The Council of Mortgage Lenders has warned that despite the housing market ending 2016 on a positive note, uncertainty from political factors and changes to mortgage tax relief are likely to “weigh on prospects for the year ahead”.
The trade association for mortgage lenders in the UK reported that gross mortgage lending increased 12% last year to £246 billion – the highest annual gross lending figure since 2008.
On a monthly basis, lending in December was 4% down on November’s figure at £19.7 billion.
Property transactions in 2016 came to 1.23 million, only marginally higher than in 2015.
CML senior economist Mohammad Jamei said: “The UK housing market, much like the wider UK economy, ended 2016 on a generally positive note.
“Approvals for house purchase have recovered strongly of late, and this should feed through to lending figures in the early months of 2017. The current availability of mortgage credit is benign, and the real issue continues to be a dearth of properties on the market, which adds to the challenges facing would-be buyers.
“Uncertainty associated with political factors and prospective changes to the tax treatment of landlords will weigh on prospects for the year ahead.”
The CML pointed out that while lending for the year was in line with forecasts, the overall figure masked the “rollercoaster ride” parts of the housing and mortgage market have been on in 2016.
There was a big jump in buy-to-let transactions in March as buyers rushed to beat the 3% stamp duty surcharge on second properties, which pushed up home mover activity. In the months following the change there was then a dip in house buying activity.
According to the CML, this distortion made it more difficult to say what impact the EU referendum in June had on the market.
Mortgage interest relief for residential buy-to-let properties is set to be reduced to the base income tax rate, which is 20%.
It is due to be phased in over a four-year period starting from April 2017. Landlords are currently able to claim tax relief on the top rate of tax of up to 45%.
The changes mean landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.
In its monthly market analysis, the CML said there is still a large degree of uncertainty as to how landlords will react to the tax relief changes.
“CML commissioned researched suggests that only half of buy-to-let landlords felt they had a good understanding of the changes. But it’s unlikely to have a response similar to the stamp duty change, which led to a cliff edge for buy-to-let house purchase. Our view is that there will be slower or limited growth in landlord portfolios, but we will need to wait until the changes are in place to get a better understanding of the cumulative impact on the sector,” the report said.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “2016 turned out to be an encouraging year for the mortgage market, despite significant headwinds created by the increase in stamp duty for landlords and second homeowners in April and the uncertainty surrounding the referendum.
“Record low mortgage rates were responsible for this resilience, with many borrowers remortgaging to take advantage of the lowest rates ever while first-time buyers were able to take advantage of an increase in the number of high loan-to-value deals.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “These figures are positive news and reflect other surveys which have shown that the property market showed a lot more resilient than some gave it credit for last year, particularly after the referendum.
“However, what sets the tone for the new year is approvals in the pipe line and market sentiment, both of which have been fairly neutral so far. What we are seeing on the ground are fewer but more serious buyers keen to take advantage of the opportunity afforded by a market with more balance between supply and demand.”
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