Latest estimates show that gross mortgage lending was £21.4 billion in July and has remained relatively stable month-on-month, closely matching June’s gross lending total of £21.5 billion.
The recently published estimates from the Council of Mortgage Lenders (CML) reveal that while gross mortgage lending was only marginally softer in July, the figures represent the first year-on-year drop in over a year.
‘A less favourable backdrop for house purchase activity appears to be emerging post-referendum,’
states the CML in its Market Commentary August 2016.
The Council points to the strong acceleration in the pace of remortgage activity over the past 12 months, as offsetting any softening of house purchase activity in terms of overall lending figures.
Commenting on the council’s Market Commentary, CML chief economist, Bob Pannell said that the subdued nature of property transactions and mortgage lending in July are consistent with a less positive backdrop for house purchase activity post-referendum.
He goes on to call the Monetary Policy Committee’s (MPC) package of monetary policy measures a ‘spirited effort’ to counter-balance the stronger economic headwinds that have been predicted by the Bank of England as we move into 2017.
The Council states that the ‘innovative’ Term Funding Scheme should mean that more than half of existing borrowers will benefit from the 25 basis point reduction in Bank Rate, therefore impacting positively on market sentiment.
Although Pannell notes that it is not clear how well the Bank’s actions will underpin borrower demand in a more adverse economic climate.
David Whittaker, managing director, Mortgage for Business, said:
“Following the market’s steady recovery from changes to stamp duty – which led to a frontloaded first-quarter – there were fears that a surprise result in the EU referendum would put the brakes on activity. In reality the effect of the EU referendum will not be revealed until August at the earliest, although the initial signs are fairly positive.
“It is also too early to see the impact on price growth, but whilst we expect a short-term lull in activity there is still a growing need for private rental accommodation. In a low interest rate environment property should still hold up as a strong investment class over the long term, providing investors with good yields. Furthermore, property should continue to offer investors much more stability than alternative assets classes like gilts, bonds and equities.
“July’s figures do not reflect the Bank of England’s decision to cut the Base Rate to 0.25%, which represents a marked shift in monetary policy. While this certainly won’t dampen lending, it may not lead to an immediate spike.
“Since the cut to base rate was announced we have seen a number of lenders reduce their five year fixed rates, following reductions in five-year SWAP rates. Five-year money is now more attractive than ever and we can’t see rates going any lower. For this reason, we are urging landlords to consider longer fixed rate deals when reviewing their options.”
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