What will 2019's property market look like?

Welcome to our first newsletter of 2019! In this January edition, we analyse what the next twelve months will mean for the property market. 

We also look at why homeownership rates are on the rise for young families, there's news on the mortgage industry's recent success in the digital stream and we examine the effect that the Bank of Mum & Dad have had on Generation Rent. 

What will 2019's property market look like?

 

2018 was a year of ups and downs in the property market, with the overriding factor being the imminent break from Europe. As we move into 2019 and March 29th (the official date of Brexit), there remains a level of uncertainty in the market. However, this should be tempered with cautious optimism when looking at the gains that property could make in the post-Brexit period.

 

Interest rate uncertainty
Something which is currently subject to extreme uncertainty throughout 2019 is interest rates, with the Bank of England having already increased rates last year for only the second time in over a decade. On the one hand, Mark Carney, governor of the Bank of England, has indicated that the Monetary Policy Committee (MPC) will continue to gradually increase the base rate next year. However, Carney has tempered this intended rise in base rates by stipulating that in the event of a disorderly Brexit the MPC would be prepared to similarly cut rates in order to support the economy.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “It looks set to be an intriguing year. We expect interest rates to end the year around 1% and mortgage rates will reflect this.”

Competitive mortgage market
During the course of 2018, the competition in the mortgage market has become rife with more offers available and more options to entice buyers into the market than ever before. Looking to 2019, there is no indication that this competition between lenders will subside, making mortgages more accessible to a wider market. Currently, there are 1,459 cashback incentives available on residential mortgages which is nearly two-and-a-half times more on offer than in 2011, according to Moneyfacts.

David Hollingworth, of L&C Mortgages, offered: “This year has been very, very competitive with mortgage lenders pushing hard to attract borrowers. I don’t see a reason why that would change in the new year and it might just be a tighter market with even more intense competition.”

First-time buyers
2018 saw an unprecedented number of first-time buyer transactions in the property market, with numbers reaching an 11-year high. With the news from the Budget that the Help to Buy scheme will be extended a further two years, many potential purchasers should also join the property market in 2019. Often, saving for a deposit is the chief hurdle for those wanting to buy a home; however, with the availability of deals for people borrowing 95% of their home’s value soaring to 304 different mortgage options, this hurdle is now being circumvented by the mortgage industry. With more mortgages with lesser deposits available, as well as shared ownership and purchase schemes offered, we should see first-time buyers once again on the rise throughout the course of the new year.

Remortgaging
With lenders in stiff competition with one another and low-interest rates still present, many agree that 2018 was a good year to remortgage and 2019 will continue to offer favourable conditions for those looking to capitalise.

Rachel Springall, finance expert at Moneyfacts, says: “Throughout 2018 the mortgage market has had to absorb the base rate rise back in August, which has inevitably pushed the average standard variable rate to its highest level in almost ten years. This has meant the incentive to remortgage has probably never been greater.”

Home ownership rates for young families are on the rise

 

After a three-decade-long hiatus during which it became even harder for young families to purchase their own property, official statistics from the Resolution Foundation thinktank have shown that ownership rates amongst this group are now on the rise.

According to the thinktank statistics, 190,000 more young families became homeowners over the course of the past two years with the biggest increases observed in Yorkshire and the Humber, Scotland and the North West, where the proportion of young families who are homeowners has risen by between 4.6% and 8.4%. The thinktank calculated the figures from government surveys dating back to 1961.

The last 30 years have seen a downward trend in ownership rates among young families, due to a variety of factors, including changes in the property market and fiscal instabilities. During the 1980s, homeownership peaked at 51% in 1989; however, this figure had halved to only 25% by 2016 and now sits at its lowest level since at least 1961 (the earliest government survey). By the end of 2018, the downward trend was finally bucked, with rates of homeownership increasing to 28%, with the numbers also trending upwards as we move into 2019.

Resolution suggested that the changes in trend are down to differences in mortgage offerings over the past two years, with lower-deposit and more flexible offerings now available as well as the availability of larger mortgages. In addition to changes in lending habits, there is the relative slowdown in house price growth and stamp duty relief for first-time buyers, which have also aided those looking to join the property market.

