"The AMI also predicts that mortgage rates may start to rise irrespective of ongoing loose monetary policy, as global political and economic uncertainty puts pressure on long-term interest rates."
2016 has been a tumultuous year, both for financial services and the wider economy. With a Trump presidency, the triggering of Article 50, and tighter mortgage affordability all on the cards for 2017, we took a look at the finance industry's predictions for the year ahead.
Slower economic growth
Slower economic growth is widely expected across the UK in 2017, as Brexit negotiations and rising inflation continue to affect Sterling.
A report released this week believes that a combination of low growth, political choices and demographic change will shrink the state and put the UK on course for a structural deficit by 2030.
The OBR also predicts economic growth to be 2.4 percentage points lower as a direct result of the decision to leave the EU.
Halifax’s housing economist, Martin Ellis, said: “Slower economic growth in 2017 is likely to result in pressure on employment with a risk of a rise in unemployment. This deterioration in the labour market, together with an expected squeeze on households’ spending power – as inflation picks up and outpaces earnings growth later in the year – is likely to curb housing demand.
One positive of slower growth, for house hunters at least, is that house price growth is expected to slow in the coming months.
Economists predict average house price growth of between 1% and 4% in 2017.
RICS predicts that house prices in the UK will see an average increase of 3% in 2017 as the number of transactions stabilises, slightly above Nationwide's prediction of 2% growth.
Robert Gardner, Nationwide’s Chief Economist, says a small gain is more likely than a decline over 2017 as a whole, "since low interest rates are expected to help underpin demand while a shortage of homes on the market will continue to provide support for house prices"
Halifax expects annual house price inflation to be somewhere between 1% and 4% by the end of 2017.
In its UK Housing Market Outlook for 2017, Halifax says the "relatively wide range" for the forecast reflects the higher than normal degree of uncertainty regarding the prospects for the UK economy next year.
It believes slower economic growth, pressure on employment and a squeeze on spending power, together with affordability constraints, will all reduce housing demand over the coming year.
The Bank of England's MPC now expects inflation to rise to the 2% target within six months - quicker than expected - after rising to 1.2% in November.
Industry experts now believe that racing inflation figures will put pressure on the Bank of England to raise rates sooner.
Richard Stone, Chief Executive of The Share Centre, said: “The Bank of England’s stance already seems to have shifted from looking at potential further cuts to the next move being upwards – the issue is just one of timing. As the year progresses with continued high employment, increased clarity over the Brexit negotiations, inflation above target, wages rising and increasing US base rates putting Sterling under further pressure, this may well be the year when the turn in the interest rate cycle takes effect – even if that first rise is just modest at 0.25%.”
Earlier this week, a Saga poll revealed that over 50s are 'optimistic' that we will see a rise in the Bank of England Base Rate by the end of 2017, typically expecting a rise to 0.75%.
Remortgagors are also anticipating a rate rise, with LMS data showing that a quarter expect interest rates to increase, with five-year fixed rate products more than doubling in popularity as a result.
The AMI also predicts that mortgage rates may start to rise irrespective of ongoing loose monetary policy, as global political and economic uncertainty puts pressure on long-term interest rates.
Despite potentially rising mortgage rates, first-time buyers could continue to see good opportunities into 2017.
Managing director of the Mortgage Hut Group, Chris Schutrups, says he remains confident that lenders will continue to offer 95% LTV mortgages after the end of the Help to Buy: mortgage guarantee scheme to stimulate the lower end of the market.
32% of total sales made were to first-time buyers in October – a 9% rise from September and the highest number since National Association of Estate Agents records began 16 years ago in 2000.
The Government has also announced further measures to help first-time buyers, including scrapping LISA exit charges in the first year and a new annual fund to to help local groups deliver affordable housing aimed at first-time buyers in response to the problem second homes can cause in reducing supply.
The Bridging market has seen steady growth over 2016, but also faces upcoming risks from Brexit and changes to the buy-to-let market.
The CML recently revised down its forecasts for growth for next year and writing in Financial Reporter, Jonathan Sealey, member of the ASTL's executive committee, said that "the bridging market will hold steady to this year with no great growth".
Sealey added that "any slow down in borrowers looking for bridging finance will naturally result in increased competition which could well drive down bridging rates".
for 2017, Sealey said to expect to see a tighter market, more competition, flatter property prices and ultimately flatter lending than we have seen this year.
The buy-to-let sector has seen rapid growth in recent years, and a recent rush in Q1 2016 to beat the additional stamp duty for BTL investors.
However the forthcoming tapering of mortgage interest tax relief for higher rate taxpayers that is due to start in 2017, has contributed to a marked slowdown in 2016 and is expected to cause a further decline into 2017.
Halifax data shows that the number of BTL loans in the first nine months of 2016 was 3.5% lower than in the same period of 2015.
Halifax's Martin Ellis commented: “A tightening in underwriting criteria through higher interest cover ratios and stressed mortgage rates – already implemented by some lenders and likely to become more widespread as a result of possible regulation – are set to further limit demand in 2017.
“The BTL sector is therefore expected to cool further in 2017. The long-term case for investing in housing, however, remains strong with the sector set to continue to offer attractive rates of return compared to alternative investment classes despite these developments."
Jonathan Sealey added that "the combination of the extra 3% stamp duty, the forthcoming tax changes for landlords and any new measures that the PRA may bring in, is likely to dampen and suppress the buy-to-let market as we have known it".
The industry has raised concerns that the new regulations in the buy-to-let market will dissuade developers from refurbishing properties that will provide more housing.
Housebuilding levels remain historically low, and if current building levels are maintained, the UK’s housing shortfall will rise by a further 318,632 homes by 2020, according to Aldermore analysis.
However Halifax says that the latest figures provide some encouragement. Completions and starts in England in 2016 Quarter 3 were respectively 7% and 9% higher than in 2015 Quarter 3.
Additionally, 2017 may bring further good news to the housebuilding sector. Indian residential property developer, Xrbia, is set to launch in the UK in a bid to help tackle the housing crisis.
It has already built over 15,000 homes, has a pipeline of 100,000 and aims to deliver 100 future-ready cities in India by 2030. Xrbia is now seeking joint venture opportunities with UK property developers, initially focusing on building homes in London.
So overall, there are set to be a lot of positives for the housing markets in 2017, despite further economic uncertainty. The new climate will provide new opportunities for brokers and lenders alike to support consumers in finding finance to match their needs.