyzes drivers and the outlook for the market
- It provides information on distribution channels
- It covers deals, news and regulatory developments
- Growth in mortgage lending continued during the UK recession
- Lackluster labor market conditions were outweighed by policy stimulus
- Record-low interest rates resulted in more affordable repayments
- Help to Buy will underpin demand for mortgages over the forecast period
- The prospect of higher interest rates poses a threat to stability
- Downside risk is intensified by Mortgage Market Review (MMR) bans and policy response in the event of a housing bubble
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- Gain an understanding of the UK mortgage lending market size
- Learn about the performance of market drivers and distribution channels
- Understand the competitive landscape in terms of market share and product innovation
- Find out more on key deals and recent developments in the market
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