Not even two months through the year and the record books are already being re-written with regard to the Council of Mortgage Lender’s (CML) gross lending figures. Although lending in January 2007 was 6 per cent down on the previous month, it was up 16 per cent on January 2006 hitting an all time January high of £26.8 billion. It would be quite an understatement to suggest that lending at the beginning of 2007 was simply ‘robust’. The eye-watering facts require little explanation – people are still borrowing money in order to buy property.
As the UK housing market continues to grow, so it seems that the non-conforming sector is taking an ever-larger piece of the mortgage pie. The reasons for this sector growth are well-documented but one thing is abundantly clear – although high-street lenders can accommodate the majority of borrowers, there are a growing number of people whose circumstances require something different, from those individuals with impaired credit to a growing demand for buy-to-let mortgages, and this is obviously where non-conforming lenders come in.
Scaremongering
However, some market commentators seem to be gazing Stateside for an indication of what they see as the inevitable downward turn for the non-conforming market in the UK. I have read various comments in recent days about ‘ominous signs’ from the US, including falling house prices and rising consumer defaults which will topple the market success – a $30 billion market in the US. Just this past week the Financial Times published an article that was critical of investment banks who have ‘rushed to enter’ the ‘lucrative market’ in the UK. But many of the major providers in the non-conforming sector are extremely experienced and committed to the market.
So, have the scaremongers got a point? Is the honeymoon really coming to an end in the UK? The answer is an unequivocal ‘no’.
A cohesive market
Firstly, in the last 10 years, non-conforming lenders have formed a cohesive market becoming a much-needed part of the overall mortgage picture. Secondly, the non-conforming sector has evolved into a fiercely competitive arena, keeping everyone on their toes – truly, there is no room for complacency. This is excellent news for the customer, with an incredible array of non-conforming products now available offering more choice than ever.
At this stage, it’s worth exploring the current market conditions that affect intermediaries and lenders alike. Interest rates have been on the rise in a bid to help level inflation. On the surface this seems to have done the trick, with January figures indicating that inflation has been sated. Of course, this doesn’t mean that the Monetary Policy Committee won’t choose to increase rates again in the near future – there may even be two more rate hikes this year, levelling off at 5.75 per cent. Arguably, this could be the top of the cycle, with many pundits already predicting falling rates by the end of 2007 and early 2008.
Furthermore, while both the level of repossessions and arrears is expected to rise this year, they are from a low base and far below the level in the 1991 recession. In fact, the CML reported in January that the increases in repossessions slowed towards the end of 2006. The CML revealed that repossessions were up from 10,310 in 2005 to 17,000 in 2006. They are expected to rise to 19,000 this year and to 20,000 by 2008 due to higher interest rates. 2006’s figure is the highest repossession figure since 2000 when the total was 22,870, but still below the 1991 recession, when the figure reached 75,540. Meanwhile the number in arrears fell from 112,000 in 2005 to 104,000 in 2006, but is expected to rise to 130,000 this year but drop to 120,000 in 2008 as additional problems are likely to be short term.
Affordable borrowing
Meanwhile, in its latest ‘Debt Monitor’, Alliance and Leicester (A&L) believes that average levels of borrowing should be easily affordable for the majority of households. Its research shows that home owners are reducing their unsecured debt and that those who are really increasing credit card debt are tenants rather than home owners. A&L points out that although households with mortgages owe the most unsecured debt in absolute terms, their incomes tend to be higher than those who rent. They say that mortgage borrowers do not looked stretched on unsecured borrowings and that 8 out of 10 say they can afford the latest rates increase.
In conclusion, despite the recent commentary, I believe that the non-conforming market in the UK is in excellent shape, and very well placed to handle the current economic conditions.
