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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

slide3
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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international background
International background

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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

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slide6
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 growth
UK growth

Source: National Statistics

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uk labour market
UK labour market

Source: National Statistics

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uk inflation
UK inflation

Source: National Statistics

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market interest rates
Market interest rates

Source: Bank of England

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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

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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

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slide13
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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mortgage approvals
Mortgage approvals

Source: Bank of England

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house prices
House prices

Source: Halifax and Nationwide

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gross and net lending
Gross and net lending

Source: Bank of England

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slide17
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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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

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maturing of remortgaging
Maturing of remortgaging

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

Note: Break in series after 2005 Q1

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

Source: CML

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growth of equity release
Growth of equity release

Source: CML

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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

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slide24
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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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?

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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?

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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

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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

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