6 Insights on the State of the Mortgage Market – Autumn 2019

Lender Competition 

If you’re in the lending business, margins are tight, thinnest they’ve been for years. There are two reasons. Competition on the supply side of mortgages is rife. Far too many specialist lenders are procuring their products to brokers, couple this with the myriad of start-ups offering faceless, app-based mortgage applications, you have a top-heavy supply of loans. Securitisations are successfully being implemented by these lenders, so there’s also no shortage of money to lend.  

The second reason is the High Street lenders. Forced to operate more from home due to the de-coupling of their investment arms, they’re pumping time and money into the UK mortgage market. Barclays and HSBC are injecting huge enthusiasm into the market and promising rock bottom rate deals. 

Tight margins cause consolidationInsolvency or mergers. You’ll be seeing a raft of mergers during the remainder of this year and into next as specialist lenders seek to rationalise their cost base and maximise their tight margins 

For mortgage brokers, you’ll want to keep an eye on the marketplace. Look for solidity and longevity. But be prepared to change your BDM and accept that several brands may start transacting under a different holding name. 

Interest Rates 

Interest rates will remain low for the foreseeable future. We’re starting to witness some very long term fixes. Beyond the traditional 3 or 5 years, they’re now stretching to 10 plus years, particularly in the later life market where lifetime fixes are commonplace. RIOs are now coming in with lifetime fixes of below 4%. 

With a downturn just around the corner, we’ll see the Bank of England Base Rate fall back to 0.25% which may see some lenders attempt to repair their margins by not reducing their rates like for like. Competition on the supply side of mortgages will soon dispel this tactic. 

For brokers, this is good news. Remortgages at low rates are a steady stream of income and enticing for clients. First Time Buyers trickling back into the purchase market will benefit also. 

Bridging Finance 

Bridging finance is coming of age. No longer just there to bridge the gap between exchange and completion of a residential purchase, bridging now encompasses the development marketplace. The “Do it Upper” as Kirsty, and Phil Spencer call it is now financed by bridging. Bridging only worries about the exit plan, so monthly payments don’t come into the equation, affordability not so much an issue; equity counts. 

For brokers, look at this market segment, start to prospect the business. Visit an auction or two and drop out some business cards or engage with people at these exciting arenas. Improve your knowledge and lender links in this area. 

Buy to Let 

The buy to let marketplace has continued to evolve. Limited company purchasers have levelled off according to figures from UK Finance, and the adoption of this manner of becoming a landlord hasn’t taken off as predicted. Instead, it appears that small landlords with one or two properties are staying put and not expanding their portfolio. Some are selling. Many before April 2020 when new Capital Gains Tax rules impinge on sellers of second homes. 

Who’s buying these properties. First-time buyers at long last. We’re finally seeing them back in the marketplace. We need them, they underpin the while housing market – without them, you can’t create chains. Help to buy has helped, loosening lending criteria has made a difference, but low-interest rates with long term fixes promising low monthly payments for many years to come have been the game-changer for first-time buyers. According to UK Finance first-time buyer numbers are up in every region of the UK. UK Finance is a very useful and accurate source of statistics on the housing market. 

House Prices 

The usual autumn bounce has not materialised, and on average, house prices have dipped 1% across the UK. There is a distinct lack of stock for sale, and buyers playing a waiting game. Waiting for Brexit probably or signs that the economy will bounce back positively. 

The Economy 

The final thought to leave you with is rather political. Whichever party takes power at the next election, and there will be one before Christmas, will determine housing policy for the next five years. The Coalition and Conservatives have wreaked havoc on the buy to let market, dulling its growth substantially but have rejuvenated the first-time buyer market and made a lot of profits for housebuilders too. Labour has talked about rent controls for the private sector and an interesting policy around letting private tenants buy their rented property at a good price. Interesting times. 

The major concern right now will be recession and its implications on our market. Brexit may not be the culprit, we are due a downturn and a correction; the signals are there. Hopefully, it’ll be mild. The following chart shows how the housing market hasn’t reached pre-crunch levels of 2006. All that pent up demand has to be released, just like a blocked sewer pipe, it’ll come rushing out when released. 

Compelling yet positive times for our sector. 

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