General election year is likely to bring increased uncertainty about the UK economy, and as polling day nears, the parties’ positions on the main issues will crystallise.
Of course, housing is a key policy area for all, and the stamp duty reforms announced in the chancellor’s Autumn Statement should support growth.
However, consumers might be expected to take a “wait and see” approach ahead of May’s election – and potentially for a little while afterwards – until the economic implications of any political shift are better understood.
There is uncertainty at a more local level too – belt-tightening at Whitehall will lead to difficult decisions in town halls across the country early this year as local councils set their budgets for the new financial year. Many authorities are predicting significant cuts to public services, including job losses, which may also affect consumer confidence.
Better news for the UK came from information presented in the latest Bank of England Inflation Report confirming the economic recovery continued to strengthen, with gross domestic product of 0.7 per cent in the third quarter of 2014 and up 3 per cent year-on-year. Inflation remained below the target of 2 per cent and unemployment fell. Elsewhere in the world, economic growth was much weaker, particularly in the eurozone.
The market had predicted the Bank of England base rate to start rising in the third quarter of 2015. Good news for borrowers is that this is now expected to happen later, due to a combination of spare capacity in the UK economy, subdued annual wage growth and inflation forecast to remain low.
As a result, the next base rate increase is more likely to be early 2016 which – together with increasing competition as additional lenders enter the mortgage market – means borrowers will continue to benefit from low rates.
This extra competition may benefit borrowers and brokers; in addition, it could provide intermediaries with greater opportunities to promote remortgage business – a market which was so buoyant prior to the financial crisis. However, if the base rate remains low for longer the impetus for customers to remortgage could diminish.
Pent-up demand may have accounted for strong activity in the housing market in early 2014, but this demand may now have been satisfied.
In 2015 we expect more moderate growth in the housing market of between 2.5 per cent and 5 per cent, to around £215bn, and expect house-price growth of around 4 per cent.
The mortgage market continued to grow in 2014 and gross lending in October was up by 6 per cent year-on-year, at £18.6bn. This was slightly lower than the July peak of £19.8bn.
The rate at which house prices increased also began to moderate – 8 per cent in November, compared to a high of 10 per cent during the summer.
The full-year gross mortgage market figure for 2014 will be published shortly – a final total in the region of £205bn would represent a 16 per cent increase on 2013.
House-price inflation was stronger in 2014 than is anticipated for 2015, partly because of measures taken by regulators to dampen inflationary pressures in London; these appear to have been successful when viewing figures in the Halifax and Nationwide house price indices.
Actions taken to temper large rises in the capital may have had a cooling effect on house prices in other areas in the UK, and there is a question mark over whether this also could have a dampening effect on prices overall.
More house-price inflation during 2015 would help borrowers who wish to release more equity from their existing properties or who are considering new mortgages at lower loan-to-values which tend to come with lower interest rates.
After the biggest shake-up of the mortgage market for a decade, a time for reflection was likely and probably useful and, as we look ahead to the anniversary of the mortgage market review in April, we might expect additional guidance from the regulator to shape and refine outcomes that were difficult to predict fully until the new rules came into force.
The introduction of the new regulations ensure all lenders are obliged to act responsibly, using affordability assessments that will temper some of the excesses seen in the mid-2000s when the release of equity was booming.
Changes to affordability assessments through MMR have brought more standardisation to how lenders operate, and reviews of outgoings as well as income potentially improve the customer outcome through more fully advised mortgage interviews and processes. MMR also permits suitably qualified customers to make their own decisions through the non-advised, non-interactive process.
As we start a new year there remain opportunities within the market for lenders to identify groups of customers who are particularly less well-served, and for innovative products and specific lending to be manufactured to meet those individual and evolving needs.
Martin Richardson is general manager business development at Leeds Building Society
