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October quarterly market review

Posted: 10/10/2017

The impact of the General Election debacle and Brexit is still being felt as inflation hit a four year high in June at 2.9%.

Landlord confidence is falling as they face higher tax costs and weakening house prices with political and economic uncertainty causing massive concern. A quarter of landlords who have sought mortgage finance this year have found doing so more difficult and a further 6% have had applications rejected altogether. According to Your Move, the average rent in the UK in July had risen to £874pm. Stamp Duty and additional tax changes have resulted in a reduction in the number of rental properties on the market and in turn, this has pushed up prices for tenants. A third of landlords expect to raise rents in the next 6 months, compared to just 3% who expect them to fall.

The Council of Mortgage Lenders has lowered the forecast for Buy to Let lending to £35bn in 2017 and £33bn in 2018, due to a softer than expected market. Brokers should also be prepared for lender processing delays when the new underwriting rules for portfolio landlords are implemented. It may be more prudent to refer your portfolio landlords to a specialist whilst the industry as a whole gets to grips with the new PRA rules.

The economic and political uncertainty also hit house buyer confidence. Raising a deposit is still perceived as the single barrier to home ownership. Mortgage rates remain at historic lows and the marketplace is very competitive for those who do choose to purchase. Two year rates are the lowest since records began nearly three decades ago with the average fixed at 2.26% and average tracker at 1.82%. According to the Bank of England, after a flat three months, mortgage and remortgage figures showed good growth. Approvals were up to £12.4bn from £11.9bn in June. However, remortgaging in July accounted for £8.1m, confirming that consumer confidence is still fragile for purchases.

Looking at the industry positives, Moody’s has raised its outlook on UK banks from negative to stable, arguing they are more resilient to the challenges of Brexit than they were a year ago. According to a top economic Think Tank, the Bank of England Base Rate should rise by 0.25% in 2018.

The National Institute of Economic and Social Research, originally recommended a rate rise in Q1 of 2019 but now says the economy has been performing better than forecast. Mark Carney has predicted the UK Financial Services sector could double in size over the next 25 years, becoming twenty times as big as the country’s total GDP.

In July, the Government unveiled a £2.3bn fund to aid home building. The Housing Infrastructure Fund will fund improvements like building roads, bridges, utility services, new schools, health care centres and digital infrastructures. Lack of these continues to hold back house building. Local authorities can bid for the cash to help get homes built faster which can only be beneficial to everyone, be you a home buyer, builder, broker or lender.

Many reports say there is some £35bn worth of mortgages due to mature in the next two months, so there’s plenty of potential for remortgages and equity release for the proactive broker. According to IMLA, 90% of mortgage applications made through Intermediaries resulted in offers in Q2 which is very encouraging and shows that clients engaging with a professional adviser is the best route.

By Nikki Haworth, Sales & Marketing Director