A mere month into 2021 and data is already giving us two different views about what might lie ahead for the UK mortgage sector.
Imla has painted a positive outlook, suggesting gross lending could climb to £283bn this year. UK Finance, though, has taken a more cautious view and expects lending to reach just £215bn in 2021.
Our view sits in the middle – we expect the mortgage market will experience modest growth in 2021, reaching circa £255bn. Yet there could still be some bumps in the road.
Deadlines
The stamp duty holiday deadline remains a major hurdle for the market this year. More than 100,000 buyers could miss the 31 March date, according to Rightmove.
Concerns over a possible cliff-edge are widespread. Our view is that a tapering of the scheme would be sensible and could be announced with the Budget on 3 March. Rather than extending the scheme, any changes are likely be focused on helping those already in the process of buying, but we are just guessing like everyone else!
This may raise concerns of purchase activity reducing after the holiday ends, but there is still a lot of work to keep advisers busy.
The year of refinancing
Refinancing will be important this year, with more than 700,000 fixed-rate mortgages set to mature. UK Finance predicts remortgage activity will drive up product transfers – potentially up to £200bn.
Advisers will therefore need to engage with customers as they come to remortgage and determine whether simply switching onto a new rate with their current lender is the best course of action. And, of course, remortgaging provides a clear opportunity to revisit protection conversations, too.
A year for the specialists
Borrowers will need help finding lenders that are willing to take a closer, manual look at their circumstances following the pandemic.
New research from Vida shows that the crisis has already trapped millions more people in ‘generation rent’. Unless advisers help these customers understand their options and direct them to the specialist market, this group could be locked out of the housing market completely.
Support will be needed for remortgaging activity, too. With so many maturities in 2021, self-employed borrowers, contractors and freelancers are bound to be affected, as many will have seen their circumstances changed radically. They will need advisers to help then provide evidence of a sustainable income, particularly as we reach the end of the tax year.
Climate watch
The department for business, energy and industrial strategy is consulting on new proposals that will loop the mortgage industry into the government’s 2050 net-zero carbon ambition. This includes suggestions that lenders should report on the EPC ratings of properties in their portfolios to help manage and reduce a key source of carbon emissions, since a quarter of the UK’s carbon emissions come from housing stock.
Arresting climate change is a top priority and bold moves like these are welcome, but they could produce unintended consequences. Will house prices fall on properties that don’t sit towards the efficient end of the EPC spectrum? Could we end up creating a new group of mortgage prisoners who cannot afford to improve their home’s energy efficiency and who are barred from selling such properties? Proposals like these could even signal the advent of greater pricing sophistication as lenders seek to use rates to manage their average EPC ratings.
Navigating cladding
Advisers already have plenty on their plate with the ongoing pandemic, but the issue of cladding remains another major challenge for the industry. Some 1.27 million flats could be unmortgageable due to concerns about unsafe cladding, according to recent research by Capital Economics.
Borrowers will need support as they battle these issues, and many will turn to mortgage advisers for counsel. This is a complex issue. Legal & General Mortgage Club will be holding a session this week to provide more information on this subject.
A changing market?
Among all these opportunities and challenges, and lurking somewhat in the background, are long-term fixed-rate mortgages. We already know this is a flagship housing ambition for the government – and it could be a measure that helps to fill the eventual gap left by Help to Buy from 2023 onwards. Consultants are already contacting the industry for feedback. Will it radically change our market or at least drive positive change in maybe regulation, delivering progress but through different ways? Again, one to watch this year.
Whatever happens, we can all hope for a less dramatic year than 2020. Lending through our club has started strong – even above early last year, a positive when we remember the ‘Boris bounce’ we were dealing with. However, the fizz in activity we saw in Q4 has slowed and this perhaps sets the tone.
We remain positive in our outlook but are of course preparing for speed bumps. Hopefully, we will avoid the shocks and dramatic swings 2020 delivered.
Legal & General Mortgage Club director Kevin Roberts
