2022 and 2023 lending predictions were boosted recently by IMLA’s foray into this space – a willingness to put one’s head over the prediction parapet that I think is always brave and should be supported.
It also gives us a couple of trade association comparisons that make for interesting reading and it seems obvious that IMLA is slightly more cautious than its UK Finance ‘cousin’, despite the fact that it is likely to share membership right across the piece.
Perhaps not surprisingly, both believe overall lending will drop this year, and it will be purchase activity (or less of it) which is responsible for that. IMLA suggests overall lending will drop from £304 bn in 2021 to £275bn this year, while UK Finance plumps for corresponding figures of £316bn and £281bn. However, UK Finance suggests this will climb again in 2023 while IMLA thinks otherwise.
Underlying this is, as I say, an anticipation that purchase activity will fall. However, I wonder if that – specifically purchase – downgrading of activity by UK Finance, IMLA and indeed many other commentators around the market might prove to have been slightly overdone by the time we assess 2022’s activity in a year’s time.
Of course, it’s entirely unlikely that we’re going to see anywhere near the amount of purchase business we saw in 2021, because let’s be frank, there is no stamp duty holiday – except for first-time buyers – and there will be a significant number who might have purchased this year but brought that transaction forward in order to benefit from the holiday.
However, UK Finance are predicting a £44bn drop in purchase lending (combined of both homeowner and buy-to-let) in 2022. That would, according to its own numbers, be a 20% drop, which on the face of it, seems reasonable but I can’t help wondering if it doesn’t discount some underlying factors which might result in that £174bn total purchase lending prediction being somewhat higher.
For a start, while the pandemic picture shifts continually, we’re effectively back into a period when people are being told to work from home if they can. We look likely to be swerving a full lockdown of the kind we saw in the first quarter of 2021, but large numbers of people are going to be back working in a home environment.
We are being put on a footing which can be summed up as ‘learning to live with Covid’ based on vaccinations and boosters, but what does that really mean? Are we all going to be spending far more time in the months and years to come at home? Some will find this desirable, other less so, but the likelihood is that home will become a base for both work and the personal.
That being the case, and we’ve seen this a lot already, people are going to keep on re-evaluating what they require from a home, and whether current properties live up to that need. Where they don’t, they will seek to move, which I believe will be a significant boost to the purchase market.
Add into this, first-time buyers and, again a in pandemic world, the overwhelming urge to get a place of one’s own. How many had to move back in with family? How many lived in flats or apartments unsuitable to a pandemic? Are we therefore underestimating the number of first-time buyers who will make their move in the market over the course of the next two years?
There may be a growing pressure for first-timers to do just that during a time of relatively plentiful higher LTV mortgage options, with house prices looking like they will continue to rise (albeit at slower rates), where the government guarantee scheme is due to end this year, and where Help to Buy is due to end next.
Of course, the industry will fill some of these gaps. Many lenders are offering higher LTV mortgages outside the government scheme and we hopefully have a growing number of industry-based schemes like Deposit Unlock which will fill some of the HTB gap, if the government does follow through with its cancellation.
But when you consider that first-timers are now the only purchasing demographic that benefits from a stamp duty saving, and that the government are currently supporting them in a number of ways, may individuals who can are unlikely to be holding back.
Recent product search statistics from L&G Mortgage Club appear to lend credence to the argument that first-timer buyers could make up a significant chunk of purchasing this year. Products catering to them were the third most searched criteria on L&G’s SmartrCriteria tool in October and November last year, and I would expect that to continue in the months ahead.
Of course, supply plays a huge part here, and there has to be homes to purchase in the first place. However, it is hoped that new-build supply can be increased above what was delivered over the last couple of years with its interruptions, and a willingness to move brings more existing homes to the market to be bought. If that does happen, then I think purchase numbers could remain relatively strong, and with the anticipated excellent remortgage opportunities alongside that, the outlook should be good for all stakeholders.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International