Mortgage market snapshot

Just as the new mortgage regime is kicking in, the market appears to have reached some new highs since the global financial crash. Both the number of mortgage loans for house purchase and the number of first time buyers (FTBs) were at their highest levels in February 2014 than for the same month in any year since 2007.

The number of loans rose 33 per cent to 48,400 in the year to February 2014, while their value rose 47 per cent to £7.8bn. Over the same period FTB purchases were up 41 per cent in number to 22,200 and up 55 per cent in value to £3.1bn. Figures like these suggest that recovery is truly taking hold.

The minutes of the meeting of the Monetary Policy Committee (MPC) on 9 April show that it noted the strengthening of household spending with retail sales up 1.7 per cent and new car registrations up 2.5 per cent in February. The Bank of England’s Credit Conditions Survey pointed to increased demand for secured lending for house purchase in Q1 of 2014, which it attributed to an improvement in the economic outlook and an increased appetite for risk on the part of mortgage lenders. It went on to suggest that lenders expect the availability of secured credit to increase further in Q2, driven primarily by the desire for greater market share.

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The survey also pointed to a significant increase in the availability of mortgage deals with loans to value (LTVs) above 75 per cent and an increased willingness to lend above 90 per cent LTV. However, it also detected other housing indicators that were weaker and, having satisfied itself that the conditions posed no threat to financial stability, the MPC voted unanimously to maintain the Bank base rate at 0.5 per cent.

Warning light

But just as the mortgage industry might have been tempted to heave a collective sigh of relief and welcome the new normal, the Bank of England has voiced its unease at the state of the market. The Deputy Governor for Financial Stability, Jon Cunliffe, a member of the Financial Policy Committee (FPC), the MPC and the Prudential Regulatory Authority (PRA) Board, delivered a speech at the beginning of May warning of the danger of an overheating market. Explaining that the FPC’s role revolves around identifying and dealing with threats to stability, he said that in his view the “growing momentum in the market” is now the brightest warning light on the FPC’s dashboard.

Now the Governor of the Bank of England, Mark Carney, has also sounded a warning about the state of the market, hinting at possible changes to the Help to Buy scheme. It is rising house prices in particular that are giving cause for concern. The figures show that they are back to 2006 levels, as shown in the Graph. Cunliffe believes that some of it may be due to “pent up demand”. He argues that between 2008 and 2012 there were some 3 million fewer housing transactions compared with the long-term average. Now that conditions are improving and confidence is returning, some of those transactions were simply delayed and are now being carried out. His concern is that this pent up demand, coupled with the shortage of housing supply could lead the UK into dangerous waters.