Fox Davidson Housing & Mortgage report, Quarter 3 2016.


The Council of Mortgage Lenders reported that gross lending was £20.5bn in September, a fall of 7 per cent from the £22.5bn seen in August but 2 per cent higher than the £20.1bn lent in September last year.

Lending for the third quarter of 2016 was estimated at £63.6bn, 11 per cent higher than the second quarter of this year, and 4 per cent higher than the third quarter of 2015.

CML senior economist Mohammad Jamei says: “Remortgage activity looks set to grow, helped by attractively priced mortgage deals encouraging borrowers to refinance. Prospects for house purchase activity continue to look slightly subdued, when compared to the same period a year ago.

“Despite this, housing market sentiment continued to improve in September, after recovering in August. Thus, we expect a modest rise in approvals, though at levels lower than seen earlier this year, as the lack of properties on the market for sale and affordability constraints continue to bear down on borrowers.”

The Prudential Regulation Authority changes have made it harder to borrow using buy to let mortgages. Rent to loan calculations have changed resulting in lower loan amounts being achievable. On the up-side, lenders that are not regulated by the FCA will not be affected by the PRA rules and consequently we expect a wave of new lenders to jostle for the top 5 spots of the buy to let lending table. Lenders such as Precise Mortgages, Pepper and Axis Bank will become the norm, especially if you are buying in the name of a Ltd company.

The Help to Buy Guarantee scheme will end in December. The scheme was a government backing to lenders to lend to customers at 95% with the Government providing guarantees to cover losses in the event of repossession and losses on these high-risk loans. The scheme was launched in 2013 and has helped over 86,000 households.

The withdrawal of the scheme is not an issue for our clients as we have access to the whole of the market and therefore we have lenders able to lend at 95% that do so but not as part of the Government scheme, i.e. they carry the risk themselves.

House Prices

The consensus from property experts is that the market is cooling in varying degrees across the different areas of the UK. The main factor keeping property prices up is the lack of stock.

Hometrack released its September report. Bristol (12.3%) tops the annual property price index with London (10.3%) in second place followed by Southampton (8.6%).

City level house price growth is running at 8.5% but growth in London has slowed rapidly in the last quarter to the lowest level of quarterly growth for 20 months. Eleven cities are registering higher growth than at the start of 2016 while 9 are slowing.

The Royal Institution for Chartered Surveyors (RICS) released its latest report in September.

The September 2016 RICS Residential Market Survey results show new buyer enquiries increased for the first time since February, albeit the pick-up was only modest. Alongside this, new instructions to sell slipped further, with the lack of supply firmly underpinning prices at the headline level. What’s more, price expectations rose at the three and twelve month horizons, although both indicators remain softer when compared to the start of the year.

Notable surveyor’s comments:

Stephen Morris MRICS, Davies & Way, Bristol & Bath –  A noticeable cooling in activity for larger houses (£500,000 plus) where sellers are having to be realistic and take advice to achieve sales. Lower price ranges remain buoyant with prices still increasing.

Alun Jones MRICS, Marler & Marler, Knightsbridge, London – Principal issue in the prime Central London market remains the effect of changes to taxation. Until vendors reflect increased costs from SDLT in particular, the low level of transactions will prevail.

RICS Report

Nationwide produce a quarterly Report. Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said: “The pace of annual house price growth slowed to 5.3% in September, from 5.6% in August, though it remained within the narrow range of 3% to 6% that has prevailed since early 2015. “The relative stability in the rate of house price growth suggests that the softening in housing demand evident in recent months has been broadly matched on the supply side of the market. Survey data indicates that, while new buyer enquiries have remained fairly subdued, the number of homes on the market has remained close to all-time lows, in part due to low rates of construction activity.

Fox Davidson have highlighted the possibility of a mass exit of buy to let properties in the coming years due to tax changes. We have seen a noticeable amount of clients taking out 2 year fixed rates with a view that they may want to sell (without being tied into a mortgage penalty) once the new tax rules take hold from 2017 onwards.

This new supply of property could bring down property prices which would be welcome news for anyone in the market to purchase a property during the next few years. This needs attention from policy makers.

Interest Rates

At the start of October Fox Davidson met with a representative of The Bank of England and had a round table discussion. We looked at what’s next for interest rates. Key points from that meeting:

  • Bank of England base rate is at a record low
  • Bank base rate more likely to fall than increase at present
  • Inflation is slowly increasing but rates are not expected to increase to combat inflation as other factors such as employment levels will override curbing inflation
  • Rates to stay low, good for borrowers, bad for savers.
  • Foreign investment will balance the UK current account due to the low pound, keeping economy growing
  • GDP like to be at 0.3% for Q3 2016, normal growth is 0.6%.

Fox Davidson expect rates to remain at 0.25% for most of next year with rates slowly increasing from the end of 2017 up to 2% by 2018. It doesn’t make sense to forecast beyond 2 years.

Bank meetings to set rates have now switched from every 4 weeks to every 8 weeks.

The Cost of Borrowing – Personal & Business interest rates for borrowing remain at all-time lows, lenders still competing for business using rate and low set up costs including cash back and free valuations. This is good news or anyone taking out a mortgage in their own name or for their business.

Swap rates now increasing so we may have seen the low point for long term fixes of 5 years or more.

In Conclusion.

There are some challenges ahead with regards to changes to buy to let but property remains a sound investment returning high rates of capital growth and in the event of a buy to let, an income too. This will ensure buy to let remains attractive. The way property is held and who funds it will be the major change.

Demand will continue to outstrip supply of property. Estimates are that 225,000 properties need to be built each year and we are building around 135,000.

Rates will remain low for a long time and anyone re-mortgaging now coming out of 3 or 5 year fixed rates will be pleasantly surprised.