Welcome to your Tuesday email. Missed the UKPA and/or IPA PDF newsletters for June? Email back. Meantime, Peter Faulkner, our ‘Mr Mortgages’ offers his latest thoughts…
Sharply rising UK house prices and Mark Carny’s (Bank of England Governor) comments have fuelled speculation that the BoE will use its new macro-prudential powers for the first time in the near future to manage associated risks and prevent excessive growth in household debt. These powers are themselves set to be strengthened, subject to consultation, following Chancellor George Osborne’s recent speeches.
However, it is not about limiting mortgages further; the market, especially in London, is being influenced not by credit buyers but by cash buyers. More than one third of houses (36 per cent) were bought entirely in cash during Q1 2014, compared with less than a quarter (24 per cent) seven years earlier. The percentage of total housing demand that is financed by cash reached an estimated all-time high of 61 per cent in Q1 2014.
The residential mortgage market remains very subdued, with mortgage debt still shrinking in real terms and on aggregate, households putting over £10 billion of equity into their homes every quarter since mid-2010. However, BTL represents a much larger proportion of total lending.
Average residintial mortgage loan to value ratios have been exceptionally depressed since the financial crisis and – despite the gradual rising trend since 2009 – median first time buyer LTVs remain lower than at any point prior to 2007. While the Bank of England has flagged concerns about rising loan to income ratios, the affordability rule changes arising from the Mortgage Market Review (MMR) mean that new owner-occupiers seeking a mortgage will only be granted a loan that is manageable at considerably higher interest rates (stress testing) and at lower loan to values (larger deposits) and pay more as house prices continue to rise.
UK averages paint a picture of a housing market where the use of cash has become a key driver. There are broader questions for government about the implications of this, though in part it has been driven by a shortage of mortgages: a situation that is being corrected. But for the FPC, whose remit is to maintain financial stability, it suggests that additional intervention into the mortgage market is not warranted.
Affordability criteria for older clients have become a real issue under new MMR rules. Mainstream lenders are just not able to help on most cases due to their affordability formulae with automated rule driven systems. The best chances of success if a client is over 55 years of age are the smaller building societies that still hold mandates and can take a view of cases presented properly. Best in the market at the time of writing for older clients are Buckingham and Market Harborough building societies using a specialist club for packaging.
Auction finance? Last week I mentioned a new product coming out. It has arrived. A client can get auction finance or quick finance for a quick purchase and then convert to BTL after only three months. Most other BTL lenders require minimum of six months or one year. Thank you Peter. More from Peter next week. Email back though if you’d like to chat with Peter.
Finally, we’ve got a flat to introduce in Docklands. In short, it’s a one bedroom flat next to Crossharbour DLR station and just 10 minutes’ walk from Canary Wharf. It also has a reserved underground parking space. It has been consistently let for the past 20 years and is currently let at £1,235 pcm. We are going to introduce it at £350k but can offer it to a serious member who can get going with it this week for £340k; a saving of £10,000. Email back.