Anticipating the great unknown of the mortgage market

[Blog from Simon Crone, VP - Commercial at Genworth]

Related topics:  Blogs
Amy Loddington
8th August 2014
Blogs

Expectations of what the future might bring for the mortgage and housing markets are vitally important for the simple fact that people make decisions based on their anticipation of what might happen. Borrowers particularly are constantly being asked to make a judgement call on any number of factors when they take out a mortgage – think interest rates are going to rise relatively quickly in the next couple of years then opt for a fixed rate deal; think house prices are about to plateau in your local area then perhaps now is the time to sell rather than wait; think more regulatory intervention is likely in the mortgage market then now might be the time to remortgage rather than attempt to secure finance in a tighter lending environment.

All these issues are bound to weigh heavily on the minds of individuals who are looking to be active in the mortgage/housing market and, if nothing else, they will provide plenty of food for thought and ultimately might make the borrower/homeowner put off making a decision which they would normally have made in different circumstances. This clearly impacts on activity and we may well have seen the results of such pressure, plus regulatory changes such as the MMR, being brought to bear over the past few months. Certainly, approval rates have tailed off from their start-of-year highs and only now do they look like showing some improvement.

The point is that we all want to know what might happen in the future but have no real way of knowing apart from making ‘educated guesses’. At the moment, perhaps because we are on the cusp of interest rate rises and house prices (in some areas) have risen so quickly so fast, the market appears to have a real need to understand what people believe will happen next – when will rates rise, what might house prices do next? This is why we have recently had a raft of research into consumer outlook and expectation. In the last week I have seen research from Legal & General which revealed that 68% of homeowners feel interest rates will rise within the next 12 months, while Halifax’s Market Confidence Tracker found that 71% of the public expect UK house prices to rise in the next 12 months.

As stated, these expectations will undoubtedly figure in the minds of those who intend to be active in the mortgage and housing market, but perhaps particularly so for first-time buyers. The next generation of homebuyers, who are yet to dip their toes into the market, might feel somewhat lost especially given the reams of often conflicting data and research that swirls around the marketplace at any one time. One of the most asked questions of all for first-timers will be, ‘Is now a good time to buy?’ and I’m afraid the answer to that will only truly be known some years down the line with the benefit of hindsight.

What we can say is that in terms of access to high LTV mortgages – the mainstay of first-time buyer activity for many years – now is as good a time as any simply because there is much more product availability compared to recent years. Plus, we have the great unknown of what happens particularly when the Help to Buy mortgage guarantee scheme is closed at the end of 2016. Up until that point I suspect low-deposit mortgages will still be on the menu for FTBs however there is no guarantee this will be sustained post-2017 and, in fact, there is a real risk that product availability will drop to pre-HTB levels which sometimes bordered on the non-existent.

As we have been prone to say in recent months it’s our sincere hope that a HTB exit strategy can be hatched which means a steady stream of high LTV mortgages continue to be available, but at present it is hard to say what might be coming over the horizon. So, with that in mind, those looking to buy their first property should perhaps look at the here than now, rather than what might (or might not) happen in the years ahead. This is about working through the system and process right now which means securing the finance on today’s terms and hopefully finding a property they want to buy in the next few months rather than hoping for a ‘better result’ at some arbitrary point in the future.

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