Improvement predicted for mortgage market in 2014

The housing and mortgage markets are set to continue to show greater levels of activity in 2014, according to the latest forecasts from the Council of Mortgage Lenders.

However, the CML sees an unbridled housing boom as unlikely. Indeed, given the already stretched nature of household finances, the new regulatory environment and the likely future course of interest rates, housing market activity may well ease back of its own accord.

The CML is forecasting a rise in gross lending from an estimated £170 billion this year to £195 billion next year, and £206 billion in 2015. The CML anticipates that net advances are likely to rise from £10 billion this year to £15 billion next year and £20 billion in 2015.

The CML anticipates that the number of mortgages 2.5% or more in arrears is likely to stay stable next year at around 150,000, but rise modestly to 160,000 in 2015. The number of repossessions is expected to fall from around 30,000 this year to 28,000 next year before returning to 30,000 in 2015.

In terms of specific features currently influencing the mortgage market, the CML suggests that the volumes of business written under the new Help to Buy mortgage guarantee scheme may be relatively modest, “such that it has a smaller but more positive market impact than many commentators suggest”.

The CML’s forecasting horizon covers a period when the Bank of England may consider increasing interest rates. While this is likely to have a greater impact from 2016, the benign period of falling arrears and possessions may be coming to an end – although most households will cope with the transition to more normal interest rates.

CML chief economist Bob Pannell concludes: “Gross mortgage lending climbs above £190 billion next year, its highest level since 2008. While this is largely on the back of the continuing revival in housing market activity, we also expect to see a meaningful turn-round in re-mortgage activity.

“Despite a strong pick-up in gross mortgage lending, we have pencilled in relatively modest net lending figures – £15 billion in 2014 and £20 billion in 2015. While this would mark a climb out of the sub-£10 billion doldrums, where the market has languished since the credit crunch, it does nevertheless represent a rather muted position. This reflects, among other things, our view that some households will use the relatively benign economic conditions to prioritise debt repayments, ahead of medium-term interest rate rises.

“We think there are good grounds to be optimistic that the vast majority of households will cope with a slow but certain transition to more normal interest rates. This seems to be the game-plan which the Bank of England has in mind, but presumes (as we do) that the UK avoids a destabilising housing boom over the next few years.”

Help to Buy: mortgage guarantee available 3 months early

Help to Buy: mortgage guarantee scheme to launch this week.

A scheme to help thousands of people buy their own home will be launched next week – three months earlier than planned.

The scheme was due to start in January 2014 but the government has announced that people will be able to start applying for the new mortgage guarantee from next week.

Several high street banks will be offering the new Help to Buy mortgages to customers, ranging from 80 to 95 per cent of the property’s value.

The mortgages – backed by the government – will help thousands of people buy new or existing homes up to a maximum value of £600,000.

It is aimed at people who cannot get on the property ladder – or move to a new home – because they cannot afford the large deposit required, often up to 20 per cent.

Under the new mortgage guarantee scheme, the buyer would only need a 5 per cent deposit.
The government and the bank then jointly guarantees up to the next 15 per cent of the property’s value, in return for a fee paid for by the lender.

To be able to offer the guarantees ahead of schedule, the government will be allowing lenders to start writing loans that will become part of the scheme once it opens in January.

Because lenders know that they will be able to purchase a guarantee on these loans when the scheme opens in January, it means that they are able to offer high loan to value mortgages, much sooner.
Only repayment mortgages will be offered under the scheme.

There will be tough checks to make sure buyers can afford their mortgage payments and the borrowers income will be verified.

The scheme will not include interest-only or self-certified mortgages.

The new mortgages will not be available to people with a history of difficulties making debt repayments.

Official statistics show that mortgage lending is around half the level it was before the economic crisis, even though mortgage rates are at their lowest for five years.

Announced by the Chancellor at Budget 2013, the Help to Buy scheme has two parts, equity loan and mortgage guarantee.

Under the equity loan scheme, the government provides a loan of up to 20% of the value of a new build home, interest free for the first five years.

The Help to Buy: mortgage guarantee scheme will be available for three years up to January 2017. Every September the government and the Bank of England Financial Policy Committee will review the impact of the scheme and examine whether the fees or the price cap should be adjusted. If any future government proposed to extend the scheme beyond its three year life the FPC would need to agree.

Link to .gov information here