2012: Another year of mortgage uncertainty
The fate of the UK mortgage market in 2012 will be largely determined by how European ministers deal with the sovereign debt crisis.
Problems with the eurozone started to affect the UK mortgage market in the second half of 2011, putting the brakes on a relatively strong start to the year.
Developments in the eurozone’s sovereign debt crisis caused Kensington Mortgages’ parent Investec and West Bromwich Building Society to withdraw planned securitisations due to the uncertainty.
Mortgage pricing also started to rise in the autumn following a rate war between lenders around the middle of the year. The price increases were partly a result of the increasing margin between bank rate and three-month Libor, a key indicator of lender confidence, which had steadily increased from around 0.83 per cent at the start of August to around 1.06 per cent in the middle of December.
John Charcol senior technical manager Ray Boulger (pictured) says the mortgage market is likely to suffer some short-term pain throughout 2012 as the crisis unfolds. He says: “The eurozone crisis will have the biggest bearing on the UK mortgage market next year. Things are likely to get worse before they get better.”
The Council of Mortgage Lenders has lowered its 2012 gross lending forecast from £150bn to £133bn. Director general Paul Smee says the health of the market will be largely determined by European ministers’ ability to resolve the crisis.
He says: “As a by-product of sovereign debt worries, lenders face challenging conditions in wholesale funding markets and these could have negative effects on the cost and availability of UK residential mortgages through some or all of next year. But if European leaders navigate a comprehensive and sustainable way through eurozone problems, current financial market stresses could heal and the previous pattern of gradual improvement in cost and availability of funds could re-emerge relatively quickly. This, in turn, could have a major benefit on UK growth prospects and boost household confidence and appetite to borrow.”
Economists say house prices are set to take a hit next year, with all areas suffering price falls.
Capital Economics chief property economist Ed Stansfield says the extent of the price falls will be determined by the health of the UK economy and its ability to weather the eurozone crisis.
He says: “If you see a disorderedly break-up in the eurozone, the risks are you could see very large disruption in the credit markets and another full-scale credit crunch, in which case, prices could easily fall by double-digit rates, similar to what we saw in 2008. But, more generally, without that full-blown crisis, we would have a rather more balanced picture. My best guess would be we will see prices fall by 5 per cent.”
If ministers do not find a speedy and effective answer to the eurozone crisis and mortgage lending does take a hit as a result, 2012 looks set to be a difficult year for intermediaries.
Emba group sales and marketing director Mike Fitzgerald says the opportunities for advisers are in the protection market this year.
He says: “Protection business is there in bigger volumes and you may even see a few mortgage advisers becoming protection specialists again because no one will be writing more mortgage business next year.”
For over two years, the FSA has been working on its new regulatory framework for the UK mortgage market and last month it published its final proposals, which are likely to be made into rules this summer and introduced in the summer of 2013.
The proposals were broadly welcomed as they were generally less prescriptive than the original proposals, especially on assessing affordability and interest-only.
Advisers have criticised lenders for adjusting their lending criteria in advance of the MMR to match up to what they expect to be the final rules. This saw many lenders tightening up on interest-only criteria before they even knew what the regulator had in mind for these products.
But Boulger says having a final set of proposals that are less stringent could lead to lenders relaxing criteria over the next 12 months.
He says: “Having a final set of proposals will be positive because although the new rules will be more stringent, they are less stringent than the original proposals.
A lot of lenders did implement some of the original draft proposals, so now we have some revised rules that are less stringent, it does provide some scope for some lenders to lighten up a little bit.”
Lentune Mortgage Consultancy director Stuart Gregory says: “It is good to have more concrete proposals but now is the time the FSA and lenders think about how they will promote these changes to the public and explain how it will affect them.”