The UK’s housing and mortgage markets look set to continue to show greater levels of activity in 2014, according to the latest forecasts from the Council of Mortgage Lenders (CML).
The CML is forecasting a rise in gross lending from an estimated £170billion this year to £195 billion next year, and £206billion in 2015, as well as anticipating that net advances are likely to rise from £10billion this year to £15 billion next year and £20billion in 2015.
In terms of specific features currently influencing the mortgage market, the CML suggests that the volumes of business written under the new Help to Buy mortgage guarantee scheme may be relatively modest, “such that it has a smaller but more positive market impact than many commentators suggest”.
The CML’s forecasting horizon covers a period when the Bank of England may consider increasing interest rates. While this is likely to have a greater impact from 2016, the benign period of falling arrears and possessions may be coming to an end – although most households will cope with the transition to more normal interest rates.
CML chief economist Bob Pannell concludes: “Gross mortgage lending climbs above £190billion next year, its highest level since 2008. While this is largely on the back of the continuing revival in housing market activity, we also expect to see a meaningful turn-round in remortgage activity.
“Despite a strong pick-up in gross mortgage lending, we have pencilled in relatively modest net lending figures – £15billion in 2014 and £20billion in 2015. While this would mark a climb out of the sub-£10billion doldrums, where the market has languished since the credit crunch, it does nevertheless represent a rather muted position. This reflects, among other things, our view that some households will use the relatively benign economic conditions to prioritise debt repayments, ahead of medium-term interest rate rises.
“We think there are good grounds to be optimistic that the vast majority of households will cope with a slow but certain transition to more normal interest rates. This seems to be the game-plan which the Bank of England has in mind, but presumes (as we do) that the UK avoids a destabilising housing boom over the next few years.”
Expectations for future house price growth in the UK hit a more than fourteen-year high during November, as the amount of homes coming onto the nation’s market, once again, fell well short of rapidly rising demand.
In the latest RICS index, 59 per cent more chartered surveyors across the country predict prices to continue their upward trend rather than fall back over the coming three months. This is the highest reading since September 1999 and demonstrates the impact that the recovery in demand allied with sluggish supply is having on the housing market.
Meanwhile, November also saw prices pick up sharply, with each region of the UK seeing prices rise for the second successive month. While there are still some areas of the country that are struggling, it appears that, on the whole, the regional markets are now responding to the incentives provided by the government and better economic news.
Simon Rubinsohn, RICS Chief Economist, commented: “It’s no secret that the housing market is on the way up and prices are surging ahead in many parts of the country. The Bank of England’s recent decision to withdraw the Funding for Lending scheme – which allows banks to borrow more cheaply and pass the benefits on to mortgage applicants – could well have some impact on the number of people able to purchase a home. Although the improvement in wholesale and retail funding markets may mean the impact on mortgages is relatively limited.
“One thing we are very concerned about, however, is the lack of both new and existing homes coming on to the market. As the Chancellor pointed out last week, house-building is on the up, but it is rising nowhere near quickly enough to make up the shortfall that has built up in recent years. If there is not meaningful increase in new homes, the likelihood is that prices, and for that matter rents, will continue to push upwards making the cost of shelter ever more unaffordable.”
Overseas property-owners will pay capital gains tax (CGT) on their UK homes from April 2015, under changes announced by the Chancellor in his Autumn Statement in December.
Under the current system, only UK residents pay CGT tax when they sell a second home, which is typically levied at 28 per cent.
Richard Barber, partner at prime central London estate agency W.A.Ellis, commented on the new legislation: “The likelihood of applying CGT to profits made by non-residents on property in Britain has been widely trailed and will now align the UK with many other countries. We are not surprised by the Chancellor’s announcement of this new tax, but are pleased that he has been specific with regard to the quantum and date of implementation.
“In our experience, it is uncertainty over tax measures that has previously derailed our market, however, we are confident that these specific measures will not impact majorly upon prime central London. It is most unlikely that vendors will seek to sell their investments due to the implementation of CGT as it will only be charged upon future gains from April 2015. Many will consider this to be insignificant when compared with the safe haven investment, strong yield and capital appreciation property delivers in the long term.
“Some will consider that the new tax (effectively upon foreign investors) levels the playing field, as British based buy-to-let investors are already obliged to pay CGT on their properties which are not their principal residence. The attraction of London as a safe haven and as a potential residence / pied-à-terre for foreign investors and their children, is a stronger driver than potential capital gain post 2015.”