What’s happening in today’s market?

October 13th, 2016

Transactional Activity

The third quarter was the period that immediately followed the UK referendum in which the British public voted to leave the European Union. Many people felt that business activity would be severely curtailed and although there was a significant fall in UK consumer confidence in the weeks immediately following the vote, much of that negativity now does appear to have been overcome as the wider economy does appear to be once again performing relatively robustly.

In the mortgage arena new transactional activity has remained remarkably resilient with no material reduction in new business overall. Overall transactional activity was down by approx 1.9% in July versus June and by 1.9% in August versus July, but this reflects seasonality associated with the peak holiday season. September witnessed something of as rebound with new mortgage activity rising by more than 12% in September over August. The third quarter mortgage volumes amounted to more than £3,3bn of new lending bringing the cumulative figure to almost £10bn. Completions remained in line with new business and we did not witness a wholesale collapse in housing chains as some had forecast following the vote to Brexit.

Remortgage activity on home owner residential cases edged up as a share of overall activity rising from 23% of transactions in Q2 to 26% in Q3. Buy to Let continues to perform relatively strongly amounting to 16% of overall activity, almost back to where it was prior to last year’s Autumn statement announcing SDLT changes associated with second homes and B2L properties, although currently almost two thirds of that B2L activity is remortgaging.

Lender usage

Lender positions in terms of most frequent usage has witnessed little change at the top of the ranking. Halifax were number one in two of the last three months and remain number one overall. Nationwide wrestled top spot from Halifax for one month in the last three and retained second spot for two successive months and remain second year to date. NatWest were third in each of the last three months and remain third year to date. Santander were and remain fourth having occupied that same spot each month in 2016. Barclays are still fifth but only just having slipped to seventh and eighth in the last two months and are now only 0.1% ahead of BM Solutions in % share terms who are sixth. TSB are now seventh with Virgin Money and TMW tied in eighth, followed by Coventry in tenth, Leeds B.S in eleventh, and Skipton and Accord tied in twelfth spot. Next come Bank of Ireland / Post Office followed by Platform. New entrants Tesco have gained traction and achieved 2.5% of our business in August – HSBC who have recently extended their pilot to now include almost all MAB advisers (excluding N.I) achieved approx 1% share of business in September but not all advisers had access throughout.

Interest Rates

At the beginning of the third quarter July average rates across two, three and five year fixes were 2.55%, 2.84% and 3.13%. In the three months subsequently they have fallen to 2.44%, 2.79% and 3.04%. respectively. During that time period we have also seen a BOE base rate reduction, the first since March 2009.

Mortgage Products

We have for a sustained period reported mortgage product numbers based upon data provided by Trigold. With almost all of our advisers now using Twenty 7 Tec we will in future be using this as the source data to measure any increase or fall in mortgage products numbers Product numbers have been on the rise over several years and we have reported the overall number including those that are categorised as exclusives via specialist distributors (packagers). This has had the effect of increasing numbers quite dramatically, e.g. if a range of say 20 products is made available from a lender and then made available to several different packer groups as semi exclusives, these products will show on mainstream sourcing systems multiple times and therefore be duplicated in the product count. We will in future only report core product numbers and in the short term this will reduce the overall number of products that we report and comment upon.

Market Conditions

The Bank of England decision to reduce the Bank Base rate by a quarter of one per cent in August to 0.25% was not a great surprise as many forecasters had predicted that they would make the change at the MPC meeting of July following the UK decision to Brexit at the referendum. The BOE have taken the decision to ease monetary policy by a combination of both a base rate reduction and further quantitative easing to support the UK economy – as in their view growth is likely to be more constrained with the country having voted to Brexit. Whether the decision proves correct only time will tell? The introduction of what is the “Term Funding Scheme” has been designed to ensure that lenders can pass on the reduction in the BBR to existing borrowers who are on variable rates – both tracker and SVR based clients without the lender incurring undue margin pressure – in essence the scheme will be a subsidy to lenders – At this point it is estimated that only around half of all mortgage lenders have passed on the Base rate reduction so it will be interesting to see if there are any consequences applied to the lenders who have failed to do so!. Although the BBR reduction is welcome for many borrowers it is not likely to impact significantly on the buying or borrowing aspirations of many new house buyers or remortgage customers but it will impact further millions of savers adversely!

