COUNCIL of MORTGAGE LENDERS 1 UK housing and mortgage market outlook Jim Cunningham Senior Economist

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Presentation transcript:

COUNCIL of MORTGAGE LENDERS 1 UK housing and mortgage market outlook Jim Cunningham Senior Economist

COUNCIL of MORTGAGE LENDERS 2 Structure International background UK economy and interest rates UK housing and mortgage markets Product, segment and channel Looking forward – issues and prospects

COUNCIL of MORTGAGE LENDERS 3 International background UK economy and interest rates UK housing and mortgage markets Product, segment and channel Looking forward – issues and prospects

COUNCIL of MORTGAGE LENDERS 4 International background

COUNCIL of MORTGAGE LENDERS 5 Global economic risks Slanted to downside: 1.Inflationary pressure and tighter monetary policy 2.Even higher oil prices 3.Weakening US housing market Concern over disorderly unwinding of global imbalances US current account deficit 7% of GDP

COUNCIL of MORTGAGE LENDERS 6 International background UK economy and interest rates UK housing and mortgage markets Product, segment and channel Looking forward – issues and prospects

COUNCIL of MORTGAGE LENDERS 7 UK growth Source: National Statistics

COUNCIL of MORTGAGE LENDERS 8 UK labour market Source: National Statistics

COUNCIL of MORTGAGE LENDERS 9 UK inflation Source: National Statistics

COUNCIL of MORTGAGE LENDERS 10 Market interest rates Source: Bank of England

COUNCIL of MORTGAGE LENDERS 11 MPC thinking Risks to inflation broadly balanced Upward: Impact of expectations of higher prices on wage demands Rising inflation overseas, strong growth in the euro area and ability of manufacturers to pass on higher costs Rapid money and credit growth Downward Wary financial markets Slowing US housing market

COUNCIL of MORTGAGE LENDERS 12 Interest rate expectations Source: Bank of England Notes: The market expectation curves relate to commercial bank liabilities which will typically be basis points higher than the Bank of England repo rate. The market expectation ranges are derived from short sterling option and futures contracts traded on LIFFE

COUNCIL of MORTGAGE LENDERS 13 International background UK economy and interest rates UK housing and mortgage markets Product, segment and channel Looking forward – issues and prospects

COUNCIL of MORTGAGE LENDERS 14 Mortgage approvals Source: Bank of England

COUNCIL of MORTGAGE LENDERS 15 House prices Source: Halifax and Nationwide

COUNCIL of MORTGAGE LENDERS 16 Gross and net lending Source: Bank of England

COUNCIL of MORTGAGE LENDERS 17 International background UK economy and interest rates UK housing and mortgage markets Product, segment and channel Looking forward – issues and prospects

COUNCIL of MORTGAGE LENDERS 18 Fixed and variable rate lending Source: Survey of Mortgage Lenders, Regulated Mortgage Survey Note: Break in series from April 2005

COUNCIL of MORTGAGE LENDERS 19 Maturing of remortgaging Source: Survey of Mortgage Lenders, Regulated Mortgage Survey, CML Note: Break in series after 2005 Q1

COUNCIL of MORTGAGE LENDERS 20 Growth of buy-to-let Source: CML

COUNCIL of MORTGAGE LENDERS 21 Growth of equity release Source: CML

COUNCIL of MORTGAGE LENDERS 22 Importance of specialist lenders Source: Bank of England

COUNCIL of MORTGAGE LENDERS 23 Importance of intermediaries Source: Regulated Mortgage Survey

COUNCIL of MORTGAGE LENDERS 24 International background UK economy and interest rates UK housing and mortgage markets Product, segment and channel Looking forward – issues and prospects

COUNCIL of MORTGAGE LENDERS 25 Short-term uncertainties What is behind the strength of demand and will it continue? How much will rising interest rates affect: Demand for home ownership? Buy-to-let investment? House price growth? Mortgage payment problems?

COUNCIL of MORTGAGE LENDERS 26 Medium-term uncertainties How are first-time buyers overcoming affordability problems, and will this continue? Larger numbers borrowing more for deposits Rising unsecured indebtedness of young adults How much more mortgage product innovation?

COUNCIL of MORTGAGE LENDERS 27 Longer-term uncertainties Sustainable house price growth Household formation and housing supply Magnitude and success of government affordable housing and shared equity initiatives Split of housing tenure Aging population and take up of equity release products

COUNCIL of MORTGAGE LENDERS 28 Outlook Benign economic background, but risks Rising interest rates will result in lower demand and weaker house price growth, but no slump Strong underlying demand, inadequate supply response Affordability problems for first-time buyers Competitive, innovative mortgage market Increasing lifetime access to housing equity Government may fail to achieve 75% home ownership target