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UK housing and mortgage market outlook. Jim Cunningham Senior Economist [email protected] Structure. International background UK economy and interest rates UK housing and mortgage markets Product, segment and channel Looking forward – issues and prospects.

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Uk housing and mortgage market outlook

UK housing and mortgage market outlook

Jim Cunningham

Senior Economist

[email protected]

COUNCIL of MORTGAGELENDERS


Structure
Structure

  • International background

  • UK economy and interest rates

  • UK housing and mortgage markets

  • Product, segment and channel

  • Looking forward – issues and prospects

COUNCIL of MORTGAGELENDERS


  • International background

  • UK economy and interest rates

  • UK housing and mortgage markets

  • Product, segment and channel

  • Looking forward – issues and prospects

COUNCIL of MORTGAGELENDERS


International background
International background

COUNCIL of MORTGAGELENDERS


Global economic risks
Global economic risks

  • Slanted to downside:

    • Inflationary pressure and tighter monetary policy

    • Even higher oil prices

    • Weakening US housing market

  • Concern over disorderly unwinding of global imbalances

    • US current account deficit 7% of GDP

  • COUNCIL of MORTGAGELENDERS


    • International background

    • UK economy and interest rates

    • UK housing and mortgage markets

    • Product, segment and channel

    • Looking forward – issues and prospects

    COUNCIL of MORTGAGELENDERS


    Uk growth
    UK growth

    Source: National Statistics

    COUNCIL of MORTGAGELENDERS


    Uk labour market
    UK labour market

    Source: National Statistics

    COUNCIL of MORTGAGELENDERS


    Uk inflation
    UK inflation

    Source: National Statistics

    COUNCIL of MORTGAGELENDERS


    Market interest rates
    Market interest rates

    Source: Bank of England

    COUNCIL of MORTGAGELENDERS


    Mpc thinking
    MPC thinking

    • Risks to inflation broadly balanced

    • Upward:

      • Impact of expectations of higher prices on wage demands

      • Rising inflation overseas, strong growth in the euro area and ability of manufacturers to pass on higher costs

      • Rapid money and credit growth

    • Downward

      • Wary financial markets

      • Slowing US housing market

    COUNCIL of MORTGAGELENDERS


    Interest rate expectations
    Interest rate expectations

    Source: Bank of England

    Notes: The market expectation curves relate to commercial bank liabilities which will typically be 10-15 basis points higher than the Bank of England repo rate. The market expectation ranges are derived from short sterling option and futures contracts traded on LIFFE

    COUNCIL of MORTGAGELENDERS


    • International background

    • UK economy and interest rates

    • UK housing and mortgage markets

    • Product, segment and channel

    • Looking forward – issues and prospects

    COUNCIL of MORTGAGELENDERS


    Mortgage approvals
    Mortgage approvals

    Source: Bank of England

    COUNCIL of MORTGAGELENDERS


    House prices
    House prices

    Source: Halifax and Nationwide

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    Gross and net lending
    Gross and net lending

    Source: Bank of England

    COUNCIL of MORTGAGELENDERS


    • International background

    • UK economy and interest rates

    • UK housing and mortgage markets

    • Product, segment and channel

    • Looking forward – issues and prospects

    COUNCIL of MORTGAGELENDERS


    Fixed and variable rate lending
    Fixed and variable rate lending

    Source: Survey of Mortgage Lenders, Regulated Mortgage Survey

    Note: Break in series from April 2005

    COUNCIL of MORTGAGELENDERS


    Maturing of remortgaging
    Maturing of remortgaging

    Source: Survey of Mortgage Lenders, Regulated Mortgage Survey, CML

    Note: Break in series after 2005 Q1

    COUNCIL of MORTGAGELENDERS


    Growth of buy to let
    Growth of buy-to-let

    Source: CML

    COUNCIL of MORTGAGELENDERS


    Growth of equity release
    Growth of equity release

    Source: CML

    COUNCIL of MORTGAGELENDERS


    Importance of specialist lenders
    Importance of specialist lenders

    Source: Bank of England

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    Importance of intermediaries
    Importance of intermediaries

    Source: Regulated Mortgage Survey

    COUNCIL of MORTGAGELENDERS


    • International background

    • UK economy and interest rates

    • UK housing and mortgage markets

    • Product, segment and channel

    • Looking forward – issues and prospects

    COUNCIL of MORTGAGELENDERS


    Short term uncertainties
    Short-term uncertainties

    • What is behind the strength of demand and will it continue?

    • How much will rising interest rates affect:

      • Demand for home ownership?

      • Buy-to-let investment?

      • House price growth?

      • Mortgage payment problems?

    COUNCIL of MORTGAGELENDERS


    Medium term uncertainties
    Medium-term uncertainties

    • How are first-time buyers overcoming affordability problems, and will this continue?

      • Larger numbers borrowing more for deposits

      • Rising unsecured indebtedness of young adults

    • How much more mortgage product innovation?

    COUNCIL of MORTGAGELENDERS


    Longer term uncertainties
    Longer-term uncertainties

    • Sustainable house price growth

      • Household formation and housing supply

    • Magnitude and success of government affordable housing and shared equity initiatives

    • Split of housing tenure

    • Aging population and take up of equity release products

    COUNCIL of MORTGAGELENDERS


    Outlook
    Outlook

    • Benign economic background, but risks

    • Rising interest rates will result in lower demand and weaker house price growth, but no slump

    • Strong underlying demand, inadequate supply response

    • Affordability problems for first-time buyers

    • Competitive, innovative mortgage market

    • Increasing lifetime access to housing equity

    • Government may fail to achieve 75% home ownership target

    COUNCIL of MORTGAGELENDERS


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