Buy-to-let  

Uncertainty looms over UK housing recovery

Uncertainty looms over UK housing recovery

Last year was a year of extraordinary change – from the unforeseen ‘Brexit’ vote in June, to the shock election of Donald Trump as the next US president. The mortgage market has not been immune to change either, with the introduction of the EU Mortgage Credit Directive which brought about a new framework of conduct for firms selling mortgages across the European Union.

This, in addition to the post-Brexit Bank of England base rate plunge to a record low, has dropped the borrowing costs for customers and businesses. Despite regulatory change and market upheaval, 2016 will go down in history as a year of solid lending growth. But what does 2017 have in store?

Following the most recent decision by US Federal Reserve chair Janet Yellen to increase the base rate, recovery in the US appears to be gathering pace, and 2017 could well be a year of rate rises across the pond.

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In the UK, however, the outlook remains trickier to call.  Interest rate movements remain uncertain, and as we await the UK to officially exit the European Union, there remains a real possibility that the Bank of England could move rates down to 10bps in an effort to stabilise the economy and boost growth.

Re-mortgaging is likely to continue to dominate intermediated business in the year ahead and any drop in interest rates could help stimulate the market further, albeit it remains uncertain how lenders will react to a further drop.  Product transfer fees have been a hot topic in 2016 and are set to remain so in 2017.  I continue to believe that all major players will eventually recognise the inevitable need to work with brokers in managing on-going client retention and several will make this move in the year ahead. 

We foresee the buy-to-let market continuing to be subdued as landlords and brokers adjust the impact of perpetual taxation changes, as the government attempts to prevent home owners storing wealth in property.

The withdrawal of the higher rate tax reliefs on mortgage interest costs, beginning with 25 per cent of these costs having basic rate tax applied from April 2017, means landlords do have time to plan. But with the level of relief continuing to drop over the next four years, the impact will be significant for many landlords.

The combination of the tax relief changes and the PRA requirements that will also impact in 2017 are likely to curtail the entrance of new landlords and provoke a proportion of existing landlords to cash in on their portfolios. It is essential that brokers understand the changes, rise to the challenge and upskill fast.   

More broadly, early steps into digital solutions are likely to accelerate as more players seek to enter the market, following the arrival of the first online mortgage brokers, Habito and Trussle. We are still some way away from a fully automated solution, but the technology is likely to improve faster than many think – these threats make a really strong proposition a critical tool for any broker to help stand out in a crowded market – and confirm to the customer what value an adviser can bring to the table.