Ending 2016 with a hint of positivity

I’m not entirely sure this year has provided the most positive news - which I think is what you would call an understatement – however it appears that in terms of mortgage activity we can end 2016 with a little hint of positivity. According to e.surv, mortgage approvals increased by 1.3% month-on-month, up to 64,407 in November, from 62,522 in October, although (and apologies for the somewhat downbeat comparison) in November 2015 this figure sat at over 70,000, while in February it peaked at over 72,000.

Related topics:  Finance News
Patrick Bamford
27th December 2016
patrick bamford genworth
"It is perhaps no wonder that we are seeing many err on the side of caution and opt for a long-term fix in order to have that certainty which appears to be lacking in so many areas."

It will be obvious to all mortgage market stakeholders that appetite to purchase, and therefore borrow, has been dampened significantly throughout the course of the year, and one can probably pinpoint George Osborne’s decision to increase stamp duty by 3% for additional properties at the tail end of 2015, as the start of that process. The e.surv figures do not break down those mortgage approvals but I would be mightily surprised if they did not favour remortgaging heavily as opposed to purchase mortgage approvals.

While the purchase market has been subdued for any number of reasons – a lack of housing supply, uncertainty around the future of the UK economy in a ‘Brexit’ world, tighter mortgage criteria and underwriting, the list goes on – the remortgage market has strengthened over the course of the year. One would have to say that lenders’ pricing has played a major part in this, as has the presumption from borrowers that rates are likely to rise in 2017 and now may well be the time to fix their mortgage for the long-term.

Having said that, I recently read an article which suggested that the Monetary Policy Committee were just as likely to cut Bank Base Rate in 2017 as raise it, so we can see there is also a lack of consensus in that regard. It makes the job of mortgage advisers particularly difficult when borrowers are getting conflicted information from all sides, and it is perhaps no wonder that we are seeing many err on the side of caution and opt for a long-term fix in order to have that certainty which appears to be lacking in so many areas.

Interestingly, e.surv’s own opinion on its data appears to suggest these approval numbers are weighted towards remortgaging, because it also forecasts that the vast majority of loans approved are going to those with large amounts of equity. Which does beg the question, what is the mortgage market like for those who only have small deposits and are looking to purchase for the first time? Well, not for the first time, we might say first-timers are unlikely to be figuring close to the top of the ‘most valuable borrower’ charts this Christmas.

Indeed, new research by YouGov for Aldermore appears to suggest that, because of the impending closure of Help to Buy 2, over half of those who were planning to purchase for the first time are having to change their plans. This is a significant number and, even though use of the scheme did fall off from its initial peak, it shows how important the provision of high LTV mortgages is to potential first-timers.

We’ve known this for some time, however the YouGov research re-emphasises that the biggest obstacle for those wannabe buyers is the deposit (39%) compared to a lower figure (34%) who say it’s the level of property prices. There continues to be many potential homeowners who, if they could get a big enough deposit together, would actually be paying less on their monthly mortgage than they currently pay on rent. However, it’s getting to that deposit level which remains a huge barrier, especially given the level of rents – plus if you cannot call upon the Bank of Mum and Dad or another kindly relative then reaching that deposit level can seem impossible.

This is why it’s so important that the end of Help to Buy 2 is not the end of a wider provision of high LTV loans. We have been talking to a number of HTB2 lender members and there is an appetite to continue lending in this space, although news that HSBC will no longer be offering 5% deposit loans from the start of 2017 is a significant blow. However, this doesn’t mean that other lenders can’t fill that breach and we’ve been encouraged by those lenders who see private mortgage insurance as the natural step to continue their high LTV loan supply, after taking part in the State guarantee.

At the moment it’s a case of wait and see, but I suspect there will be good news to talk about in the new year, and that those first-time buyers who might be putting their property plans on hold due to the end of HTB2, may have cause to re-evaluate, and continue putting their savings away in the knowledge there will be loans available for them. Let’s hope we can begin the new year in such positive fashion.

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