The mortgage market continues to show signs of recovery. Gross mortgage lending, for example, is at its highest level since 2008, reaching £246bn in the year to December 2016 – up 12 per cent from 2015. But while this is positive news, there are all kinds of factors underlying the housing and mortgage markets, and not all point in the same direction.
The Council of Mortgage Lenders (CML) has homed in on the low level of transactions, for example, and plans to research the causes. At the height of the market in 2006/07 there were 1.6 million housing transactions per year. In 2016, there were 1.23 million. The CML speculates that this may be at least partly due to the inertia of homeowners. It contrasts them with another group of borrowers: first-time buyers (FTBs).
The UK has seen homeownership levels decline in the years following the financial crisis, as affordability becomes an even bigger issue and the government imposed a much stricter regime around mortgages to prevent a repeat of the crisis. Most commentators would put the numbers of FTBs in the pre-crunch norm of the early 2000s at around 500,000 a year.
According to Lloyds Bank, the low was in 2008 when its numbers fell to 192,300. But FTBs have subsequently seen a much greater bounce back than home movers, as Table 1 indicates. In 2016, the number of movers rose 12 per cent from its 2009 low, while the number of FTBs is up 75 per cent from its low in 2008.
The CML cites similar figures, suggesting that home mover numbers are up 17 per cent since 2008 whereas FTB numbers are up 63 per cent. It attributes the contrast in recovery rates to the changes made in helping FTBs get onto the housing ladder. Becoming a homeowner remains an aspiration in the UK, and successive governments have sought to put a series of initiatives in place to ‘grease the wheels’. FTBs, it was decided, were the lifeblood of the market, so schemes such as FirstBuy and Help to Buy were launched to boost their numbers.
However, as the CML points out, the majority of properties coming onto the market for sale are from existing homeowners. If they don’t move, then properties are not released onto the market causing a bottleneck in demand for housing. Inevitably, the shortage of property for sale pushes up the prices, too.
The reason why owners are refusing to move is not immediately clear, especially at a time when interest rates are at an all-time low and mortgage affordability has improved. Research conducted by Halifax suggests that despite an increase in house prices, mortgage payments constituted only 30 per cent of average disposable earnings in the final quarter of 2016. This is in contrast to a peak of 48 per cent in 2007.
Extending ambitions
Mortgage guru, and senior technical manager at John Charcol, Ray Boulger, points to a growing trend at the top end of the market to improve and extend homes rather than move. A shortage of desirable property is another reason cited. Older generations who may be looking to downsize, for example, complain of a lack of suitable property, or that costs are too high in cases where homes do meet their needs.
There may also be a number of homeowners who feel unable to move because of affordability or because they may be ‘mortgage prisoners’. Just as schemes have been set up to support FTBs, the CML is considering whether similar initiatives should be launched to encourage more people to trade up or down.
The results of the CML’s research will be closely watched. Is it possible that help for home movers should be addressed as part of the housing agenda? February’s Housing White Paper disappointed as it contained little concrete detail on the issue of downsizing, merely stating that the government was “committed to exploring” issues such as helping older generations move at the right time and in the right way.
