UK mortgage lending up in 2H 2015, BTL saw growth

There was a surge in mortgage lending in the UK during the second half of 2015, as customers took advantage of low interest rates, with the Governor of the Bank of England, Mark Carney, suggesting in November 2015 that the central bank rate may not rise until 2017. Total gross lending increased by 29.4% in 2015.

The Buy-to-Let sector recorded substantial growth in 2015, as investors increasingly looked towards property in the absence of any favourable savings rates. With house prices continuing to rise and the buy-to-let scheme making becoming a landlord more affordable, this type of mortgage has risen from being a twentieth of all mortgages to a fifth in a single year. The availability of high loan-to-value (LTV) mortgages and even interest-only mortgages, combined with pension reforms in the March 2015 Budget - allowing over 55s to receive a lump sum instead of annuities - sparked the growth.

Mortgage affordability eased during the recession as the BoE reduced its policy interest rate to a record-low of 0.5% in 2009, and Funding for Lending provided 18 months of access to cheap bank finance. This prompted retail lenders to lower interest rates on tracker and fixed-rate mortgages during 2009-2014, leading to lower-value loan repayments from 2009 onwards.

This trend continued in 2015, as HSBC became the first lender to launch a sub-2% five-year fixed mortgage in April, which triggered price war between lenders. Rates continued to plunge in 2015, with the average 75% two-year LTV mortgages as cheap as 1.6%. This has been a substantial factor behind driving the gross lending and the repayments markets, as consumers have been keen to lock themselves into the attractive rates.

A surge in mortgage lending was recorded during the second half of 2015, as customers took advantage of low interest rates, with the Governor of the Bank of England, Mark Carney, suggesting in November 2015 that the central bank rate may not rise until 2017.

Although it looks as if the central bank rate will not rise until as late as 2017, the rate will increase at some point over the period of 2015-2019, which will increase repayment costs. The Mortgage Market Review (MMR) includes measures to check that all borrowers are able to afford the cost of any potential hike, so interest rate increases are likely to suppress growth in the market, if only temporarily.

With the demand for mortgages being so high, any interest rate hike is unlikely to lead to a decline in gross mortgage lending, although repayments are more likely to drop off as customers begin to struggle to make them.

Lending to first-time buyers had declined year-on-year to April 2015 following the implementation of the MMR in April 2014. The review includes measures to check that all borrowers can afford the cost of any potential hike, to the extent of looking through online bank statements and credit ratings, have made it harder for many to get on the property ladder.

The boom in buy-to-let lending has created a very saturated market with direct competition for first-time buyers, and it has certainly contributed to rising house prices, especially in London. Lending to first time buyers increased by 10% year-on-year to September 2015, as real wages continues to improve and demand remained strong.