As we mentioned earlier rates have been falling consistently for a sustained period, however what it does appear to be doing for some existing borrowers is a prompt to consider remortgaging when borrowers receive notification from their existing lenders advising of the change – as for many it will highlight the relatively high rates that many borrowers are languishing on – the average SVR in the market prior to the BOE rate reduction was circa 4.80%. As brokers this provides an ideal opportunity to re-engage with our former customers to appraise them of the range of rate options available to them – falling mortgage rates and in most areas increasing property values mean even more compelling reasons to consider switching – and for some even paying an ERC may prove beneficial!

Mortgage Market Overview

June 1st, 2016

Interest Rates

At the start of May average rates have eased further in all categories – average two, three and five year fixed rates declined by 1bps, 5bps and 3bps respectively to 2.54%, 2.86% and 3.17%. Two year BRT also eased by 2bps to  2.06%.  In the buy-to-let arena, average fixed rates on two years declined by 4bps while three and five years remained unchanged from the beginning of April – this left rates at 3.28%, 3.87% and 4.00% respectively.

Mortgage Products

Mortgage product numbers broke through the 20,000 level for the first time since 2008 after experiencing another increase of more than 1,400 products within the broker sector alone. The last time mortgage product numbers were at this level was just prior to the collapse of Lehman Brothers in 2008 which was one of the major causes of the financial crisis. Following that event mortgage product numbers declined almost month on month until the following February 2009 when they reached a low point of only 2,560 products, but since that time we have been on a slow but steady increase to where we now are today with broker products representing 73% of the market.

Market Conditions

The PRA recently issued a public statement in which they commented that they were to investigate underwriting standards within the buy-to-let sector as they were concerned that some lenders were not being as diligent as they would expect them to be.  As a consequence of that and in response we have already witnessed several lenders announce and implement changes to their rental stress calculations, with TMW and Barclays at the front of the move to get out ahead of any regulatory intervention. Other lenders will, we are sure follow suit, as no-one lender will want to be in receipt of all of the business that can only be conducted using a 125% rental calculation, and most importantly no-one lender will want to be last man standing, so expect other lenders to follow suit. With rental stress calculations moving towards 145% at around 5.00/5.50% (and possibly above) as the new normal. Clearly a number of transactions that would be approved today at 125% will fail at the new higher rates and this will weigh further on buy-to-let transactional activity in addition to the changes already implemented on SDLT rates, and the introduction of changes to the treatment of mortgage interest from 2017/18 and onwards etc…

We are now less than one month out from the EU Referendum, and the campaign rhetoric on both sides is becoming increasingly desperate in their respective attempts to convince the British electorate of their arguments. As we commented last month, transactions do not appear to have been unduly affected by the impending referendum, however one of the biggest hurdles facing the market remains the lack of housing stock on the market with the supply/demand imbalance more acute than ever!

The government and its conservative policies

July 23rd, 2015

Two months on from the election and it is very clear that this government is Conservative only in its composition.

The Chancellor has announced a number of policy initiatives, but perhaps the most headline-grabbing is that of non-protected government departments being expected to come up with spending savings of up to 40 per cent of their budgets.

If I think back to the coalition, I think the prospect of this happening with the Liberal Democrats having seats in the cabinet would have been unlikely at best, and these types of proposals would likely have resulted in a very messy divorce much earlier in the last parliament.

What the Chancellor does now have of course, is a working majority in parliament, albeit a small one, and he seems very focused on transforming what he sees as the role of central government.

In short, that includes smaller central government and greater autonomy, decision-making and control of funds at regional and local level.

The budget held few surprises for the housing market , but there was one specific curb on the Buy-to-Let market of limiting landlord mortgage tax relief to basic rates of income tax, although this is not due to commence until 2017 and will be in introduced in a phased approach over a four-year period.

Those landlords who are affected should therefore have plenty of time to adjust to this and, as a result of the change, we may see more properties being owned within the structures of Limited Companies for Buy-to-Let rather than by individuals due to the differing taxation approaches, particularly as the Chancellor also announced proposals to reduce corporation tax rates.

The housing and mortgage markets have been steady through the first half of 2015 and, as we have commented previously that we did not witness any significant slowdown in activity in the lead up to the general election, neither have we seen any significant change in momentum following it.

