Ten snapshots of an improving mortgage market
Published: 22 January 2013 | Author: Bernard Clarke
Welcome to the first issue of CML News & Views for 2013 - the year in which we feel confident enough to take a deep breath and set out an expectation of continuing mortgage market improvement.
Do people - do you - believe that the mortgage market is truly "open for business"? Or do you have a suspicion that "it's all hype, and still too hard to get a mortgage"? In this article we take a look at what the evidence from the market as a whole is showing us.
Our market forecasts were widely reported, suggesting the prospects of increased volumes of lending this year. But it may be easy to overlook the recovery that has already quietly been under way in the mortgage market throughout 2012. Indeed, we suspect that consumer sentiment may not yet have caught up with the extent to which the mortgage market has already improved; and some commentators still take as their benchmark the over-heated market of the mid-2000s and accordingly underestimate the positive direction in the market. So we thought a graphical reminder of some of the main indicators and how they have shifted might be useful.
1. 2012 saw the highest number of property transactions since the credit crunch
As the chart below shows, the number of property transactions is recovering, after the significant slump experienced in the wake of the crunch. And in 2013, we anticipate a further improvement - our central forecast for this year is for 950,000 transactions.
Chart 1: Highest number of property transactions since the crunch
2. The number of first-time buyers is at a post-crunch high
No-one would pretend that the current market is easy for first-time buyers - but neither was the pre-crunch market. In a country with a decades-long backlog of producing too little new housing to match the increase in population growth, the pressure is on, across all tenures to make housing affordable for the UK’s inhabitants. But, whereas before the crunch debt-servicing costs were a major source of pressure, coming up with a sizeable deposit has been the most pressing challenge facing post-crunch first-time buyers. Even so, last year the number of first-time buyers was noticeably above the levels of the previous four years.
Chart 2: FTBs at post-crunch high as well….
3. The availability of mortgages at more than 90% has more than doubled in two years
One of the ways in which the change in lending that followed the credit crisis affected first-time buyers, but also those wishing to move with little accumulated equity, was the dramatic reduction in the availability of high loan-to-value mortgages for a while. But there is now a relatively wide choice of higher loan-to-value mortgages.
In January 2011, according to Moneyfacts, there were 32 mortgage products available for those wishing to borrow on a loan-to-value ratio of more than 90%. At the end of December 2012, there were 71 such mortgage products.
Since the start of 2011 the number of mortgage products available at over 90% LTV has doubled
Chart 3: Since the start of 2011 the number of mortgage products available at over 90% LTV has doubled
4. There is much more lending at higher loan-to-value levels
For first-time buyers, taking the first step onto the property ladder has for decades typically meant borrowing at least 90% of the property's value – contrary to urban myth, this is not simply a recent feature brought on by the boom market immediately before the crisis.
At the depth of the market contraction, only 26% of house purchase loans were at loan-to-value levels above 80%. But by the fourth quarter of 2012, the proportion had risen to 34%. Within this, 13% of all house purchase loans in the fourth quarter were for 90% or more of the property value.
What this shows us is that lenders are not only advertising high loan-to-value mortgages (see the Moneyfacts data above), but also actually lending on them. It is no longer true to say that high loan-to-value mortgages are not available.
Chart 4: Higher LTV lending is on the up……
5. More first-time buyers are entering the market without assistance
In line with the picture of improving mortgage availability at higher loan-to-value levels, an increasing proportion of first-time buyers are able to enter the market without assistance from parents or elsewhere.
We estimate that there has been a slow and steady increase in the proportion of first-time buyers buying without assistance from 32% of all first-time buyers in 2009 to 36% in 2012. Although the majority of first-time buyers are still likely to be receiving assistance (and the jury is out on whether this is a now a phenomenon that will be a permanent feature of the market or not), it is far from the case that entry to the market is impossible without assistance - especially if would-be first-time buyers are prepared to save for a realistic period to help fund their deposit.
