REVIEW
MARKET
The lay of the land Craig Calder director of mortgages, Barclays
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s we hit H2 2022, it’s certainly been an interesting and challenging six months for lenders. On the back of five consecutive interest rate rises, swap rate swings, and a host of influencing factors extending far beyond UK borders, in days gone by it wouldn’t have been too much of a stretch to find a marketplace shrouded in pessimism. The UK housing and mortgage markets are in a far more robust place than in earlier times, however – and, despite some bumps in the road, I think it’s fair to say that they have performed admirably over this period and continue to exceed expectations. MORTGAGE BORROWING
This impressive performance was evident in the Bank of England’s latest money and credit data from a mortgage market perspective after it outlined that net residential mortgage borrowing increased to £7.4bn in May, up from £4.2bn in April, to sit above its 12-month pre-pandemic average of £4.3bn. Gross lending increased to £28.4bn in May from £26.7bn in April, while gross repayments rose slightly to £21.8bn compared to the April figure of £21.6bn. Mortgage approvals for May also ticked up from 66,100 to 66,200, although this was slightly below the 12-month prepandemic average up to February 2020 of 66,700. However, unsurprisingly, the effective interest rate paid on newly drawn mortgages increased by 13 basis points to 1.95 per cent in May, while the rate on the outstanding stock of mortgages ticked up two basis points to 2.07 per cent. Of course, some degree of caution has entered the market in recent times on
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MORTGAGE INTRODUCER AUGUST 2022
the back of rising inflation and amplified living costs. But, to stay on a positive note, demand remains strong, and the reliance on the advice process continues to climb for a range of borrowers in what remains a competitively complex lending landscape. HOUSE PRICES
Turning our attention to house prices, following two years of unprecedented growth, property prices are suggested to be experiencing the lowest rate of monthly price growth since December 2019. The latest Zoopla house price index highlighted that average property prices were broadly unchanged in May, up 0.1 per cent, as the pace of price inflation loses momentum. Annually, property prices are suggested to be up 8.4 per cent, compared to 9.2 per cent growth in April, with quarterly growth at 1.4 per cent – the slowest since March 2021. The data also showed that buyer demand is still higher than the five-year average, but it continues to decline week-on-week in a return to more usual levels of demand. Despite a slightly negative air to these metrics, such stability in what remains an uncertain economic climate really is testament to the continued strength of our housing market. In the wake of recent interest rate rises, and increasing speculation about further ones, it‘s certainly not all doom and gloom when it comes to mortgage-related activity. Opportunities continue to present themselves for advisers in many areas, especially in a remortgage sector that is experiencing heightened demand from homeowners looking to, in the main, secure lower payments and longer-term fixed rates to help limit and stabilise their outgoings. REMORTGAGE
This consumer imperative was evident in the latest figures from LMS, which pointed to a remortgage surge of 73 per cent in May, with this expected to increase further in the coming months. Of those who remortgaged in May, 63
per cent were reported to have taken out a five-year fixed rate product, with 26 per cent saying their main aim when remortgaging was to lower their monthly payments, which represented the most popular response. Rates do remain competitive for such products, but, with affordability constraints increasingly evident, borrowers are – quite rightly – relying heavily on mortgage advisers to secure the most appropriate deals at the best rate. This trend is only likely to continue as the mortgage market becomes even more complex. AFFORDABILITY
When embarking upon a lending review, it would be remiss of me not to highlight an important announcement from the Financial Policy Committee confirming that it will withdraw its affordability test recommendation. This will come into effect from 1 August 2022. Introduced in 2014, the test specifies a stress interest rate for lenders when assessing prospective borrowers’ ability to repay a mortgage. The other recommendation, the loan-to-income (LTI) ‘flow limit,’ which will not be withdrawn, limits the number of mortgages that can be extended to borrowers at LTI ratios at or greater than 4.5. The recommendations were introduced to guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness that could in turn amplify an economic downturn and so increase financial stability risks. The fact is that we are operating in a vastly different lending landscape from that of 2014, when the test was first introduced, and it’s vital to reiterate that this withdrawal will certainly not open the doors to a host of irresponsible lending practices. Individual lenders will maintain their own levels of stress testing and appropriate risk appetites, although it’s always prudent to monitor closely any impact this move may have in the near future. M I www.mortgageintroducer.com
