Help to Buy phase two comes in fully, new regulation measures through the Mortgage Market Review will be introduced in April and with an election then a year away, our industry will be under the microscope more than ever as housing becomes a growing political issue.
The key message for the mortgage market would be that there are grounds for optimism that the recovery will continue. Following several quarters of a resilient job market, better credit availability and dissipation of fears of a dip into another recession, a more confident national mood has emerged.
Last year was the year the mortgage industry turned a corner. After many years being described, at best, as flat, there were noticeable improvements. Gross lending in the third quarter was at its highest level since 2008; encouragingly, first-time buyers emerged as a key driver in this upward trend with home movers and remortgagors also showing growth.
This, we believe, will continue as the CML forecast released in December estimated total gross lending would be £170bn in 2013 and will rise to £195bn for 2014 and £206bn in 2015. This predicted steady upward trend is what we expect and hope for; there is little sign of an unbridled housing boom at this stage given the already stretched nature of household finances, the new regulatory environment and the likely future course of interest rates.
The spectre of rising interest prices may deter some from borrowing even though, as our forecast suggests, there are grounds for optimism that the vast majority of households will cope with a slow transition to more normal interest rate levels.
The first few months of 2014 will no doubt be dominated by coverage of how Help to Buy mortgage guarantee is developing. The equity loan limb of Help to Buy, launched in April, has already led to 5,000 property transactions.
The second phase, the Help to Buy mortgage guarantee, still has uncertainties surrounding its impact. Lenders having to pay a commercial fee, the competitive alternatives being offered and the lending criteria to borrowers tightening due to the MMR affordability rules suggest its impact, as predicted in our forecast, will be a modest but positive contribution.
The most important aspect of 2014 for the lenders, which will affect borrowers too, is the implementation of the MMR in April 2014, bringing a wealth of change to the industry.
Today’s mortgage market already imposes tighter borrower limits than before, with the influence of MMR already visible, but the central plank of the new measures will be full introduction of the new affordability rules.
These will require more extensive checks to verify income of borrowers and measure how affordable a mortgage loan is on a capital repayment basis at present and with anticipation to future rate rises.
An additional factor will be the attitude of the macro-prudential regulator in the form of the Financial Policy Committee, which has been clear that they will monitor the market closely and take action if they see stability threatened.
This new age of regulation will leave a lasting mark on the mortgage industry. Most likely, it will help keep the market from overheating (we are clear that this is not occurring at present as lending levels are only just above half their peak).
But lenders in 2014 will need to not just look forward at new borrowers but be mindful of their back books too. A key challenge will be working to help ensure existing interest-only borrowers have in place a workable plan for repaying their mortgage.
Mostly for 2014, we hope for a mortgage market that shows steady growth; a Goldilocks market, neither too hot nor too cold.
Paul Smee is director general of the Council of Mortgage Lenders