Gross mortgage lending in the first half of 2015 is estimated by the Council of Mortgage Lenders to be circa £96bn, which is almost identical to the same period in 2014.

Activity in the second half year is historically generally higher than the first, although remortgaging activity could be stimulated further following comments from the Bank of England Governor, Mark Carney, who in addressing the Treasury Select Committee commented that the “point at which interest rates may begin to rise is moving closer, given the performance of the economy”.

Although he has previously offered similar commentary before and no change has subsequently occurred, expectations are now potentially for a Bank Rate rise in early 2016.

Borrowers already appear to be more aware of the improving overall economic picture and the potential impact on monetary policy, and we anticipate that remortgaging will continue to increase as borrowers will look to lock into attractive rates ahead of any Bank Rate rise.

On the wider economic front, inflation has once again dipped back down to zero, but there was an unexpected rise in the unemployment rate, although most commentators feel this is something of a one-off.

What this may point to is further evidence of the skills gap that has been much talked about, as there are literally thousands of job vacancies across the UK economy but it would appear many of those who are unemployed, particularly long-term, do not possess the skills to enter employment.

The Chancellor’s further cap on benefit payments is clearly designed to push more people, many of whom are longer-term unemployed, into work, even if that is relatively unskilled lower paid work and is very much part of a Conservative policy.


The election is over and now the government need to deliver

May 29th, 2015

With the election outcome having upset the forecasts of almost all of the major pollsters, I imagine several political parties will be re-thinking which polling companies they should look to engage next time as they attempt to gauge the public mood when we do it all again in five years’ time – assuming this government make it to 2020.

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Economy continues to impress…

February 24th, 2015

The economic news continues to impress, inflation has today fallen to 0.3% the lowest level since the introduction of the measure of Consumer Price Inflation (CPI), the economic growth forecast for 2015 has been raised by the Bank of England to 2.9% from 2.5% only three months ago, unemployment continues to fall and wages are finally starting to increase in real terms.

We should of course recognise that with inflation falling primarily due to the halving of the oil price this is giving a stimulus to the widening of the gap between CPI and the rise in average earnings and as is usual the politicians on the government side have been keen to seize on this and point to their “long term plan” paying off.

I am not sure that George Osborne or David Cameron or any other government minister can legitimately claim any credit for the fall in the price of crude oil, welcome thought that is!

I think it is important to mention that part of the fall in the price of oil has been the reluctance of the biggest producers, primarily Saudi Arabia to limit production, combined with a slowdown in the economies of many of the emerging states and in China in particular, the consequence of which has seen prices fall from circa $110 as recently as last July / August to as little as $45 in under six months, although it has risen in recent weeks back to nearer $60.

I think our politicians should be mindful that if some of the newer oil producers, in particular the Shale Gas operations that have grown exponentially in the US, are forced out of business, and many potentially will be with the oil price at under $70, once this capacity is taken off line or eradicated the laws of supply and demand will dictate that the price rises, and potentially very quickly much in the same way as it fell.

With the fall in the price of oil and other energy costs (although many of these can be indirectly attributed to the fall in the oil price also) and food costs, the net effect of this is that the Bank of England is forecasting a rise in real post take home household incomes of 3.5% which should make everyone feel that little bit better off.

Is the improving economics not only of the country as a whole but of individuals likely to have a material impact on the outcome of the General Election? We are now only eighty days or so away from polling day and the opinion polls look in general to be neck and neck.

Some point to a small Labour lead and others a Conservative one, but nearly all seem to show UKIP support ahead of the Lib Dems and several show support for the Green party at or around the same as that for the Lib Dems which looks ominous for Mr Clegg and Co?

We need to be mindful that polls have been wrong in the past and perhaps the best and most recent example of this was last year’s Scottish referendum which seemed to suggest a very close race right up until polling day, but ultimately the gap was 10 points in favour of remaining as part of the Union, and therefore making something of a mockery of the polls in the lead up to the vote.

Not surprisingly Labour has so far focused their campaign around the NHS and the Tories on the relative health of the economy under their stewardship. The Liberal Democrats appear to be positioning themselves as a party once again ready to work in coalition but potentially with either side and in doing so being the voice of reason and reigning in the political excesses of both the main parties for the benefit of the National good.

I am sure the next few weeks will have more twists and turns as politics is never straightforward and that potentially other external events not envisaged may play a part in shaping voter opinion and behaviour.


