The outlook for landlords who would like to add properties to their portfolios in 2013 would appear to be good, according to the Council of Mortgage Lenders, who say that we are starting the year on a more positive note than last year. This despite the fact that the UK economy has seen very little growth.
Although such optimism may on the surface appear unwarranted, they believe they have the facts to back it up.
The latest credit conditions survey from the Bank of England showed that the UK experienced better mortgage credit availability as well as lower mortgage pricing in the fourth quarter of 2012. The survey also highlighted that there was an increase in mortgage demand across the board, for house purchase, remortgage, and buy-to-let. This is a view that is largely corroborated by recent lending figures.
CML estimates that gross mortgage lending was £11.7bn in December. Although this is slightly less than the previous year, it is a return to stronger lending nonetheless. They have further estimated that total lending for 2012 as a whole was £143bn, up from £141bn in 2011. They have predicted that mortgage lending will rise further, reaching £156bn in 2013.
Bob Pannel, CML’s chief economist, said, “We are more positive about the UK housing market and wider economy than a year ago, despite economic headwinds and downside risks.
“A key reason is that lenders currently face few funding pressures, in part reflecting the funding for lending scheme.
“House purchase activity was robust in the fourth quarter, on the back of better mortgage availability and pricing, and we expect this to continue over the coming months.”
Under the funding for lending scheme (FLS), launched in July 2012 by the Treasury and the Bank of England, banks and building societies that increase their lending will be able to borrow more through the scheme, for a lower cost than current funding rates for up to four years. The Bank of England is committed to transparency, making public the amount that is lent to each bank and building society through the scheme, and how much they lend in turn to households and businesses.
While not enough time has passed to truly measure the efficacy of the FLS, the CML believe that it is clearly a positive move by the Bank of England, from which the market can only benefit. Expectation among policy-makers that the FLS will stimulate lending through the opening months of 2013 is reflected in the MPC decisions to refrain from further quantitative easing.
There have been some doubting voices raised regarding whether the FLS is working, but the Bank of England has responded by saying that the appropriate metric for evaluating the FLS is what would have happened in its absence, and also that they were not expecting the FLS to materially affect mortgage lending volumes until early 2013.
The Bank of England’s figures show that mortgage pricing has decreased, with new lending rates falling by as much as 60bps for medium term fixed rate products since the launch of the FLS. Their credit conditions survey shows that lenders are expecting even more improvement in mortgage availability and spreads, and higher borrower demand, in the first quarter of 2013.
CML’s Regulated Mortgage Survey suggested a resilient fourth quarter for house purchase activity. House purchase lending was found to be above 2011 levels for most months in 2012. Loans in November were up 6% on the previous month, and 13% on the previous year.
They do, however, acknowledge that there are numerous downside risks, especially given the fine line the nation is treading between growth and recession, with austerity measures lurking as a shadow over consumer confidence. But as tenant finances appear to be less squeezed than they have been for quite some time, and landlords are looking to add properties to their portfolios, this encouragement of the banks to lend more willingly has created a welcome air of optimism that seems to be pervading the housing and mortgage markets.