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State of play in the mortgage market post-Brexit – Legal & General

by: Jeremy Duncombe, director, Legal & General Mortgage Club
  • 12/09/2016
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State of play in the mortgage market post-Brexit – Legal & General
Jeremy Duncombe discusses the views of three industry heavyweights on the state of the UK mortgage market after the EU referendum.

With the dust beginning to settle following the UK’s vote for Brexit, I invited Simon Rubinsohn, chief economist of RICS, Peter Rogerson, commercial director of Mortgages and Savings at Virgin Money and Bob Young, CEO of Fleet Mortgages to discuss their views on the current economic situation in the latest series of webcasts for Legal & General Mortgage Club.

As part of this conversation, we explored the latest RICS market sentiment survey, as well as the current state of lending in the mortgage market. Here, I will focus on the main insights gained from these discussions and share why I feel that optimism is on the rise, hopefully for good.

Although the first post-referendum survey from RICS could have been seen as somewhat gloomy, the data captured the mood in the immediate aftermath of the vote and reflected the views of practitioners around the country. Simon Rubinsohn is keen to reassure us that RICS’ latest survey is much more optimistic.

Simon explained that June’s data was published right after the referendum, and therefore captured the initial shockwave. However, after some time to reflect and the realisation that “the world clearly hasn’t ended”, July’s results show that surveyors are now feeling calmer, particularly when it comes to their medium to long-term views.

Seasonal lull

While current trends are likely to remain flat during August, Simon suggested that this couldn’t simply be attributed to Brexit. Instead, this lull can in part be explained by the usual seasonal dip over the summer. Come September, Simon believes that the market could gain a little more confidence, especially given recent actions from the Bank of England.

In our discussion about whether the recent drop in London house prices is a new reality, or simply a price correction, Simon felt that falling prices of new build properties in London, particularly by the river, represent the latter. But again, this shift was not caused by the vote for Brexit, but already a fairly well established trend.

Another important discussion centred on whether the vote to leave the EU will have an impact on the lending criteria that borrowers will need to satisfy. All parties agreed that there was unlikely to be any major change, “We are not back in 2007 again,” Peter Rogerson stated, adding that the UK still has a strong economy and has seen a good performance in lending books in terms of asset quality. Plus, even if we start to see signs that the economy is slowing, the industry will be able to manage and cope with it.

Opportunities for intermediaries

In terms of the buy to let market, Bob Young felt that lenders that are not buy-to-let specialists are likely to look elsewhere to maintain their lending numbers. He believes that larger lenders are likely to turn to the regulated sector, which means that smaller firms could find opportunities in areas like interest-only loans, lending into retirement and the self-employed. Changes like these will provide a good opportunity for intermediaries to get their numbers up for lending and meet their targets.

When questioned about whether the vote for Brexit has affected Virgin Money’s involvement in the intermediary sector, Peter stressed the company’s constant and continuing support for this channel. “We are more than 90% intermediated and have always been very supportive of the intermediary channel,” he said. “If you look at the latest market statistics, it is the direct channel that has suffered the most since the June referendum, rather than the intermediary.”

Overall, this insightful discussion shows the future of the economy is not all doom and gloom as it was first made out to be; the truth is that the UK mortgage market remains robust and open for business.

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