Gross mortgage lending is set to exceed £210bn in 2015, up 3% over the year after 25% growth in 2014. Despite a 5% decline in housing transactions over 2015, gross lending for home purchase is up 2.1% while growth in remortgaging has increased by 2.9%.
The convergence in new business rates with individuals on lenders’ back books is limiting the imperative for households to remortgage. With expectations for an increase in the base rate drifting into 2017 it is hard to see a major uplift in remortgaging activity in 2016 unless current market and consumer expectations shift significantly over the year.
The real driver of home purchase lending in 2015 has been the expansion of buy to let which has grown by 17% over the last year. Changes announced by the Chancellor on tax relief for higher rate taxpayers and Stamp Duty are set to slow the speed of growth in the buy to let market from spring 2016 onwards. The tax changes could well result in some disinvestment over the next three years as borrowers reduce leverage to align to the lower level of interest tax relief. We still expect some further growth in buy-to-let lending over 2016 but at a much reduced rate.
Home purchase lending has the potential to drive stronger lending volumes in 2016 and beyond. The various government schemes aimed at helping buyers access home ownership will drive more sales. A lot of detail needs to be put in place, not least on mortgage terms and availability for Starter Homes. In addition, there will be an inevitable delay as schemes launch and ramp up volumes.
The strongest potential for growth comes from greater activity among existing mortgaged home owners whose share of property transactions is at a 10-year low (just 33% compared to 50% in 2007). The housing recovery to date has largely been confined to the greater South East but this is spreading to regional cities where house price inflation is starting to accelerate. Continued economic growth along with low mortgage rates should result in more transactions in markets where the recovery is in its infancy. The only downside is lower turnover in a London market where price rises are set to slow further in 2016.
Overall, we expect lending volumes in 2016 to reach towards £220bn, rather less than some may be anticipating. The focus for lenders will remain on seeking efficiencies while improving customer service. Technology has an increasingly important role to play in speeding up the decision-making process while seeking to leverage the digital channel much further over the next decade.