Mortgage borrowing hit seven year high in 2015

Posted 27 January 2016 by Nick Parkhouse

Figures from the Council of Mortgage Lenders reveal a buoyant year for the home loan industry, but experts can't agree on the prospects for 2016...

Britain's mortgage market continues to show signs of recovery after new figures reveal that lending in the UK reached a seven-year high in 2015. Homeowners borrowed £220.3bn in mortgages in 2015, representing the highest level since 2008 and an 8% rise on the previous year.

Experts believe that a shortage of properties and low interest rates will continue to see the mortgage market grow in 2016.

The latest figures from the Council of Mortgage Lenders show that homeowners borrowed over £220bn in 2015, the highest level since the start of the global financial crisis in 2008. Lending in December, traditionally a quiet month, reached £19.9bn, a 23% rise year-on-year.

The figures suggest that the property market continues to boom, despite worries that rising prices are making it harder for first-time buyers to get onto the property ladder. However, while lending is rising, it is still well below the levels seen before the financial crisis. At the peak of the housing market in 2007, mortgage lending reached £356.8bn.

Jeremy Duncombe, of Legal & General’s Mortgage Club, said the property market was largely being driven by a shortage of houses for sale. He told the Daily Telegraph: “2015 has been an exceedingly strong year for mortgage lending, and we expect favourable UK economic conditions to further drive demand in 2016.

"That said, the number of transactions has remained relatively flat throughout the year as a result of the lack of available housing stock for buyers. This is contrary to the increases we are seeing in lending, showing that this strong performance is being driven in part by escalating house prices as people are having to take out larger loans to secure a property.”

Naomi Heaton, CEO of London Central Portfolio, remarked: “It is interesting to see a small fall away in lending in December to £19.9bn, coinciding with a new 3% additional stamp duty announced by the Chancellor. It is our expectation that lending will continue to fall into 2016 as economic confidence remains low, global financial markets suffer turmoil and taxes aimed at the property market come into force." 

"As Osborne heralded the year with the downbeat announcement of ‘a dangerous cocktail of new threats [to the economy]’, it is likely that negative sentiment will continue to have an adverse effect on the size and number of housing loans taken out in the short term.”

Richard Sexton, director of e.surv chartered surveyors, commented: “Supply issues have become more of a factor in some areas as we head towards the turn of the year, as both growing demand and house prices finally get the attention they deserve from the government, but limited choice of affordable homes is certainly proving a challenge to some buyers. Alongside this obstacle, higher stamp duty changes are finally making their mark upon the top end of the market.

“Undoubtedly, 2016 looks set to bring challenges and opportunities for lenders, with the Mortgage Credit Directive and a potential interest rate change on their radar.”

Low interest rates throughout 2016 could ease pressure on mortgage market

Earlier this month, Mark Carney, the governor of the Bank of England, indicated that interest rates are set to remain low in 2016. Low rates mean that mortgages will continue to be affordable to borrowers and with a rate rise now looking increasingly unlikely until at least the end of this year, economists believe pressure may begin to ease off the mortgage market.

“Mr Carney’s speech will likely reduce the perceived need of a significant number of homeowners to re-mortgage now to lock in low rates before they rise,” said Howard Archer, chief economist at IHS Global Insight.

“It may also dilute the perceived need of some homebuyers to move in the near term to make sure they can take advantage of very low mortgage rates. On the other hand, more people may be more inclined to buy a house in the knowledge that interest rates are likely to stay lower for longer then only creep up.”

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