MortgagesDec 29 2016

How challenger lenders grew mortgage market share in 2016

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2016 for the industry has been like going through rough waters in a sturdy boat. 

There were many obstacles and bumps to overcome but lenders have proven flexible and resilient to change.

The industry landscape has seen much recent evolution with a rise in competition, as challenger banks and specialist lenders grew by 56 per cent, while lending by building societies and banks grew 9 per cent and 5 per cent respectively.  

Mortgage lending performance has remained positive, aided by increased product choice, wider economic conditions improving, many government schemes available, and the 25 basis points base rate cut. 

First-time buyers continue to be a key driver, including surpassing home mover lending in the second quarter for the first time since the mid-1990s. 

First-time buyers grew year-on-year every quarter this year; by contrast, home mover activity declined slightly, with fewer loans being advanced than a year ago.

Remortgage activity had been stagnant for years post-financial crisis but saw increases in 2016.    

Buy-to-let lending, after large growth in the past few years, saw significant decline. 

The introduction of an increase in stamp duty on second homes in April sparked a surge in activity in March, but much more muted lending thereafter. 

The full extent of the effect on buy-to-let lending will take time to settle.

The full extent of the effect on buy-to-let lending will take time to settle but, as it stands, buy-to-let lending is operating at much lower levels than a year ago. 

On the regulatory side, the European mortgage credit directive came into effect in March, introducing a new class of lending - consumer buy-to-let - and changes to foreign currency mortgages. 

The CML and lenders worked closely with government and regulators to ensure the new requirements were modelled as closely as possible on existing UK rules. This assisted in a smooth transition that saw little disruption to consumer activity. 

The FCA announced a competition review in the mortgage market to potentially see if there is any scope for improving consumer practices. 

The CML has already worked with Which? to encourage the simplification of mortgage fees, and lenders will continue to engage with the regulator on the issue. 

It is expected that the historic EU referendum result will have wide implications on the UK, but it is likely something that it will take time to fully understand the effect. 

Early indicators from CML-commissioned research found aspirations for home-ownership have not diminished. 

At the end of the year, the Help to Buy Mortgage Guarantee will end. 

The initiative has been a success, mostly used by first-time buyers outside London, as intended, and never at levels that overheated the market. The market still has a wide range of alternative government-supported schemes, and individual lender products for high LTV to fill the void. 

The CML’s strength in 2016 has been in its collaboration with members, associates, and a wide range of stakeholders. 

This has led to a substantial effect on the Bank of England’s data reporting requirements on buy-to-let; on the scope and focus of the FCA’s review of competition; on the scope and form of the arrears charging methodology work; and on what the final form of the starter homes scheme will be. 

The industry will seek further collaboration going forward to build on these successes. 

Bernard Clarke is communications manager of the Council of Mortgage Lenders