Lending in the mortgage sector has been driven overwhelmingly by political uncertainty in recent years. With the impact of Brexit still uncertain, many buyers and sellers have opted to adopt a ‘wait and see’ approach resulting in a contracting property market.
HM Revenue & Customs’ ‘UK Property Transactions Statistics’ for July found a significant decline in transactions on both a monthly and annual basis.
The 86,630 transactions in July 2019 represented a fall of 8.5% from June’s figures and year on year UK transactions were 12.4% lower than July 2018.
Despite many buyers’ continued reluctance to enter the market, property prices have remained resilient. As of June 2019, the most up to date statistic at the point of writing from HM Land Registry, the average UK house price stood at £230,292, 0.7% higher than the previous month and 0.9% higher than a year earlier.
A decade ago, the average UK house price in 2010 was £170,000 whilst the average UK salary was £27,017. This meant an average home was 6.2 times more than an average salary, placing the viability of obtaining a mortgage on the cusp of affordability.
Unfortunately, in the past decade the average UK house price has risen to £230,292 with wages only increasing to £29,009 making an average home 7.9 times more than the average salary. With lenders only willing to lend up to six times a household income, single buyers are increasingly priced out the market without support.
Given the growing divide between average UK annual salaries and increasing house prices, the landscape of lending has shifted considerably.
The Growing Power of an Unsustainable Lender
Towards the end of the summer, older relatives, family members and friends were confirmed as an important mortgage lender.
According to recent Legal & General research, the Bank of Mum and Dad (BoMaD) is now the 11th largest mortgage lender in the UK. In total, this lender offered £6.26 billion to their younger relatives in order for them to get on the property ladder in 2019 alone.
On average, the £24,100 borrowed by prospective younger buyers is a £6,000 increase on 2018’s lending.
This figure represents an increase of 10% in the past year despite declining transactions. Even though the 316,600 properties bought using BoMaD decreased to 259,400 in 2019, economic conditions are solidifying and even forcing a greater dependence on this lender.
One of the key issues with the current system concerns the widespread dependence on lending relatives’ money with most age demographics acquiring property through the BoMaD.
Unsurprisingly, almost two thirds (62%) of buyers under 34-years-old had benefitted from familial support. Even a fifth (22%) of buyers aged between 45 and 54 needed family money to supplement their deposit.
Worryingly, despite the growth of this mortgage lenders’ power, this form of lending is unsustainable. 26% of older relatives who lend their loved ones money for housing deposits do not think they have enough to live on in retirement.
Others take on debt themselves to support their loved ones with 6% taking out a loan, 4% re-mortgaging their own property and 16% using equity release options.
The Rise and Demise of Help to Buy
Whilst more buyers are using the BoMaD to help them get on the property ladder, many savvy people have also used Help to Buy since it was launched in 2013.
The scheme allows potential buyers to use a 5% deposit and the Government backed 20% equity loan, interest free for five years, to purchase property.
Since the inaugural year of the scheme where under 20,000 people utilised Help to Buy, it has grown exponentially to over 50,000 in 2019. In total over 220,000 properties worth in excess of £56.61 billion have been bought using Help to Buy.
In the year to March 2019, 52,404 homes were bought using Help to Buy, a 9% increase on the same figures in 2018 when 48,180 completions took place.
In particular, first-time buyers (FTB) have gravitated towards the scheme. This demographic has made up 81% of all purchases using Help to Buy since its launch.
Of the total figure in the year to March 2019, 82.5% or 43,248 properties were bought by first-time buyers, representing a rise of 11% from the figures a year earlier.
Whilst the reliance of the scheme by FTBs increases, the scheme’s end date of 2021 for all users and 2023 for FTBs could be a worrying time for the property market propped up by these purchases, unless alternative support is put in place to perpetuate the help to this section of the market.
The Government has announced plans to help stimulate home ownership amongst younger and low-income households in the future through a number of measures.
Firstly, shared ownership may become a more palatable solution to gaining a foothold on the property ladder following reforms to the shared ownership model. Buyers will now be able to step up their ownership percentage in a property by buying in 1% increments, making the system a lot more affordable when compared to the minimum 10% required under current law.
The new housing minister is also set to reform the planning system which could increase housing delivery, making homes more affordable in the future.
Whilst these measures may not fully replace Help to Buy, they could help to reduce some of the obstacles preventing people from becoming homeowners.
The Current Mortgage Market
Despite Brexit mercilessly threatening market stability, both national figures and insider sentiment remain positive. In July, British banks approved a record number of mortgages since February 2017.
In total, banks approved 43,342 mortgages in July, a marginal increase of 1.3% since the 42,775 approved loans in March 2019. The figure also marks a 10.6% increase from the approvals obtained during the same period in 2018.
Net mortgaging increased by £2.947 billion in July which represented the largest rise since March 2016. Consumer lending also climbed 4.3% year-on-year in July, the strongest since February 2018.
91% of mortgage providers feel optimistic about the present and the future, according to an IMLA report into the second quarter of 2019.
The trade body who lend through intermediaries found that 95% feel confident in their own business with 55% very confident about the sector and their own business.
Case load volume had also increased to 87 per year, just three off the all time high of 90 per year recorded in the second quarter of a year.
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