Mortgage lending will rise this year despite the ongoing pandemic disruption, while household spending is set to jump once lockdown restrictions are eased, according to the Intermediary Mortgage Lenders Association.
Gross mortgage lending will rise to £283bn this year, says Imla in its new report, The New Normal.
The study says that household consumption – which normally comprises two-thirds of UK economic activity – was constrained in 2020 by social distancing measures.
This has led to a subsequent build-up of £222bn in household cash balances between February and November 2020 – an average of £13,400 for a family of four.
But a successful vaccine rollout could provide “the opportunity for a rapid return to spending in 2021” that “could help revive the hardest hit sectors, such as the hospitality and leisure industries”, says the report.
Imla executive director Kate Davies says: “Since the first lockdown back in March, the mortgage market has shown remarkable resilience. Spending more time at home has led many to reconsider their living arrangements, helping to boost demand for homes across the UK.”
Davies adds: “This surge in interest has been supported by the government’s stimulus package, which in most cases has helped to support individuals far better than has been the case in previous financial crises. The combination of these factors leads us to believe that 2021 will be a year of modest growth for the housing and mortgage markets.”
The Imla report points to data which shows that the number of mortgage borrowers on payment deferrals at the end of 2020 had fallen from a peak of more than 1.8 million in June to just 127,000 by 20 November.
It adds the number of mortgages in arrears of three- to six-months continued to fall in the third quarter of 2020 to just 0.28 per cent of all loans – the lowest figure since current records began.
“This combination of factors suggests that the UK’s mortgage market will not face an arrears crisis in 2021,” says the report.
However, Imla calls on the government for the extension, or phased withdrawal, of the stamp duty holiday, due to end on 31 March, which saw mortgage applications spike in the second half of 2020.
Imla says the stamp duty holiday has helped create “the current surge in demand for property purchases”, which has left lenders, valuers and solicitors, struggling to meet demand.
The report says: “The imposition of an absolute cut-off deadline to the holiday of 31 March means that pressure will continue to increase right up to that date, and a number of borrowers who just miss it will be left having to find extra cash to pay the duty due.”
It adds: “Some may miss the 31 March deadline through no fault of their own: in those circumstances, it seems harsh that those people should not be able to benefit from the stamp duty holiday – and that it should be possible to adopt some flexibility that would ease pressure on those cases and remove the imperative to complete by the deadline.”
The study goes on to welcome the decision that the Bank of England’s Financial Policy Committee is reviewing the 3 per cent affordability stress test placed on homebuyers required by regulators, introduced in 2014.
Imla says this rule “is no longer relevant to market conditions, given that long-term interest rates have fallen substantially since then”.
The study also calls on the government and the mortgage industry for “bold plans” to boost the levels of new-build homes and develop products which promote a return to higher loan-to-value lending.
Davies says: “A coherent, long-term housing strategy from the government, including the delivery of thousands of new homes for a new generation of homeowners, and collaboration with the mortgage industry to enable those homes to be purchased will be vital to delivering a market that meet Britain’s housing needs for the decades to come.”
