Industry views on the UK’s mortgage market in 2016

As 2015 is drawing to a close, thoughts are increasingly turning towards 2016 and how the housing and mortgage markets will fare.

With house prices forecasts all hovering around a 6% increase for the whole of next year, that also implies mortgage lending will grow. UK group the Council of Mortgage Lenders, (CML) expects net mortgage lending in the UK will rise for a sixth straight year and total £31 billion, up from the estimated £27 billion in net mortgage lending secured in 2015. According to the CML, the lowest level of net mortgage lending in recent years was just £6 billion in 2010.

While house prices still remain high in comparison to earnings, the CML expects some support to the housing market will come from the Government. Chancellor of the Exchequer George Osborne announced at the November Budget extensions of the Right to Buy scheme, Help to Buy ISA, Help to Buy shared ownership and the starter homes programme, all of which should entice more home-buyers to move onto or up the housing ladder.

“We expect a benign domestic backdrop to help underpin a gentle improvement in housing and mortgage market activity, though this will be limited as a result of affordability pressures and new supply challenges,” the CML said in its latest News & Views release. “The government’s fresh housing initiatives may build but will only provide a moderate stimulus from the second half of 2016 onwards.”

The impact of Mr. Osborne’s new buy-to-let rules is more of an unknown. It does, however, seem certain that a slowdown in new purchases is inevitable following a combination of the following: the incoming tax changes from 2017, recently announced stamp duty changes and the possibility of further regulation by the Financial Policy Committee (FPC).

The CML estimates new buy-to-let purchases will nevertheless make-up around 9% of all property purchases in 2016, but fall below the 2015 level and continue to decline into 2017.

Looking at predictions from other quarters, UK bank Nationwide’s chief economist is forecasting a rise of between 3-6% in house prices over the course of 2016, and expects mortgage lending will also pick up.

“As we look ahead to 2016, the risks are skewed towards a modest acceleration in house price growth, at least at the national level, despite the likelihood of interest rate increases from the middle of next year,” Nationwide’s Robert Gardner said in a press release.

The views submitted by the CML and Nationwide are pretty much in line with other lenders and economists. IHS Global Insight’s chief UK and European economist Howard Archer has said much the same alongside his expectation for UK house prices to rise between 6-7% next year and, as I wrote in a previous post, UK bank Halifax estimate prices will rise by between 4-6%.

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