As 2012 draws to a close, we can reflect on a year that has shown signs of life being restored to the housing and mortgage market – and look forward to its gradual improvement in 2013. Given we are unlikely to see a return to the heady heights of 2007, it remains to be seen what might be considered ‘normal’ activity. But while some observers have spoken out against the Government’s Funding for Lending Scheme (FLS), it remains a plan for the medium-term that should help to fuel increased activity into the New Year and beyond.
The Bank of England’s FLS quarterly bulletin for Q4 2012 makes a number of important points that have been overlooked in some discussions over the scheme’s perceived lack of impact to date. Yes, it can look ineffective when the £4.4bn drawn down under FLS during Q3 2012 has only boosted net lending by £0.5bn. But securing a mortgage is no hurried dash to the high street to finish your Christmas shopping; it is a process that takes time, and it can be months in some cases before a loan is drawn down after reaching a mortgage agreement.
In the latest National Mortgage Index from Mortgage Advice Bureau, we have seen the usual seasonal downturn which generally results during November has been less severe in 2012, with a 4.4% fall in activity levels compared with 7.7% between October and November 2011. When you consider the market in late 2011 was supported by the drive to secure property before the nil stamp duty threshold ended in March 2012, there are many positives that can be taken from current trends.
The Bank of England also stresses that FLS is intended to lower the price and increase the quantity of lending relative to what would have occurred in its absence. Some may feel its argument – that preventing further rises in interest rates on loans may be chalked up as an early success for the scheme – is weak, especially if they were expecting to see rates fall dramatically while lending soared in the first months of FLS. But it has to be said that mortgage borrowers are currently enjoying a seasonal gift from lenders in the form of exceptionally attractive fixed-deal rates.
With persistent activity and growing competition among lenders for borrowers with 40% deposits, we will surely see the continuing rise of gross mortgage lending in 2013 as the funding available under the FLS continues to seep into the market place. What seems less certain is how that funding will affect loan to value (LTV) ratios, and whether the benefits will be shared with first time buyers and those with limited funds at their disposal.
Overall, average purchase deposits rose by nearly 16% to over £63,000 between November 2011 and November 2012, and many prospective homeowners will be simply unable to gather the funds needed for the average 30% deposit. So, as we move towards the implementation of the Mortgage Market Review in April 2014, we must hope that the effort of restoring faith and confidence is balanced and does not stifle the drive to innovate and satisfy the demand of consumers at both ends of the market.
