Market commentary

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.

  1. 20 July 2010

    A number of commentators have recently painted a downbeat picture for the UK economy and the housing market. The Chancellor has outlined the depth of the cuts that will be made to put the public finances onto a sustainable footing, and there will inevitably be some pain from this. While it is still not entirely clear where the spending cuts will fall, most government departments will have to make sizeable savings. And the rise in VAT to 20% early next year and freezing of income tax thresholds will weigh on consumers' confidence and ability to spend. One positive for the housing market is that capital gains tax will rise to 28% for higher rate payers, a smaller increase than some had expected. And its instant implementation means there is unlikely to be much impact on the investor or second home market. Meanwhile, the FSA has outlined a clear direction of travel as part of its mortgage market review. The consultation paper on responsible lending increases the regulatory burden on lenders and could make it harder for borrowers to access credit. In the long term this may have implications for home ownership levels. With continuing funding pressures and the need to roll-over wholesale funding lines over the next year, the outlook is for a slow market in the short-term as well. There are signs of house prices stabilising and more property coming onto the market following the abolition of home information packs. This may improve liquidity in the market, but transaction levels are subdued and likely to remain so while access to credit remains constrained.

  2. 18 June 2010

    The ground has been cleared for next week's Budget to be the start of an austerity drive to get the public finances onto a more sustainable footing. The new government has made clear it believes the start of the rebalancing process should not be delayed. The UK is not alone in facing spending cuts and/or tax increases. We do not expect the Budget to include housing and mortgage specific direct tax measures. But the market will inevitably be affected by how policy impacts on the wider economy - particularly on household finances and confidence. However, the possible increase in the capital gains tax rate could impact negatively on the buy-to-let market at a time when there has been some improvement in funding for the sector. Much depends on the detail and timing of any change. Financial sector regulation is a further source of uncertainty. The Chancellor has announced that the Bank of England is to take on regulatory responsibility for the banking system. As well as regulating individual firms, the Bank will have "macro prudential" powers and be accountable for the stability of the system as a whole. But it is not yet clear what levers it will have at its disposal to do so. The housing market itself remains subdued and is likely to remain so over the rest of the year. There is little sign of the tentative relaxation in criteria feeding through into activity. There have been signs that the abolition of home information packs has led to an increase in the supply of property coming onto the market. Prices look to be broadly stagnating as does buyer interest. The government has said that it continues to support the aspiration of home ownership. But there has been little on how to improve the funding situation.

  3. 21 May 2010

    Many borrowers are continuing to benefit from low interest rates and this is set to continue for some time. We look to have avoided the much higher levels of mortgage arrears and possessions seen in the early 1990s, although risks remain. The change of government has brought the fiscal situation more sharply into focus. And events in Europe have shown the potential danger of putting off difficult decisions. There is no doubt that the state's belt will be tightened. The new administration has already confirmed that it will make efficiency cuts of £6 billion this year. More details will emerge next week and in the Budget on 22 June. The imminent fiscal squeeze will drag on the speed of the recovery, which in turn will slow the pick up in the housing market. However, Bank of England has welcomed plans to address the public finances, which is likely to mean that interest rates can remain low for longer and continue to support the market.

  4. 19 April 2010

    The housing and mortgage markets remain rather quiet and subdued. The short term indicators point to little underlying change over the early part of this year, with a seasonal increase in lending volumes in March. Reported house prices are fluctuating from month-to-month, but look to be broadly stable at the moment. Looking further out, the new stamp duty exemption for first-time buyers purchasing properties under £250,000 could have a modestly stimulatory impact, but tight eligibility criteria mean that it is uncertain how many will benefit. Meanwhile, the wider economic backdrop has improved somewhat. The economy ended 2009 with a little more momentum than previously thought and the first quarter looks to have seen a further modest expansion. But, while the outlook is for a gradual improvement later in the year, two crucial factors are likely to weigh on the pace of recovery for the economy and housing market. Financial institutions still face the prospect of a funding gap when the official support schemes start to wind down from next year. And, regardless of the outcome of the election, the government will need to start tackling the public sector deficit, which will drag on the recovery.

  5. 18 March 2010

    It is difficult to pick out underlying trends in the housing and mortgage markets at the moment, and not much easier to do so for the economy at large. The end of the stamp duty holiday pushed many housing transactions to complete before the end of last year. There was an inevitable drop off in January and little improvement in preliminary February figures. Given this backdrop, it was not particularly surprising to see monthly falls in some house price indices in February, and we will likely see modest volatility in the coming months until greater certainty over the economic and political environment emerges. The outlook for the economy is also difficult to read. The recession technically ended late last year, and we came into 2010 with a little more momentum than previously thought. But there have been mixed signals from the early part of this year, with several surveys showing an improvement in activity, and the official data continuing to disappoint - all further complicated by the impact of the severe weather in January. As we look further forward, we do expect some better signs to emerge later in the year as confidence in the economy improves and we move past the election. However, the need for the authorities to rein in the fiscal deficit will inevitably slow the economy. At the same time the funding markets, while certainly better than a year ago, remain difficult and will limit the flow of available housing finance.

