Market Commentary is our monthly analysis on the UK mortgage markets, released on the same day as our gross advances press release. Below is a listing of our most recent commentarys.
Economic conditions have strengthened but while the Bank of England has signalled an improved economic outlook since May, headwinds remain and the message about future rate rises being measured and gradual remains unchanged.
There has been some cooling in housing market activity and sentiment in recent months. Mortgage activity seems to have remained robust following the regulatory changes but the impact of these remains uncertain.
The macro-prudential interventions announced by the FPC in late June are finely calibrated and precautionary, but could nevertheless reinforce April’s Mortgage Market Review in tipping the UK towards a more conservative lending environment.
It is difficult to gauge the short-term direction for house purchase activity and mortgage lending more generally, given unknown regulatory impacts, regional differences and uncertainty as to when the first in a series of interest rate increases will take place.
Expectations of higher base rates have intensified, following Dr Mark Carney’s Mansion House speech.
Market indicators point to a slowdown in activity levels, in part associated with new mortgage rules, but it is unclear how lasting this will be.
The Financial Policy Committee may still announce modest interventions in the mortgage market, in order to guard against a build-up in personal debt levels, on 26 June.
The Bank of England has signalled that macro-prudential measures to limit the housing market upturn are likely in the near future, and possibly in the very near future.
This reflects a forward-looking judgement on the part of the Bank, designed to ensure that mortgage credit growth associated with the housing recovery of the next few years is sustainable.
Forthcoming measures will, in our estimation, be careful, calibrated, and proportionate, and designed to reinforce prudent affordability checks, rather than to apply the brakes to the housing market in a more dramatic fashion.
Alongside benign developments in the wider UK economy and the labour market, housing market sentiment continues to strengthen.
There are as yet no signs of significant market disruption, arising from the imminent application of new lending rules associated with the mortgage market review. While some mortgage lending indicators have eased back gently, this is from the very high levels of recent months.
The FPC continues to be vigilant to housing market developments, and to remind the market of its ability to act before problems to financial stability set in.
Housing market indicators have continued to be strong over recent months, once seasonal factors are taken into account.
First-time buyers have benefitted most from the government’s Help to Buy initiatives, with the more recent mortgage guarantee scheme now starting to push average loan-to-value levels higher.
The housing market got a further boost from this week’s Budget. This, together with benign developments in the economy more widely, should bolster short-term sentiment and activity.
Bank of England signals bank rate to stay at ½% for some while yet and a lid on interest rate rises for several years to come.
The strong pace of mortgage lending seen in the closing months of 2013 persists into January, with gross lending of £15.5 billion a third higher than a year ago.
Further evidence that Help to Buy is well-targeted, mostly helping first-time buyers living outside London and the south east.
Short-term growth prospects for the housing market and the wider economy look very positive.
Mortgage lending was stronger than we expected in the closing months of 2013, but lenders expect little if any boost to borrower demand this quarter.
Bank of England governor Mark Carney sees growth in housing transactions and mortgage lending slowing from 2015, a view we share.
A stronger jobs market and better credit availability are supporting a recovery of the housing market. This is from a low base, and the strong upwards momentum looks set to continue through 2014.
Gross mortgage lending may grow to more than £200 billion by 2015, for the first time since 2008, helped by a continuing recovery in remortgage activity from 15-year lows as well as stronger housing market conditions.
We see little evidence of an unbridled housing boom developing. Indeed, given the already stretched nature of household finances, new regulatory environment and likely future course of interest rates, housing market activity may well ease back of its own accord.
There is a possibility that too much importance has been ascribed to the impact of the Help to Buy mortgage guarantee scheme. While it brings forward a return to higher LTV lending, and so eases the position of those looking to purchase or move home under their own steam, it seems likely to directly help a relatively narrow profile of buyers, given the new regulatory regime.
Our forecasting horizon embraces a period when the Bank of England may consider increasing interest rates. While we see this as more of an issue for 2016 and beyond, the benign period of falling arrears and possessions may be coming to an end.
We do not expect the Bank to move quickly to raise interest rates, once the UK passes the 7% unemployment threshold
Housing activity is set to strengthen further in the short-term, and to contribute materially to overall economic growth
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