How will the upcoming General Election affect the UK housing market?

December 11th, 2014

The UK economy shows no sign of deviating from its growth trajectory with the independent Office for Budget Responsibility (OBR) now forecasting growth of 3 per cent in 2014 and 2.4 per cent in 2015. 

This puts the UK at the forefront of growth forecasts for the western world but there is a cautionary note in that our European Union neighbours, and ultimately our largest trading partners, show little sign of emerging from what has been an economic malaise and, in the worst affected parts of the Eurozone, continuing recession.

As a consequence, if the Eurozone economy does not alter course for the better any time in the near future, it could play a big part in whether the UK growth is tempered in the next year or two.

The General Election, set for May 2015, is currently too close to call in terms of outcome and most commentators believe no single party will command an overall majority.

Once the votes are counted, it seems likely that we may once again have some form of coalition, but this time it is highly likely that several of the smaller parties could hold the balance of power. This could include the Scottish Nationalists Party (SNP) which seems set to benefit with substantial gains from the Labour party in Scotland in terms of the number of seats that they may win in at the Westminster parliament.

The SNP have publically stated that they would not enter into coalition arrangements with the Conservatives but could do so with Labour. The Lib Dems appear to be increasingly falling out with their current Tory coalition colleagues with open public criticism being reined on each other so, although this version of coalition does not look like being repeated in 2015 at present, politicians are pragmatists and power has a habit of changing people’s thinking and forcing compromise when circumstances dictate!

So, does this have any repercussions for the UK housing and mortgage markets? The impending election may subdue the normal seasonal house-buying or moving activity associated with a spring market due to the uncertainty that the election outcome may pose in many people’s minds.

Some buyers may delay any moving plans until the political and subsequent economic policy is more clearly defined, but the market is still anticipating a gross mortgage lending market broadly similar to 2014 of circa £200bn.

The consensus amongst the political parties of all persuasions is of the need to build more homes in the UK and no doubt all will be formulating policy to win our votes in terms of how they propose to go about this.

The concern is that in the event of a hung parliament or a minority government with smaller parties voting tactically on specific policy agendas etc., the country potentially runs the risk of political deadlock with the machinery of government not actually functioning – similarly to what happened in Italy in the past – and, as a consequence, making and implementing policy may become even more difficult.

The recent announcements by the Chancellor in the Autumn Statement around the changes being applied to the Stamp Duty Land Tax (SDLT) were welcomed by the majority in the industry as they introduced a fairer way of applying the tax.

SDLT now works in a similar manner in which income tax is applied, in that you only pay the higher percentage rates on the element above a given threshold and not in the “slab” manner that has been applied until now.

This is forecast to reduce the tax burden and benefit around 98% of home buyers, but it will also cost the Treasury an estimated £800m in terms of the shortfall that will arise.

In addition to benefiting the majority of home-buyers, it should also substantially reduce the number of transactions that are priced just below the former threshold levels which had the effect of large numbers of houses changing hands for £249,999 and £499,999, respectively, which are the principle levels where the tax treatment had the biggest effect, thereby creating a false market at those points where the tax taken previously was most keenly felt.

The Chancellor, having introduced the new charging structure effectively and immediately, also removed the bunching of transactions that has taken place in the past when Stamp Duty holidays or exemption periods have previously been applied.

These have, in the past, been well-meaning in appearing to boost activity for a period, but have inevitably had a detrimental effect on the market once they ceased, as in reality, sales activity is merely brought forward or delayed to benefit the purchaser who stands to gain most from the resultant temporary tax change.

Brian Murphy’s comments on BBC Radio 5 Live

December 8th, 2014

bbc radio 5 live

Brian Murphy comments on Mortgage Advice Bureau’s latest mortgage statistics

August 22nd, 2014

bbc radio 4

When should rates rise?

July 25th, 2014

The UK economy has finally returned to the level of output that, as a nation, we were achieving in 2008 following what has been one of the longest and deepest recessions since the Great Depression of the 1930s.

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Mortgage approvals slow but is anyone to blame?

June 9th, 2014

The last month has witnessed the formal introduction of the Mortgage Market Review (MMR), and in both the lead up to and the intervening period since the new regulations became effective we have seen market activity reach something of a plateau.

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