I’m not sure if it’s just the fact that a New Year has begun but there does seem to be a somewhat disconcerting amount of positivity around at the moment. Some might argue that the mortgage/housing market has been bumping along the bottom for so long that any move away from it was bound to be treated as if there was a dawning of a new age, but there you go.
Clearly, the realists amongst us – and I would put that at 99.99% of the people who currently work in this marketplace – know better than to believe that the market is emphatically on a long-term upward trajectory but some of the signs are undoubtedly welcome. This was perhaps most noticeably displayed by a number of representatives of the lending community who appeared at various industry events towards the end of last year. They seemed rather more bullish than they have done for some time; indeed when most were asked about their predictions for lending this year, each suggested we were likely to see an increase on 2012 and some suggested this could be an uplift of £10bn or so.
Now, in the ‘good ole days’ pre-Credit Crunch a £10bn increase in gross lending would be nothing to write home about but when the market is approximately £140 billion then £10 billion represents just over 7% – which is not something to be sniffed at. And, one might almost suggest, that with a fair wind we could push beyond the £150 billion barrier quite comfortably.
The reason for this seemed quite apparent if you attended events like Mortgage Business Expo, and that is the barely-concealed glee of the lender reps when it came to discussing the Funding for Lending Scheme (FLS). This is already perceived as something of a game changer for those who qualify for the scheme (even if the initial figures released regarding lending levels were nothing to write home about). There are now over 30 institutions taking part and those lenders at Expo were quite vocal in their support for FLS and the lending drive it should hopefully take them on.
Just how much of the second half of 2012’s lending was down to the FLS is a moot point in the extreme but the CML has suggested the scheme has had an impact and a large amount of lending was down to the improved funding and more competitive pricing. Given this is still the early stages of the scheme and we have only seen one quarter of data regarding drawdown and lending, it seems right to reserve judgement on its overall likely impact.
The FLS however is not without its detractors. Some commentators have bemoaned the scheme for the lack of parameters and guidelines it gives to lenders about how FLS money should be used. Many have suggested that lenders should be made to keep to specific quotas of lending for various sectors with a specific amount of lending having to be made available to first-time buyers, for instance. At the moment it appears that FLS money is not truly being targeted at FTBs; instead, as was perhaps obvious in these responsible lending/low risk times, lenders have instead used the scheme to price more competitively at lower LTV levels. Hence the suggestion of a FLS-sponsored ‘price war’ at 60% LTV.
My own view is that prices at low LTVs are unlikely to go much lower – 1.99% two-year fixed rates at 60% LTV appear to be the floor and there are not that many sub-2% options around. I therefore don’t see many lenders going further than this. Which all means that lenders will now, and have now, started to price more competitively at higher LTVs and this will begin to permeate up. Whether this reaches the heady (and necessary) heights of 90%, or dare I say it, 95% products is another matter entirely.
All in all, I am quietly (or should I say) cautiously optimistic about the lending market over in 2013. Lenders are not going to be any less competitive, in fact all the signs are that lenders are looking to be more active and are willing to price accordingly. With SVRs on the up for many borrowers, the remortgage argument will become even more compelling, and hopefully we will see a few more higher LTV options for first-timers to get their feet on the ladder.
It is a long way away but my feeling is that, towards the end of this year, we will be on track to break the £150 billion barrier – which will represent a much more positive outlook than we have witnessed in the last few years.
Harpal Singh is managing director of Broker Conveyancing