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Current Trends In The Mortgage Market
There have been a number of seismic changes to the property market over the past few years. Some of these changes have been a consequence of Brexit; others, of natural market fluctuations; and others, of governmental alterations to tax policy and regulation. Throughout this article we aim to give an overview of the mortgage market as it currently stands, looking at the ways that the aforementioned changes have come to influence the ranges and rates being offered by lenders, and analysing the overarching trends that are catching the attention of property pundits across the country.
The BTL Market
As you may know, a number of changes have been made to the regulation and tax policy surrounding the buy-to-let market. Specifically, a 3% stamp duty surcharge has been introduced on all buy-to-let property purchases; and the mortgage interest tax relief for which individual landlords were previously eligible is in the process of being gradually phased out. These changes appear to have had precisely the effects one may have expected.
On the one hand, there’s been a reduction in the number of BTL purchases made each year. Up to 2015, when the withdrawal of the mortgage interest tax relief was first announced, the number of BTL purchases made each year had been rising steadily since the financial crisis. In response to these changes, however, the number of BTL purchases instantly began to fall, and now rests at around 66,400 for 2018, 44% lower than the 2015 figure. Conversely, the number of BTL remortgages has continued to rise, reaching a record high of almost 170,000 in 2018. These numbers demonstrate a move on the part of landlords away from portfolio expansion and towards debt minimisation, with the stated aim being to maximise the yield of the properties already owned.
Another consequence of these changes has been a shift on the part of landlords – particularly professional landlords, i.e. those in possession of four or more mortgaged BTL properties – towards purchasing properties through limited companies rather than as individuals. The benefit of this strategy is that it allows them to continue availing themselves of the mortgage interest tax relief, which is still available to limited company landlords.
One particularly surprising change over the past few years has been the gradual move towards longer-term mortgages. According to data released by Moneyfacts, the number of 40-year mortgage products has risen from 1096 in 2014 to 2604 today, or from 35.93% of all mortgages to 50.89%.
This is a development that would have been difficult to predict even five years ago, and which seems to have had the effect of improving affordability for both lenders and borrowers: lenders, in certain situations, are able to accept applications from prospective borrowers who might previously have failed to meet their affordability criteria; and borrowers are able to reduce their monthly mortgage payments, because the repayment of their loan is spread over a greater number of years.
Five- and Ten- Year Fixed Mortgages
In addition to the move towards longer-term mortgages, borrowers are now showing a preference for mortgages with longer-term fixed-rates, typically of five years or more. This trend has permeated a number of submarkets – including, most conspicuously, the buy-to-let and residential markets – and seems to be a result of the desire of borrowers to insulate themselves from the economic vagaries of Brexit. As a consequence of this shift in preferences, there are now 150 ten-year fixed-rate products on the market compared with just 89 in January of last year.
Perhaps the change of greatest note is the torrential influx of first-time buyers (FTBs) into the property market: the number of FTBs hit 372,000 for the year in 2018, up 92% on the all-time low levels recorded in 2008. This means that this demographic now accounts for over half of all property transactions funded by mortgages in the UK.
This surge in FTB demand seems to have been precipitated by a number of factors: on the one hand, a range of government initiatives such as the help to buy equity loan have been implemented which make it easier for small-deposit borrowers to acquire mortgages. On the other, the average rates of 95% LTV mortgages have plummeted in the last six years, from an average of 5.43% in 2013 to 3.3% today, minimising monthly mortgage payments and maximising the attractiveness of owning a property.
Many lenders have adjusted their lending proposition to accommodate this swelling segment of the market, and now over 60 lenders include a 95% LTV offering in their product range, up from 53 a year ago and 13 five years ago.
Last week the Intermediary Mortgage Lenders Association (IMLA) released research showing that around a third (200,000) of all 2018 home-movers in the UK were last-time buyers. This figure has doubled in the last ten years, up from around 100,000 in 2009, and looks set to rise further over the next couple of decades as the percentage of the population over the age of 65 continues to rise.
In the same way that lenders are pouring into the first-time buyer market in response to swelling demand, an array of lenders have now begun adjusting their offerings to better serve this growing portion of the population. Last week alone, for example, Santander increased the maximum age-at-maturity of its buy-to-let products, and Nationwide launched a full later-life range which will initially open exclusively to its existing clients but which it plans to roll out to the general public in the summer. It seems probable that over the coming months and years, most lenders will follow suit, increasing maximum ages and offering lifetime mortgages that allow older borrowers to top up their pension pots by releasing equity from their properties.
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