The latest research report from the Intermediary Mortgage Lenders Association (IMLA) states that despite the unfavorable policy environment imposed on the buy to let sector by the government the private rented sector (PRS) is set for expansion.
The report, entitled Segmenting the UK mortgage market, cites population growth and inadequate housing supply as the forces behind this expansion and states,
“in the PRS the result of a less supportive policy environment can only be higher rents, ironically hitting the tenants that politicians say they want to help.”
IMLA’s report shines a more positive light on the current situation for first time buyers, with its research indicating that first time buyer mortgage affordability has never been better.
Despite the fact that house price to earnings ratio is currently at 4.0 for first time buyers (high by historical standards), this tranche of buyers is benefitting from a range of positive factors: interest rates have fallen to new lows, saving the average first time buyer £840 a year; average earnings are rising at close to 3% while inflation is around zero (providing an average benefit of £1,080) and the change to the stamp duty regime may save the average first time buyer £970.
IMLA’s findings reveal that the average first time buyer spent 10.2% of their income on mortgage interest in the second half of 2015. This is the lowest figure on record and less than half the proportion recorded at the end of 2007.
However, home mover transactions have not increased in line with first time buyer numbers, according to the report.
Describing the situation as ‘log jammed’ IMLA’s research points to the baby boomer generation as the reason for this slow down.
“With baby boomer homeowners, who are now in their 50s and 60s, moving less frequently the outlook for home mover transactions remains constrained until downsizing becomes a more appealing or accessible option, which could be two decades away.”
Despite favorable conditions, the remortgage market has also remained subdued, according to IMLA’s research.
A modest recovery has taken place since 2010 but without gaining momentum.
However, IMLA predicts that this may be changing, as in Q2 2015 volumes were up 11% on the previous quarter to record the best performance since 2009.
Conversely, lifetime mortgages have been experiencing a slight resurgence, as 2014 saw a 21% increase in lifetime lending volumes to £1.5 billion after an 18% rise in 2013.
Furthermore, the report states,
“The pension freedoms implemented in April this year could alter perceptions in the lifetime mortgage market. The changes bring pension pots into an individual’s inheritable estate alongside housing wealth and other assets. The purchase of an annuity is likely to come to be seen as far more corrosive to inheritable wealth than a lifetime mortgage.”
The worst performing segment in IMLA’s analysis was further advances.
Q2’s figure of £1.3 billion was still less than half the quarterly average of 2008, when the financial crisis was at its height.
The report states that the contraction in the further advances market is a reflection of the UK households’ more cautious approach to borrowing.
Peter Williams, executive director for IMLA, said:
"The mortgage market is having to navigate some difficult terrain, so it is encouraging to see signs that the lending recovery remains on track after a sharp slowdown this time last year.
"Comparing market segments, first-time buyer volumes have actually held up best over the period from 2007-2014, while buy-to-let has been clawing its way back from a deep recession low as demand for private rental properties has grown."
"Until there is a broader policy push to tackle the chronic lack of supply, homeowners and renters in both private and social sectors will all remain vulnerable to the effects of the current lack of fully joined-up policy making.
"Current trends also highlight a change in homeowners' attitudes to property since the recession. While conditions are ripe for greater remortgaging to occur, borrowers have become more cautious and have been choosing to grow the equity in their homes – like safe deposit boxes – rather than using the collateral for other consumption, through further advances."