Talk of an imminent rise in the Bank of England’s base rate has once again given way to a more cautious approach, with the Bank’s governor Mark Carney hinting that it is unlikely to rise above 0.5% until late 2016 or early 2017 due to weaker economic growth.
While the City has endured a turbulent start to the year, the continued low mortgage rates will be warmly received by would-be borrowers who can satisfy lenders’ criteria. House prices remain a significant barrier for first-time buyers in particular, with the Office of National Statistics reporting a 7.7% annual increase to November. Rising borrowing costs will have added to the challenge they already face in raising a deposit.
The buy-to-let market will continue to see high lending volumes in the first quarter of 2016, as investors look to buy ahead of the increase in Stamp Duty. However, the changes should not undermine the long-term appeal of property investment, and it certainly won’t alter the continuing need for a healthy private rental sector to meet population needs.
In the remortgage market, low rates coupled with ever-increasing equity means existing homeowners are likely to remain a target for favourable deals, even if the fading prospect of a rate rise means some will feel less urgency to switch.
There are still many challenges facing the mortgage market, and although a continually low base rate will support lending activity, policymakers need to avoid being heavy handed when it comes to regulation. While gross lending at the end of 2015 was up 8% from 2014, this can give the illusion that lending is booming, the market is still far from pre-recession levels.
What is more, the rush of enquiries for Eastern European self-cert loans suggests – rightly or wrongly – there are still plenty of underserved customers out there looking for products to meet their needs.