Chart 5: Unassisted first-time buyers
6. Lenders expect to offer more high loan-to-value mortgages this year
The Bank of England's Funding for Lending scheme (FLS) is one of the influences on the wider availability of mortgages, across a wider spectrum of borrowers, at cheaper rates. Lenders themselves have expressed an expectation that there will be more mortgages available in the first quarter of this year, in sentiment measured by the Bank of England's quarterly credit conditions survey.
Expectations have become significantly more positive in recent quarters, and especially since the announcement of the FLS.
Chart 6: Lenders' view: availability rose significantly over 2012 and is set to continue this year
7. NewBuy has made a start, and is being extended
We have been pleased to work with the Home Builders Federation and the Government on the "NewBuy" scheme, that has already provided thousands of households with access to 90-95% mortgages on newly-built properties at rates lower than would be possible without the indemnity that developers are funding and on which the Government is accepting a contingent liability.
This year, equivalent schemes to the English NewBuy scheme will begin to take affect in both the Scottish and Welsh housing markets, too. And the English scheme is being extended to include cases where the borrower wishes to enter into an arrangement with a participating developer to part-exchange their existing property, and qualify for a mortgage under the NewBuy scheme on the property they are buying. Watch out for more details from participating developers, and from the Home Builders Federation.
8. Lenders are innovating responsibly to help those who want to buy
In addition to collective initiatives such as NewBuy, it is becoming clear that lenders are upping the innovation stakes in their own businesses to help aspirational home-buyers access the market in a responsible way. Three major, very visible initiatives are the Lloyds lend-a-hand mortgage, the Nationwide save-to-buy scheme, and the Barclays "Family Springboard" mortgage. But there are other initiatives from smaller lenders too and we anticipate further innovation and a desire to compete in delivering new services to prospective buyers this year.
The Local Authority Mortgage Scheme, developed by Sector Treasury Services and being delivered through a range of local authority partnerships with mortgage lenders of all shapes and sizes, is also a notable innovation, helping to increase market access for good borrowers who have not yet managed to build up large deposits.
It is worth emphasising that current innovations are not about stretching affordability beyond sensible limits. But they are about unlocking responsible ways to lend to good borrowers with modest deposits.
9. We are thinking ahead to identify how to strengthen the mortgage market for the future
Before Christmas, we published a self-evaluation, of the mortgage lending industry, by the mortgage lending industry. It is a sign of an improving market that lenders are thinking ahead constructively to the future, after several years in which the focus has been on almost entirely on the management of current circumstances.
Lenders are attuned to public and regulatory concerns about how they operate, both in terms of how they undertook business in the past and how they should do so in the future. Our Where do we go from here? report offers an honest assessment of the changes that lenders think would help the market to deliver better services to customers in the future. We would be very interested in your feedback, and the extent to which you agree or disagree with the views expressed by lenders.
10. The outside world is beginning to notice the improvement in lending conditions
Last week, when we issued our regulated mortgage survey data for November, we were struck by the change in sentiment from some of those who commented on it. For example, in the Telegraph, Moneysprite broker Ashley Brown is quoted as saying: "What began as mere mood music is turning into real momentum. For months, lenders have been criticised for using the [Funding for Lending] scheme's cheap money to repair their loan books, and accused of only cutting rates for borrowers with large deposits. That charge is now looking unfounded. With first-time buyers being tempted back into the market, the sector is finally picking itself off the ground. Though the message has come out slowly, the lenders are once again open for business for this key sector of the market."
There seems to be an increasing awareness from outside the lending industry, then, that lenders are indeed very much "open for business".
We would be the first to admit that being open for business does not automatically mean that business will come. Consumer sentiment is a fickle beast, and there are many reasons for households to continue to feel cautious. There are also a number of would-be customers whose circumstances are still not conducive to enabling them to borrow, even if they would like to. But, overall, there has been a marked sense of improvement in the mortgage lending landscape over the past year, which we forecast will continue in 2013.