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Mortgage review: After regulatory upheaval, will 2015 bring calmer seas?

When the financial crisis took hold in 2008, mortgage lenders pulled back from all but the most vanilla borrowers and gross lending figures plummeted from £363bn in 2007 to just £135bn in 2010.

The last 18 months have seen a turnaround in sentiment, although that resurgence has been tempered by the introduction of the Mortgage Market Review.

And further controls were placed on mortgage lenders with the Bank of England’s Financial Policy Committee was granted powers to limit the volume of high loan-to-income ratio loans lenders can advance.

The year of the regulator?

The Intermediary Mortgage Lenders Association executive director Dr Peter Williams believes those reforms will see 2014 go down as the year regulators took control of the mortgage market.

He says: “I would say 2014 has been the rise of regulation across the operation of the mortgage industry both by the FCA and the FPC – that’s a very significant shift to the extent that my question becomes – is this an open market or a state-regulated market? I think it would be the latter.”

Association of Mortgage Intermediaries chief executive Robert Sinclair believes the MMR and further requests for powers from the Bank of England show how important the market is to policymakers.

“2014 was the biggest year of change since 2004 and in terms of recovering from the crisis this was definitely a watershed,” he says.

“Housing is as high on the Government’s agenda as it ever has been and the FCA has shown its position with the MMR – a huge regulatory change for the industry.

“They’ve tried to ensure that we do not repeat the mistakes that led to the crisis but only time will tell if that has been achieved. The series of controls now in place should limit the excesses of the past but that does not mean we are out of the woods entirely.”

Nationwide managing director for group intermediary sales Ian Andrew says: “MMR was the biggest regulatory change for a long time, and all things considered I think the year has passed very smoothly. Anticipation of the new rules seemed to lead to a spike in lending in the early part of 2014. The market has cooled a bit since then but we look well placed for 2015.”

Stamp Duty

Chancellor George Osborne used his Autumn Statement in December to radically overhaul the structure of stamp duty, moving away from the much-maligned slab structure to a progressive tax rate. The reform has been widely lauded by the industry.

Sinclair says: “The stamp duty reforms are a huge change and welcomed by the whole industry. As to whether or not it has an impact on activity levels, we are where we should have been for a long time. We may see some short-term pick up in activity as sentiment improves, but in the long-run The market will recognise that we still have other barriers such as shortage of supply and increased regulatory controls.”

Williams, however, does not believe the changes announced by Osborne go far enough.

“Stamp duty is a tax on mobility and all we’ve done with these adjustments is make it a slightly-less awful tax on mobility,” he says. “The issue of a sensible tax structure for the housing market has yet to be resolved – we can only hope that will come sooner than this reform did.”

Election worries

The upcoming election will lead to uncertainty both for borrowers and lenders, as well as raising questions about the wider economy, and Sinclair does not feel the market can confidently forecast how this will impact the mortgage industry.

He says: “We may see a fundamental review of our relationship with Europe and we are yet to see just how each party will approach the housing and mortgage markets. Do wider issues in the global economy such as falling oil prices, political instability and fluctuating equities markets impact this industry? We just don’t know.”

Williams argues the main political parties have not done enough to alleviate long-standing concerns around housing supply and mortgage accessibility.

He says: “What’s striking is that all parties are obsessed with supply but they push out short-term policies, which is exactly what the housing market does not want. We want long-term policies and stability, not short-term volatility. People need the right mortgages and houses to buy with them.”

Andrew says the general election will be “the biggest question mark” for 2015.

He adds: “We’ve seen some tactical moves such as the stamp duty reform and clearly the housing market is going to play a big role in the election. The uncertainty in the lead up to the vote could have a significant impact and we need to see how that plays out.”

Where will we end up in 2015?

In December, the Council of Mortgage Lenders forecast modest growth to around £225bn in gross lending this year, up from the £205bn in 2014.

London & Country associate director of communications David Hollingworth says the increased role of brokers following the partial ban on non-advised mortgage sales included in the MMR will contribute to that growth.

“Lenders have recognised how crucial brokers are now and rising proc fees reflect the fact that brokers are doing a lot more and are providing a good deal of their volumes,” he says.

“Brokers are increasingly urging clients to address their financial situation and fix before any interest rate rise; if we have greater take up, 2015 should shape up as a good year for growth.”

Sinclair adds: “Gross lending around £225bn should be achievable – it isn’t that long ago that we had a £140bn market and the vast bulk of new deals are now going through brokers so we have to be happy about that. I don’t think we will see the massive 40 per cent year-on-year rises in lending as we move forward, we should enjoy more stable growth and that’s what the market needs.”

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