A calmer political climate will support UK mortgage market growth in 2020 and 2021

Posted on Monday, January 20, 2020

According to the latest analysis from the Intermediary Mortgage Lenders Association, over the next two years and largely driven by house purchases as buyers return to the market, gross mortgage lending will see a return to growth.

The New ‘Normal’ report, which makes a series of predictions about the mortgage market over the next two years, reveals that while remaining resilient in the face of wider uncertainty, gross mortgage lending fell by between 1-2% in 2019.

IMLA predicts that gross mortgage lending will grow by 1.4% to £268bn in 2020, rising to £275bn in 2021. This compares to an estimated out turn of £264bn in 2019. Market growth will be supported by earnings growth and the low rate environment, which has already provided mortgage holders with a £32 billion windfall in reduced interest payments relative to a decade ago. However, the reduction in political uncertainty following the General Election could also encourage some consumers to return to the market as well.

2020 is also set to see borrowers continuing to seek advice for their mortgage needs. IMLA expects intermediaries to grow their market share to 77% of all mortgage transactions this year, up slightly from 2019.

Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said: “The next two years certainly look positive for the mortgage market. In 2019 the sector remained resilient in the face of ongoing political uncertainty, but our report shows that a boost in consumer confidence is likely to support modest growth over the next two years.

“Intermediaries are driving a large part of that growth as borrowers continue to seek out the expertise of advisers to help them find a mortgage.”

However, the report also states that there are a number of key challenges facing the mortgage market over the coming years. The modest growth predicted will also partly rely on Britain’s ability to negotiate a trade deal with the EU.

Although the main driver of growth in the market until 2018, remortgaging is expected to remain flat over the next two years at £100bn as more borrowers turn to product transfers and higher volumes of 5-year fixed rate mortgages reduce the amount of market churn. Product transfer volumes grew by 13.3% between Q1 2018 and Q3 2019 and the report forecasts that this area of the market will grow again by 4% in 2020 to £172bn and a further 2% in 2021 to £176bn.

IMLA’s report also predicts that the Buy-to-Let market will continue to fall to £40bn in 2020 and £39bn in 2021 as tax relief for landlords is fully removed in April this year.

The planned restriction of Help to Buy could limit the ability of some buyers to press ahead with their housing plans unless alternative schemes become available. Innovation and initiatives to replace Help to Buy are needed to ensure first-time buyers in particular continue to have a range of options for stepping onto the housing ladder. We urge the Government to do what it can to facilitate and encourage this innovation to support more younger buyers make their first step.

A reassessment of current affordability requirements would also support younger buyers with their homeownership ambitions, according to the Association. One possible solution could be the Johnson Government’s idea to encourage long-term fixed rate mortgages that would be assessed for affordability at the rate the customer pays in contrast to most other mortgages.

Kate adds: “Although we expect modest growth for the mortgage market over the next two years, Britain’s housing market is still far from perfect. The Buy-to-Let sector continues to be under pressure from a spate of tax and regulatory measures enacted over the last five years and IMLA continues to call for a moratorium on any further changes to the Private Rented Sector.

“The planned restriction and eventual closure of Help to Buy also requires the industry to consider new ideas. More than 200,000 housing transactions have been supported by Help to Buy equity loans since their launch and without suitable alternatives first-time buyers will have fewer alternatives. IMLA believes that the new government should encourage the industry to embrace innovative solutions that could replace Help to Buy, bringing together lenders, housebuilders and the regulator to identify what could take the place of the scheme.”


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