Peter Williams is executive director of the Intermediary Mortgage Lenders Association
With today’s final 2013 mortgage lending figures from the CML:
showing the number of purchase loans down slightly during December, there is no tangible cause for concern that the mortgage market is racing out of control.
Buyers’ pessimism during the downturn has largely been shaken off and the outlook for 2014 is much more positive, but we are only just setting out on the path to recovery.
The first time buyer market has long needed urgent attention, so it is encouraging that numbers continued to rise in December. Lending through the Help to Buy mortgage guarantee scheme will provide an even stronger kick and reduce the pressure on borrowers to source a sizable deposit.
A strong end to 2013 certainly put us on course for further progress this year and in 2015. But growth will be relatively modest at best and still leaves us a long way from a ‘normal’ mortgage market, as IMLA’s latest report shows. Mortgages contributed just £4 in every £10 spent on housing transactions in 2013 – lower even than in the depths of recession – and current activity continues to be propped up by highly supportive policies.
Pent up demand from first time buyers is one of the key factors that makes a long-term, sustainable recovery possible. The outlook is upbeat for 2014/15, but we need a careful balance of lending activity, house building and regulation to remain on track.
INFLATION
Meanwhile today’s inflation report offers reassurance that the Bank of England has taken stock of the improving economy and its decision to revise its forward guidance policy is a sensible move.
As Mark Carney noted, we have seen a significant strengthening of the housing and mortgage market in the last six months – but this has happened from such a low base that both mortgage lending and house prices remain well below historic levels in real terms. Fears of a bubble have been greatly exaggerated.
The initial focus on the 7% unemployment threshold was never a trigger and always intended as a point to reassess. The unemployment rate is mainly relevant because of its influence on wages and it should not surprise anyone that the Bank is monitoring 18 economic indicators overall. This is prudent policy and no more than is required to safeguard the recovery.
Confirmation that the bank rate will remain low until spare capacity in the economy has been absorbed should help to support a continued revival in mortgage lending, which remains supressed.
Housing is one of the most interest rate sensitive sectors of the economy and competitive rates have played a significant role so far in the relatively modest recovery without prompting irresponsible lending. There is a long way still to go – both in the mortgage market and in the wider economy – so the Governor is absolutely right to avoid the trap of considering the job done.
