7 January 2019
What’s in store for the mortgage market in 2019?
2019 looks set to be an intriguing year. Let’s hope we manage to avoid falling off the Brexit cliff edge, even if this happens at the eleventh hour.
As far as the housing market is concerned, there are likely to be pockets of growth across the country but average price growth at the end of the year will probably be flat. We don’t expect to see much change in values in the prime market but strong regional variances and perhaps the gap between property prices north and south will narrow.
We expect interest rates to also be pretty flat, ending the year unchanged at 0.75 per cent or perhaps edging slightly higher to 1 per cent. It all depends on what happens with Brexit, which is something nobody can forecast. If it goes pear-shaped, the Bank of England might even reduce interest rates in order to kick-start the economy. But if we get a reasonably balanced outcome then we don’t see rates going higher than 1 per cent, as the economy is still fairly fragile.
Mortgage pricing will reflect what happens to interest rates to an extent but we still expect them to be competitive as lenders go after market share. The premium on rates between low and high loan-to-value (LTV) mortgages is narrowing and we expect that to continue in 2019. High LTV products are priced at a premium because of the perceived higher risk to the lender but the rates on low LTV products will continue to rise slightly as lenders try to earn greater returns.
Fixed-rate mortgages will still be popular as uncertainty about the economy and direction of interest rates continues. Remortgaging was the big success story for the industry in 2018 and this looks set to continue into 2019 as borrowers come off fixed rates and look to lock into competitive deals.
Buy-to-let will continue much as before. Assuming the government resists the temptation to bring in new legislation to further squeeze landlords, there is no reason not to expect seasoned investors to carry on investing as before where they see opportunities. This will particularly be the case if there is less growth in prices, so property is comparatively better value for money.
Despite the plethora of new lenders entering the market, and targeting different areas, we still expect the big six to dominate. There could also be some consolidation among the smaller and specialist lenders. Lenders are all desperately trying to find their niche but this, of course, is counteracted by risk. There is a nervousness that if they stray too far away from what their competitors are doing, they will get swamped with business and won’t be able to cope, so some balance is required.