Despite Brexit uncertainty dominating the headlines in 2018, the mortgage market has proved resilient, with lenders offering an ever-growing choice of products at competitive rates.
Property prices have slowed in many parts of the UK over the past year, notably in London and the South East, creating opportunities for buyers who might otherwise previously have been priced out of these areas. In contrast, places such as Yorkshire and Humberside, and the East Midlands, have seen prices accelerate.
Looking ahead in 2019, it is anyone’s guess what the full impact of Brexit will be both on property prices and the mortgage market.
A limited supply of available properties has helped support property prices over the past year, and this is expected to continue in 2019.
Brexit is prompting many buyers and sellers to adopt a ‘wait and see’ approach until we leave the EU. This means that the number of properties being sold is likely to fall over the next three months, according to the Royal Institution of Chartered Surveyors.
Purchase activity may therefore be muted as we head into the New Year, despite the latest figures from UK Finance showing a more upbeat picture, with homemover mortgage numbers completed in October up 4 per cent compared to the same month last year.
Those struggling with affordability will still be able to make use of Help-to-Buy, which will continue to provide a boost for the new build market. The government’s confirmation that the scheme will continue to 2023, albeit within different parameters, will at least give clarity to developers and their forward planning.
Buy-to-let purchase activity has been hit by a raft of changes over the past few years, including the 3 per cent stamp duty surcharge on second properties, and the gradual reduction of mortgage interest relief.
This has meant that existing landlords have been more focused on managing their costs and protecting against future rate rises. Remortgage activity has been high as a result and fixed rates have been the product of choice.
Many landlords are opting for longer-term fixes, with five-year deals proving especially popular. Lenders are becoming increasingly flexible too, with some reducing stress rates on long-term fixes.
However, advisers will need to maintain a focus on the product being right for the customer, and not just choosing it based on lending criteria.
The increased use of limited company structures appears likely to continue, as landlords consider whether the structure can help them counter changes to tax relief. However, brokers will need to ensure that the right tax advice is sought by clients.
The past year has seen strong first-time buyer numbers, with schemes such as Help-to-Buy providing much needed support to those wanting to get on the first rung of the property ladder.
Buyers may also have been helped to a degree by a reduction in competition from landlords. There have been other positives too, including improved product options and first-time buyer stamp duty relief.
Lenders are increasingly willing to offer mortgages to those with only a 5 per cent deposit to put down, and there is also a wide choice of innovative deals available to those who are reliant on financial support from the ‘bank of mum and dad’.
Where next for interest rates?
Given current political and economic uncertainty, it is extremely difficult to predict when, or even in which direction, we will see interest rates move next.
The Bank of England has consistently suggested that rate rises are likely to continue, albeit at a gradual pace. However, if there is a disorderly Brexit, inflation could rise on the back of any further weakening in sterling.
Higher inflation could lead to the BoE increasing interest rates, but there is also potential for the BoE to decide that the economy needs additional support, which could actually result in a cut in the base rate.
Either way, borrowers are likely to continue to lock into fixed rate mortgages to protect themselves against any potential shocks, and to give peace of mind that they know where they stand at a time when everything else is so hard to predict.
Source: FT Adviser