All signs point to a hectic year in the mortgage market

Looking back at the year we have just experienced, it was all change in the mortgage market, seemingly for the better. As we dive head first into 2014 Rebekah Commane looks at what consumers can expect from the industry.

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As we look forward to the year ahead there are many indications that the mortgage industry will continue to make national news headlines.

The Bank of England recently announced that funding which had been made available to lenders through FLS (Funding for Lending Scheme) could no longer be used for mortgage purposes from the end of January.

The funding had incentivised banks and building societies to offer high loan-to-value (LTV) mortgages to those with a small deposit, which, in turn, led to a significant upturn in the housing market.

There are mixed opinions as to whether the availability of high LTV loans will truly be affected by the withdrawal of FLS as many lenders, particularly building societies, were offering mortgages for small deposits without accessing the funding. Lenders were also entitled to draw down funding from the scheme for future use, so there may be a considerable amount stored up for mortgage lending. But as the funds dry up, rates for higher LTV mortgages will inevitably rise.

While I certainly see the merits of the equity loan element of Help to Buy (HTB), which is available solely to new build properties and has contributed to an increase in much needed house building, my personal opinion of Help to Buy 2 is mixed. On one hand, the nature of the guarantee element of the scheme, in that it was brought forward to be introduced earlier than first planned, meant that it secured an abundance of media interest. Consequently the general public became excited by it and many believe it to be the longed-for solution for those unable to raise money for a substantial deposit for a home.

Meanwhile, there have been high LTV mortgages available, often targeted at first-time buyers, before the introduction of the Help to Buy scheme and these have been overshadowed by the much hyped HTB but may offer better deals to those looking for a low deposit mortgage.

On the other hand, HTB has certainly helped to draw attention to the housing market and make it known that mortgages are available. The scheme has contributed to competition and made lenders pull up their socks to fight for a cut of the market, which is always a plus for consumers, and will continue to do so until it ends in 2016.
The MMR (Mortgage Market Review) will come into play from April of this year and will mean increased regulation for lenders, which could mean the process of securing a mortgage will be slower and affordability assessments could be more stringent.

It will be obligatory for borrowers to acquire advice from a qualified adviser before they will be granted a mortgage as a result of MMR.

How exactly the new regulations will impact on consumers is still not entirely clear and it will, no doubt, take some time to iron out for lenders. As highlighted by one of our experts in our predictions for 2014 (pages 24 to 25), it’s unclear whether the self-employed and contract workers will have to undergo increasingly rigorous assessments to access mortgage borrowing after the full implications of the MMR are seen.

Housing supply is another issue that will take centre-stage this year and concern is prevalent that a lack thereof will contribute to even further house price inflation. That’s difficult to comprehend, particularly for those looking to buy in sought after areas where prices are already beyond reach, even with a small deposit and a 95 per cent mortgage.
Help to Buy equity loan is certainly having an impact on supply by incentivising developers to build new homes through the scheme. However, an increase in properties for purchase privately is essential should the feared housing bubble be avoided.

It’s expected that the decline in arrears and repossession levels seen in 2013 will continue this year, despite the extra costs thanks to energy bill price hikes. Incomes should rise overall and the general feeling is that the Bank of England’s base rate will not rise within the coming year, despite a fall in unemployment levels.

Overall, the mortgage market is looking positive for 2014 and the availability of high LTV mortgages should continue; for now at least.

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