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Reeves’ Budget needs discernment without shattering market confidence – Bamford

Written By:
Guest Author
Posted:
September 9, 2024
Updated:
September 9, 2024

Guest Author:
Patrick Bamford, head of international business development at Qualis Credit Risk, part of AmTrust International

Just days into September, this already feels like a very important period for the mortgage and housing market.

Perhaps even more so, considering we have fewer than two months until a Budget statement that looks less likely to be positive with each and every day.

We should not underestimate just how thin the ‘confidence line’ – which Labour are going to have to tread with Rachel Reeves’ first Budget as Chancellor – is. There is a danger that going ‘too hard, too fast’ knocks too much stuffing out of the UK consumer, particularly in terms of whether now is the right time to be active in the mortgage and housing marketplace. 

 

A recuperating housing and mortgage market

And doubly so when we consider there have been a growing number of green shoots appearing in recent months, with the bank base rate (BBR) cut helping to push mortgage pricing down, making affordability and borrowing a little easier.

The latest Bank of England figures reveal a more positive picture as well. Mortgage approval numbers were at their highest in July since September 2022, with net borrowing of mortgage debt by individuals also increasing to its highest since November 2022, and the annual growth rate for net mortgage lending rising by 0.6% in July, following a similar rise in June. 

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There is no denying the positive impact rate and pricing cuts have on a market, where many might have felt prior to this that the mortgage finance they required to get on the ladder or to move up it was either prohibitively expensive or simply out of reach.

And, therefore, the Labour Party has a job on its hands in our industry in that it should want to maintain activity and demand, while also meeting its supply-side commitments, and having to find extra taxation to fund the black hole in the public finances it says it inherited. 

 

Instilling confidence and stimulating activity 

Of course, it might seem like an obvious point to make here, but one way it can help bolster the coffers is by producing an environment where more housing transactions are taking place.

We’re all acutely aware of what a boon to the UK economy a very healthy, functioning number of house purchases/sales can deliver, not forgetting of course the tax take available via stamp duty. It would therefore make sense for the government to be very careful about putting a premature end to more of a feel-good factor that appears to be growing in our space. 

When you consider the next 12 months or so, we might have three, four, or perhaps even more, rate cuts, and coupled with the competitive need among lenders, this could bring rates down to beginning with a three, potentially a two.

We should certainly not underestimate the positivity a lower rate environment will continue to engender, particularly among first-time buyers, and specifically among those who are not fortunate enough to have a Bank of Mum and Dad to lean upon.

Recent figures from Savills suggest just how important that has been – it estimates that in 2023 alone, £9.4bn was gifted or loaned to help first-timers get on the ladder. This was no doubt boosted by the affordability issues many would-be first-time borrowers were having through that period, and the need to take parental money in order to either secure a large-enough deposit or meet affordability criteria. 

For many people who didn’t have this access, the mortgage market might have appeared off limits, but a growing number of high-loan-to-value (LTV) mortgage products, coupled with lower rates, should open up avenues for would-be buyers that were previously closed. 

However, much will depend on what the Budget holds. There are some commitments already made to first-timers – a ‘new’ guarantee scheme and more new homes, but stamp duty thresholds will return to previous levels next year, and it looks unlikely we’ll get a Help to Buy replacement. 

What we therefore continue to need are lenders active in the high-LTV space, and a continued pressure being brought to bear on pricing that will allow more first-timers to get on the ladder. Also, we need to be sharp on our messaging, particularly to those who might have been keen to buy in the last 12-18 months but, at that time, were put off by whatever reason. 

This is a different market, and a shifting one, and with no political banana skins thrown in our direction, we can continue to develop greater positivity and turn a growing confidence into more first-time buyer transactions.

Let’s see how Rachel Reeves treads this line come the end of October.