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UK housing and mortgage market outlook

UK housing and mortgage market outlook. Jim Cunningham Senior Economist jim.cunningham@cml.org.uk. Structure. International background UK economy and interest rates UK housing and mortgage markets Product, segment and channel Looking forward – issues and prospects.

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UK housing and mortgage market outlook

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  1. UK housing and mortgage market outlook Jim Cunningham Senior Economist jim.cunningham@cml.org.uk COUNCIL of MORTGAGELENDERS

  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 MORTGAGELENDERS

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

  4. International background COUNCIL of MORTGAGELENDERS

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

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

  7. UK growth Source: National Statistics COUNCIL of MORTGAGELENDERS

  8. UK labour market Source: National Statistics COUNCIL of MORTGAGELENDERS

  9. UK inflation Source: National Statistics COUNCIL of MORTGAGELENDERS

  10. Market interest rates Source: Bank of England COUNCIL of MORTGAGELENDERS

  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 MORTGAGELENDERS

  12. Interest rate expectations Source: Bank of England Notes: The market expectation curves relate to commercial bank liabilities which will typically be 10-15 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 MORTGAGELENDERS

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

  14. Mortgage approvals Source: Bank of England COUNCIL of MORTGAGELENDERS

  15. House prices Source: Halifax and Nationwide COUNCIL of MORTGAGELENDERS

  16. Gross and net lending Source: Bank of England COUNCIL of MORTGAGELENDERS

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

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

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

  20. Growth of buy-to-let Source: CML COUNCIL of MORTGAGELENDERS

  21. Growth of equity release Source: CML COUNCIL of MORTGAGELENDERS

  22. Importance of specialist lenders Source: Bank of England COUNCIL of MORTGAGELENDERS

  23. Importance of intermediaries Source: Regulated Mortgage Survey COUNCIL of MORTGAGELENDERS

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

  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 MORTGAGELENDERS

  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 MORTGAGELENDERS

  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 MORTGAGELENDERS

  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 COUNCIL of MORTGAGELENDERS

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