Mortgage Lending Dynamics in the U.K.

The Money Charity has reported that the British real estate market would be seeing a slow- down in the coming years due to the benefits of the Help to Buy scheme being cancelled out, or reduced by rising house prices. The Banks of England has, however, painted a positive outlook for the sector and said that mortgage lending is at the highest levels ever and the trend would continue unperturbed. This article would examine the lending dynamics as the real estate market threatens to reach its plateau.

Rising Personal Financial Burden

A market analyst from a leading mortgage providing company based in London has explained that if there is a slowdown in the market, it would likely be caused by affordability issues, rather than a lack of interest with the borrowers. This point can be emphasised by the rising prices of houses as a result of increasing demand for real estate ownership.

A financial advisor based in Manchester is of the opinion that the steep prices of houses have started to put off new applicants for taking out mortgages. According to recent data, the average price of a house in the U.K. is now more than £290,000. The largest increase in housing prices have been witnessed in London with the average property value shooting up by 21per cent in the past few years.

This has led to the public calling for improvements to be made in the government’s Help to Buy scheme to consider the unique financial atmosphere of London. As a result, the government has mended some of the criteria for their assistance to include special clauses for properties located in the London area.

Originally, after securing the five per cent deposit from their own means, a loan from the government can be secured at 20 per cent of the total property value, which leaves the remaining 75 per cent to be borrowed as the mortgage from a lender. However, for buying London properties, the government is offering a contribution loan of 40 per cent of the property value to leave the rest of 55 per cent to be mortgaged.

The loan offered by the government has a no interest time period of five years, after which the borrower is charged a fee of 1.75 per cent of the loan’s total value, which will be increased every year at one per cent above the inflation rate.

In spite of these incentives offered by the government, the public outlook for owning a house seemed grim according to a recent survey. Respondents to the survey cited difficulty in securing the deposit and steeply increasing house prices to be the primary barriers to owing a house.

First Time Buyers

According to the Office of National Statistics, there was a slight rise in the number of first time buyers during the year of 2026. With nearly 21 per cent of all home purchases being made by first time buyers, it is a larger portion of home owners as compared to the previous decades. However, this rise is not consistent with the post- recession trend. After the economic recession ended, the country witnessed the largest dip in new home owners for decades. Some economists have suggested that the trend of new home owners entering the market and taking out mortgages is still very volatile and could fluctuate as a result of economic indicators changing. With the interest rates remaining low for the near future and a new wave of competition between mortgage lenders expected to erupt, it is suspected that this upward trend will continue, though at a more moderate level.

The primary goal for the Help to Buy scheme was to lend a helping footing to first time buyers in their efforts to own their property. It was also aimed at providing a shot in the arm to the construction sector in an attempt to boost the economy. The first phase of the scheme was only available if someone wished to buy a new house, however, this was later revised and now any house up to the values of £600,000 would be covered by the program.

However, in the first few years of the launch, the scheme failed to encourage a rapid growth in construction resulting in the current market bloat in house prices. Although, in 2016, the number of houses grew by about seven per cent, indicating that the construction sector was trying to play catch up with the real estate boom. Whether this would able to create an equilibrium between the demand and supply and continue to boost the economy in the long run, has yet to be seen. Most economists are hesitant to make any such bold predictions as lending for mortgages is dependent upon the wider economic conditions in the country. This would have to be correlated by addressing the elephant in the room; what impact would Britain’s exit from the largest functioning economic block have on the lenders, and by extension, the housing market.

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