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UK mortgage lenders braced for further interventions despite market growth cooling
Mortgage lenders and brokers expect further interventions by the Bank of England’s Financial Policy Committee (FPC) despite market growth cooling, according to new research. According to the latest survey by the Intermediary Mortgage Lenders Association (IMLA) some 55% of intermediary mortgage lenders and 40% of brokers are expecting further intervention. The findings come as the first FPC recommendations; the interest rate stress test against a 3% base rate increase for borrowers, and a 15% cap for lenders on the volume of new loans above 4.5 times loan to income (LTI ), take effect across the mortgage market this month. IMLA’s research reveals lenders and brokers are in agreement that the 3% stress test will have the biggest impact of the two measures. Some 54% of brokers and 26% of lenders believe this will have a high impact, compared with just 34% of brokers and 11% of lenders who feel the same about the cap on high LTI loans. Following the implementation of the Mortgage Market Review (MMR) in April and the FPC recommendations in its Financial Stability Report in June, IMLA’s research found that industry optimism over the mortgage market recovery has cooled. Just 44% of lenders and 41% of brokers feel market conditions were improving in the third quarter of 2014, down from 100% of lenders and 90% of brokers in the first quarter of 2014. Just 3% of brokers felt conditions were worsening in Q1, but 45% took this view in the third quarter and the proportion that felt lending volumes were growing faster than expected dropped from 87% to 31% among lenders from the first to the third quarters and from 60% to 45% among brokers. Concerns remained over the housing market with the latest findings showing 31% of lenders and 38% of brokers believing house price growth was unsustainable, up from 13% and 25% in the first quarter. However, subsequent data from national house price indices show that the monthly growth of house prices has since slowed. ‘These findings show the industry is well aware that its recovery will be closely monitored in the interests of maintaining economic and financial stability. The announcement that the FPC is considering loan to value (LTV) limits shows it remains vigilant,’ said Peter Williams, executive director for the IMLA. ‘But recent changes, including MMR, have already had a calming effect on activity and the full effects are still to emerge. IMLA’s research has clearly shown that some would-be borrowers are not passing initial broker checks which have been tightened to fully reflect the lender assessments that follow,’ he explained. ‘While caution is needed for the good of consumers and the economy, this applies to regulation as well as lending. Market interventions have been reasonable to date, but an immediate push for further regulation would be excessive, especially when house price growth appears to be slowing,’ he added. Using credit policies to compensate for weak supply in the housing market can have a major impact on who can… Continue reading
Half of over 40s think they will still have a mortgage or rent during retirement
Half of people aged over 40 believe they will still be repaying their mortgage or paying rent when they retire, new research has found. The figures from a study by specialist insurer Partnership shows that while people aspire to owning their own home, a significant amount will still be making mortgage repayments when they retire. Some 31% think they will still have a mortgage and 20% will be paying rent when they retire. In addition, with 35% of households in England living in social or private rental accommodation, a number of retirees will need to meet these costs in later life. As people age and either purchase property or repay their mortgage this changes the number who expect to be meeting these costs in retirement but 18% of 66 to 70 year olds still expect to need to make rental payments and 15% expect to be repaying their mortgage. A breakdown of the figures show that of those aged 40 to 50 42% expect to still be paying rent and 26% a mortgage. In the 51 to 55 age group 37% expect to be paying rent and 18% a mortgage while in the 56 to 60 aged group some 22% expect to pay rent and 15% a mortgage. In the 61 to 65 age group 21% say they are still paying rent and 16% a mortgage while in the 66 to 70 age group it is 18% and 15% respectively. In addition to meeting housing costs, these retirees are also likely to be put under financial pressure as they look to meet costs such as council tax, utilities and upkeep of their property. ‘Most people aim to own their own home by the time they retire but the trend towards remortgaging, purchasing later in life and being kept off the housing ladder by high house prices means that this is out of reach for almost a third of people,’ said Mark Stopard, head of product development at Partnership. ‘This may see some people taking advantage of the opportunity to work longer but for some people, especially those with health issues, this is simply not an option. While those in private or social rental accommodation need to focus on securing sufficient income to meet these costs, those who are still repaying their mortgage have more options,’ he explained. ‘Either they can use part or all of their pension to repay the borrowing, although this is likely to significantly impact on their later life income, or they can use equity release which can mean they will leave less to their families but face less financial pressure,’ he added. ‘When people consider their retirement, it is vital that they look to reduce their mortgage borrowing as much as possible. No one wants to worry about cutting back on essentials such as food and heating to meet housing costs when they should be enjoying retirement,’ he concluded. Continue reading
All regions of the UK see a year on year rise in residential rents
Rents in the UK have continued to increase steadily throughout the year with the average rent in the third quarter of 2014 reaching £903 per calendar month, according to the latest index. This is an increase of £21 per calendar month, up from £882 per calendar month in the second quarter of 2014, the data from Countrywide Residential Lettings shows. In September, the average UK rent increased to its highest level for 32 months to £916 per calendar month, a growth of 5.2% year on year. All regions saw a year on year increase in rents apart from the Midlands, which saw no increase in the third quarter of 2014 while Greater London saw the greatest increase, up 9.8% on the third quarter of 2013, followed by the East of England which saw an increase of 7.3%. The data also shows that arrears have remained relatively stable with many regions seeing a decrease and some seeing less than a 1% increase. In terms of the size of properties, all properties saw an increase in rent quarter on quarter and year on year. Four bedroom plus properties saw the greatest increase in rent year on year, up 5.8% to £1,524 per calendar month, followed by three bedroom properties up 4.8% to £956 per calendar month. Two bedroom properties saw the smallest growth in rent, up 4.1% to £822 per calendar month. Meanwhile, Countrywide says that the Bank of England’s request for extra powers, in order to direct lenders as to how much buy to let investors are able to borrow, could mean that landlords in the South East and London will have to find a 40% deposit in order to secure mortgage finance. According to an analysis by the firm the powers, if granted, will allow the Financial Policy Committee to ask lenders to stress test how much new landlords can borrow and ensure that the income landlords receive is greater than the interest payments on their mortgages. Lending on investment property is typically secured against the rental income a landlord can generate. For most lenders, landlords are assessed on whether the rent generated from the investment property will cover 125% of the interest component of the mortgage. This gives both the lender a degree of security against interest rate rises and takes into account the money a landlord will reinvest back into the property for general maintenance and improvements. At present, the interest rate against which the borrower’s ability to meet repayments is at the discretion of the lender. Over the past two years, this rate has typically been around 5%, translating into 1.2% above the 3.8% rate at which the average landlord secures their loan. For the average landlord who has purchased during 2014, the rental income from the property covered 205% of the mortgage interest, well inside the 125% limit. Tested against an interest rate of 5%, generally the rate which lenders currently use to test affordability means the rent will cover 165% of the mortgage… Continue reading
