It’s probably fair to say that the mortgage market drives the UK housing market. Of course, there are cash-rich investors, who can buy property without finance, but they are the minority. Generally speaking, therefore, the health of the UK mortgage market is a very good indicator of the health of the UK property market as a whole.
The year 2016 compared with 2017 and beyond
In the year 2016, the Council of Mortgage Lenders recorded £245 billion of mortgage lending. Based on activity so far this year, the Intermediary Mortgage Lenders Association (IMLA) forecasts that total gross mortgage lending will reach £260 billion by the end of 2017. This would put it almost 6% higher than last year.
Interestingly the IMLA believes that this growth will largely be fuelled by the remortgaging market, which it predicts will reach £90 billion by the end of 2017 (making it 35% of gross lending) and will grow even further in 2018, reaching £92 billion by the end of the year. By contrast, it believes that lending for the buy-to-let market will gently slow down over the course of 2017, ending the year at around £38 billion. It does, however, think that as buy-to-let investors begin to absorb the significance of the recent series of changes and, of course, the Brexit question, that the market will start to recover and will end 2018 slightly ahead of this year, in the region of around £40 billion.
Strength in the face of adversity
Fears that the progress towards Brexit could cause seizure in the UK housing market have proved to be unfounded. There are many reasons for this, one of the most important of which being that there is simply a chronic under-supply of housing in the UK and little sign of this being rectified any time soon.
The fact that new mortgage lending for the buy-to-let market is contracting somewhat is also hardly surprising. Some landlords are going to need time to assimilate what the recent tax changes (and Brexit) are actually going to mean in practical terms and will cease, or at least curtail, their buying until they work out where they, personally stand.
The strength of the remortgaging market could be a strong sign of confidence in the UK
Generally speaking, most people need to get a mortgage when they buy their first house or move up the housing ladder. Remortgaging, however, is a choice. It’s a choice which balances the hassle of getting a new mortgage (which essentially replicates the process of getting an initial mortgage, including the costs involved), against the savings offered by the better deal. The fact that interest rates have been so low for so long means that anyone who has taken out a mortgage over recent years is already likely to be on a low rate, even if it is a variable one. This begs the question of why there is so much activity in the remortgaging market at this point in time. One very plausible explanation is that the fact that the UK is bearing up remarkably well through the Brexit process is perceived to be making it more likely that the BoE will raise interest rates sooner rather than later, hence the rush to secure a better (possibly fixed-rate) deal, while they are still available.