Daniel Tomlinson, a research and policy analyst at Resolution, said: “Recent conditions in the housing market as we move away from the immediate aftermath of the financial crisis are finally helping more young families to buy a home of their own, but the long-term drivers of lower ownership rates are here to stay.”

For many young families, the opportunities available to help them join the property market are now being made the most of, and therefore we are seeing the upward trend in ownership rates. A willingness to be more flexible in terms of their finances, as well as a willingness to move away from the bigger cities and in to more affordable areas, are helping this group to purchase a family home, however the Institute for Fiscal Studies commented this year that average house prices had risen around seven times faster than the average income in the last 20 years, showing that property ownership is still no mean feat.

Mortgage industry taking steps to become more digitised

 

Given the increasing digitisation of modern life and our preference to head to the internet to gather advice and information when it comes to making a decision of any size, it’s no surprise that digital tools and services have provided a boost to the mortgage industry. The complexity of gaining a mortgage doesn’t necessarily lend itself to full automation, but lenders and brokers are seeing increasing business as a result of their online presence and the way that they interact with their customers.

A report by the Intermediary Mortgage Lenders Association (IMLA) supports this, which simultaneously suggests that robo-advice models are unlikely to become the norm when it comes to bringing in customers. This is despite 38% of brokers questioned by the IMLA stating that this was the greatest threat to their business going forward.

The Financial Conduct Authority (FCA) and lenders are said to be supportive of the drive to further digitise the market, which should, in turn, mean that customers will find the process of obtaining a mortgage less time-consuming and less stressful.

The results of this approach are clear; more potential customers are searching for a broker first as opposed to the best deal, with Google searches for ‘mortgage broker’ reaching a 14-year high and increasing 180% over the last five years. Over 70% of customers are sourcing their mortgages through intermediaries, which strengthens the notion that people want to speak to an expert who can explain their options.

Additionally, price comparison sites appear to have had limited success in the industry, in stark contrast to their success and popularity in the world of car insurance. This is down to the limited range of criteria on offer alongside a lack of certainty that customers will fit the criteria for those loans. Robo-advice models are also expected to see limited efficacy, purely due to the complexity of the subject matter and the difficulty in replicating that in an automated service.

“We have already seen a number of digital advancements as the industry seeks out solutions to improve the mortgage and property transaction process. But we’re still some way from seeing a completely automated mortgage market as the technology cannot yet, and may never, fully address all customer needs,” said Kate Davies, executive director of the IMLA.

“Our findings suggest that consumers clearly appreciate the softer skills offered by brokers. And online tools have made it easier for mortgage brokers to advertise their services and to be sought out by local property buyers seeking information and advice. The digital revolution hasn’t yet disrupted the traditional mortgage journey, but it’s certainly making it more effective.”

The Bank of Mum & Dad and how they've helped Generation Rent

 

According to analysis produced by the Resolution Foundation, parental wealth has now developed into one of the determining factors whether young people in the United Kingdom own a home or not since the financial crisis – demonstrating the current inequality in the housing market.

Although homeownership rates amongst the 25-34-year-old age group have indeed declined, the recent introduction of schemes such as Help to Buy and shared ownership, as well as the myriad of mortgages now available, have been helping first-time buyers on to the market. Despite this push, Britain’s young people have been dubbed “Generation Rent” due to their decreased likelihood to be able to purchase their own homes when compared to previous generations – they are much more likely to be renting from a private landlord.

The analysis produced by the Resolution Foundation is the first of its kind as it has linked two long-running data sets together in order to attempt to measure the importance of the aptly named “Bank of Mum and Dad”, referring to parents supporting their children on to the property market. The foundation found that those with parental property wealth were 80% more likely to become homeowners than those whose parents did not own their own home.

Stephen Clarke, senior economic analyst at the Resolution Foundation, said: “High house prices and sluggish wage growth have meant that being able to buy a home of their own is almost impossible for many young people without access to the Bank of Mum and Dad.”

Making an interesting comment on how to bridge the gap in inequality, the report stated that the government’s Help to Buy equity loan scheme ‘could be better targeted’ and should additionally consider family wealth.

The report added: “Fundamentally, schemes like HTB are about helping those who are close to being able to afford their own home. In order to improve homeownership prospects for the majority of younger people, more concerted action is needed.”