How might we describe the 2015 mortgage market when we come to look back at the last 12 months? Certainly it has been an up and down affair punctuated by some rather large set pieces which have had a considerable impact. Let’s not forget this was a General Election year and undoubtedly the uncertainty leading up to the actual vote on the 7th May had an effect. There was certainly a sense that many potential purchasers/remortgagors kept their powder dry until they got the rather surprising Conservative majority result.
Another somewhat recurring ‘set piece’ has been the Bank Base Rate debate regarding when a rise (or at certain points in the year, a further cut) might be forthcoming. Bank of England MPC members have certainly done more than their fair share of pontificating about what might (or might not) be happening. Perhaps no-one was more influential than the Governor, Mark Carney, himself who in the early summer appeared to signal that a rate rise was a racing certainty before the end of the year. This provided a boost to the remortgage market as many existing borrowers felt this was a clear message for them to act – six months on, a decision to opt for a fixed-rate product in the summer may now not seem the best choice given the lack of rate movement.
We should also add that product competition and pressure on pricing has been a constant throughout the 12 months, especially in the mainstream/residential sector. For those that have significant levels of equity and are looking for lower LTV products the mortgage market provides many options and, given the lack of Base Rate movement and the expectations of what might happen going forward, those tracker rates still remain attractive.
The ‘remortgage charter’ granted by Carney in the summer may have trailed off somewhat when it became clear rates were unlikely to be raised anytime soon, however there is still plenty of evidence to support advisers in developing their remortgage business. For instance, a recent survey of borrowers by TSB said a quarter of borrowers would struggle with their mortgage if BBR increases; it also said that an increase would affect 70% of homeowners. Perhaps even more worrying, 26% of responders said they would have real difficulty paying their mortgage should it rise by as little as £99 per month.
Now you might well think these borrowers might have greater difficulty getting through the tighter affordability measures introduced by the MMR, and for some you would be right. However, for advisers there’s a chance here to contact those on SVRs, longer-term rates who have not switched for a number of years, etc to see if there’s the potential to move them to lower-priced products which will offer them savings, even if the process might be much more stringent than they are used to.
The other point to mention of course is that while BBR may not move in the very short term, many market commentators and economists have pencilled in the first rise for Q2 2016. That could be just four months away and therefore we may well be in a position where borrowers are once again looking for payment certainty and may be much more inclined to take on a fixed-rate product which is going to give them this. No-one is anticipating a series of quick increases that may really cause difficulties for tracker and variable rate borrowers but, once that first rise is announced, we must think that we will begin a slow journey to a more normalised BBR level of 2% over the next couple of years.
Coming up to date, the year has ended with another set-piece, the Autumn Statement, which will have a considerable impact on the buy-to-let sector. The predictions of a ‘rush-to-let’ because of the stamp duty increases may already be happening, and there will undoubtedly be opportunities for advisers over the next few months to support the activities of landlords, who also have to get their houses in order with regards to other issues, such as the cut to higher-rate tax relief on interest payments, the changes to the wear and tear allowance, and a tighter lending environment altogether.
2015 has therefore given us not just food for thought but a whole range of market changes to dissect and assimilate. It has been a year which will shape what comes next in a big way, particularly in March next year as we see the introduction of the MCD and have the date when stamp duty increases. It promises to be a very busy first three months followed by a period when we’ll see the market find a new level. One thing is certain, life won’t be simple and there will be further surprises along the way.
In the meantime however I hope you can all enjoy a very Merry Christmas and a happy new year. See you in 2016.
Richard Adams is managing director of Stonebridge Group