Industry experts see signs of a soft landing for the property market
Net borrowing of mortgage debt by individuals decreased slightly to £5.1 billion in July, from £5.3 billion in June, according to data released by the Bank of England (BoE) on Tuesday.
Though this figure has decreased from the year’s peak in May, it is still above the pre-pandemic average of £4.3 billion in the 12 months up to February 2020.
The BoE’s Money and Credit report revealed, however, that gross lending increased to £26.1 billion in July from £24.6 billion in June, while gross repayments increased to £20.8 billion, from £19.4 billion.
Approvals for house purchases, an indicator of future borrowing, increased slightly to 63,800 in July, from 63,200 in June, which is below the 12-month pre-pandemic average up to February 2020 of 66,800.
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Approvals for remortgaging, which only capture remortgaging with a different lender, increased to 48,400 in July, from 43,300 in June. This also remains below the 12-month pre-pandemic average up to February 2020 of 49,500.
The effective interest rate – the actual interest rate paid – on newly drawn mortgages increased by 18 basis points to 2.33% in July and is the highest since June 2016. The rate on the outstanding stock of mortgages ticked up one basis point, to 2.12%.
“Despite predictions of doom and gloom, the housing market once again performed strongly with net borrowing in July only decreasing slightly from June and still £1 billion above the pre-pandemic average,” John Phillips, national operations director at Just Mortgages, said. “With winter just around the corner, the reality of higher energy costs will be coming sharply into focus very soon and household budgets will need to be adjusted accordingly, but with house prices showing tremendous resilience, the immediate future of the housing market remains strong.”
Phillips said feedback from their brokers reveals that remortgage activity is increasing with homeowners keen to secure a competitive rate before further rises but there is also a steady flow of new borrowers.
“Realism will be the watchword for prudent lending over the remainder of the year,” he stressed. “Borrowers will need to have realistic borrowing expectations which, combined with professional advice from mortgage brokers will ensure they get the loan they want. Although the effective interest rate on newly drawn mortgages increased in July, mortgage rates are still relatively low in historic terms and, with sensible lending policies any sort of future housing crisis can be avoided.”
Paul McGerrigan, chief executive at fintech broker Loan.co.uk, said that there are strong signs the property market is coming to a “soft landing rather than a crash” in the face of the cost-of-living crisis.
“The Bank of England’s Money and Credit data shows mortgage borrowing has continued to decrease from its £8 billion peak in May, with July figures showing a £0.2 billion reduction on the previous month,” McGerrigan noted. “However, mortgage approvals increased slightly, confirming there is still reasonable demand, despite rising interest rates and rocketing energy costs.
“Financial pressures on household incomes continue to increase, but there are signs that demand for property still remains strong. It’s a rising rate market. An increasing trend sees borrowers breaking shorter term fixed rate deals, paying ERCs to fix a rate now for longer period, to give them certainty in their budgeting. While this may be good for some borrowers, it will not be right for all.”
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For Richard Pike, chief sales and marketing officer at Phoebus Software, the resilience of the housing market against the current economic backdrop is becoming par for the course.
“Each month, when we expect there to be a drop in activity, the figures tell of buoyancy and continued appetite, albeit the pendulum swing from a seller’s market to a buyer’s market could start to bring prices down,” Pike pointed out. “As existing deals come up for renewal, and also borrowers on variable rates look for the protection of being able to budget and therefore look to fix, re-mortgage activity will remain strong.
“Today’s figures do also show slightly more reliance on personal debt, and one wonders how this trend will continue and what the longer-term effect on areas such as affordability will look like because of this.”
Pike believes that although mortgage arrears fell again in the second quarter of the year, the likelihood is that this trend will change in the coming months as interest rate rises begin to have more of an effect, and energy and other cost of living prices rise.
“Lenders may need to offer more generic debt and budgetary advice to their customers who are unable to get in front of MAS and similar agencies due to pure volume of enquiries. A pro-active approach in these unprecedented times for many is required.”
McGerrigan added that it is an exceptionally tricky time for people to make key financial decisions and they are having to make tough calls.
“The role of the mortgage adviser is more important than ever to help clients negotiate these turbulent financial waters,” he said. “Proactivity and breadth of offering are vital to help people’s changing needs. There are always solutions which can help and it’s important to provide, up-to-date, expert advice to reach best outcomes for clients.”