  6. 18 February 2010

    We remain in a period of uncertainty for the housing market and economy at large. The market certainly improved over the second half of last year and started 2010 in better shape than most would have predicted twelve months ago. More recent developments have been influenced by the end of the stamp duty holiday, and are likely to foreshadow a larger than usual seasonal drop off in activity in the early part of this year - somewhat masking the underlying situation. The market continues to move broadly in line with expectations. However, we will likely see little underlying improvement this side of the election and then only a slow drawn out recovery. There remain a number of headwinds slowing the recovery. Funding conditions, while improved, will remain challenging. Mervyn King made clear that some of the support schemes will come to an end from next year. Any replacement funding will inevitably be more expensive and have consequences for the volume and price of credit flowing into the wider economy. Meanwhile we remain some way short of robust economic growth. The need to rebalance the public finances has been further highlighted by developments in the euro-zone, and will weigh on the recovery. However, the Bank of England is likely to keep rates low, which should continue to mitigate mortgage payment problems.

  7. 21 January 2010

    The start of the New Year brings some reason for optimism. 2010 will almost certainly be a better year than 2009. The UK likely emerged from recession towards the end of last year, while housing and mortgage markets are certainly in better shape than twelve months ago. However, there remains little prospect of a rapid improvement in the coming months. Like much of Europe, the UK economy is expected to pick up only gradually, particularly over the early part of the year. The election will keep UK's fiscal position out there as a key issue, but with little serious action to curtail deficit this year. We remain vulnerable to further shocks and changes in market conditions. The end of the stamp duty holiday could be one such example. Following a stronger than anticipated end to last year, driven by house purchase activity, mortgage lending may see a larger than usual seasonal drop-off in the coming months. Various headwinds will slow the improvement further out, and we anticipate a rather quiet year ahead. But low interest rates, an improving economic backdrop and wider access to credit should underpin the market.

  8. 18 December 2009

    The housing and mortgage markets remain in a stable state with little in the Pre-Budget Review to change the outlook for next year, although the end of the stamp duty holiday could cause a modest fall in underlying activity in the early part of the year. But seasonal drivers are likely to dominate the market in the coming months and it will be some time before clear trends emerge. Concrete decisions on how to repair the public finances will not happen this side of an election. The nearest to a change in policy in the coming months is the likely end to asset purchases under quantitative easing - although the Bank of England will continue to hold these assets on its balance sheet. Some commentators have begun to worry about potentially unsustainable asset price rises, although there is currently no evidence of this in the housing market. The funding markets, while improving, are still in a weak condition. Although we have seen a rise in house prices in recent months, turnover remains extremely low with little immediate prospect of a return to more "normal" levels.

  9. 19 November 2009

    Recent weeks have provided some reasons to be more cheerful about the state of the UK economy and housing market. We are now likely out of recession. And the Bank of England is considerably more optimistic on the wider outlook. The coming months are likely to be dominated by seasonal factors rather than underlying change. But we remain sceptical how much further housing and mortgage market activity can improve from current levels. As a result, we also expect only a modest improvement over the course of next year.

  10. 12 November 2009

    There have been some more positive signs in recent months, both from the economy at large and the housing and mortgage markets. The unprecedented raft of support measures, taken by authorities in the UK and globally, have underpinned the financial systems and we are now likely to be moving out of recession, at least in a technical sense. There is a general sense that the worst has now been avoided and we are now more positive on the outlook than a year ago. The exceptionally low level of rates has made it easier for many borrowers suffering payment problems to manage their situation. While the weak labour market will continue to exert pressure on mortgage arrears, we expect only a small rise in arrears and possessions from here through to the end of next year - a considerably better outcome than we had expected. But, although there have been definite signs of improvement in recent months, housing market activity is still considerably lower than what might be considered normal. And we are unsure of how far the recent improvement can continue. While there have been signs of life in the wholesale funding markets, overall funding conditions remain challenging. A weak labour market backdrop and equity constraints make forming chains difficult, so it is hard to envisage housing transactions rising much above current levels for some time. With limited ability and little incentive to refinance, overall lending volumes will remain subdued next year - albeit at slightly higher levels than in 2009.

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