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Mortgage market defies Brexit jitters as rates hit record lows

Fears raised over the UK housing market in the wake of the Brexit vote have so far proved to be ‘wide of the mark’ according to various experts, with the sector showing signs of a post-Brexit surge, illustrated by a sharp rise in mortgage lending, as lenders offer record low rates on deals in an effort to bring in new business. 

In the run-up to and immediate aftermath of the EU referendum there was an understandable drop-off in buyer enquiries amid greater uncertainty in the market, with various economists pessimistically warning of a fall in house prices. But more than 100 days on from the EU vote and those fears have not materialised, with growing signs that buyers are returning to the market. 

The latest Mortgage Monitor from e.surv shows that the number of mortgage approvals grew by 5% between July and August to reach 63,972, and although this figure is down 10.3% year-on-year, it does suggest that the market is swiftly recovering from the post-referendum lull as confidence improves and mortgage borrowing rates fall, thanks partly to the Bank of England’s (BoE) decision to lower the base rate to 0.25%. 


“Despite the number of approvals being lower than a year ago, positive signs are already emerging in this post-referendum mortgage market,” said Richard Sexton, director of e.surv chartered surveyors. 

“The policy announcements made in the aftermath of the vote look to have calmed the nerves of borrowers and lenders alike,” he added.

The Council of Mortgage Lenders (CML) reported its strongest August since 2007 – with an estimated £22.5bn worth of home loans handed out, up 7% from July and 15% higher than August last year

“Widely voiced fears in recent months about the housing market have proved to be wide of the mark,” said Mohammad Jamei (below), a senior economist at the CML.

“Prospects for house purchase activity post-referendum   look slightly subdued, when compared to late 2015 and   early 2016,” he added. “However, sentiment in the market recovered in August. This is reflected in stronger-than-expected transaction figures, and in our gross lending estimate.”

Jamei said that the recovery in sentiment is likely to be   down to several factors, including BoE’s monetary stimulus and its introduction of the term funding scheme in August.

He continued: “A subsequent uptick in approvals is anticipated, albeit still at levels lower than earlier this year as affordability constraints and lack of properties on the market for sale continue to bear down on borrowers.”

Lack of homes for sale

Although demand from home buyers is starting to improve again, there remains a huge lack of residential properties for sale, with CML figures showing that the average number of properties per surveyor is close to an all-time low, and this will undoubtedly restrict the number of mortgages approved by lenders. 

“There are still constraints on the market, namely the lack of stock, which has the potential to reduce the number of transactions and therefore reduce mortgage activity, constraining the level of growth that we were seeing earlier on in the year,” said Paul Smith (below), CEO of haart.

However, the encouraging mortgage data from CML revealing that activity jumped back up in August after hitting a blip in July ultimately shows that projected fears about the collapse of the housing market in the wake of a Brexit vote “were misguided”, according to Smith.

Henry Woodcock, principal mortgage consultant at IRESS, also thinks that mortgage approvals are now likely to grow over the coming months, albeit at a moderate rate. 

He commented: “If there are no unforeseen bumps in the economy, the optimist in me – encouraged by these figures – would expect mortgage approvals and advances to increase further over the coming months – but at lower levels of growth than in 2015 – as lenders seek to hit end of year targets.”

Mortgage product numbers soar

The number of mortgage products on the market has surged by 85% over the past two years with a total of 7,481 mainstream lender products, excluding direct and exclusives, now listed on Mortgage Brain’s latest sourcing systems – up from 4,031 in September 2014 and 5,019 this time last year.

The buy-to-let market has seen the biggest hike in product availability with 637 new products coming on stream over the past 12 months taking the total in the sector to 1,853, up 52% year-on-year. 

There has also been a notable rise in the number of high loan-to-value (LTV) products over the past 12 months, with Mortgage Brain’s research showing that mortgage advisers now have access to 296 90% loan-to-value (LTV) products and 1,641 80% LTV products – an annual increase of 47% and 45% respectively. 

Mark Lofthouse, CEO of Mortgage Brain, commented, “The increase in competition, more buy-to-let lenders returning to the market and an influx of higher LTV products, has clearly had a big impact on the growth of product numbers and availability.

“There are over 3,400 more products available now compared to two years ago and this growth in product numbers means that matching a client’s needs to the best products available is more important than ever.”

First-time buyers 

The number of prospective first-time buyers planning to acquire property remains broadly stable despite uncertainty following the EU referendum, research from Aldermore shows.

Its first-time buyer index, which was conducted both before and after the EU vote, found similar levels of confidence among those looking to acquire their first property over the next 12 months.

The research suggests around a million people are planning to buy their first home in the coming year, and while raising a deposit and high property prices remain major issues, only 5% of respondents listed mortgage affordability as their main obstacle, while just 7% citied difficulties securing a mortgage.

When it comes to applying for a mortgage, 48% of prospective first-time buyers are planning to apply jointly with their partner, compared to just 25% of people doing it on their own.

Charles Haresnape at Aldermore said: “First-time buyers’ mind-set remains almost entirely unchanged on their plans to purchase their first property.

“A huge focus on securing a mortgage masks the issues that many have reported in raising the initial deposit, with a large proportion unable to do so without family help at a time of rising rental costs across the country, with three quarters of respondents considering the Help to Buy scheme.”

Help to Buy: mortgage guarantee 

Help to Buy mortgage guarantee scheme, which is set to end in December after three years, has attracted high demand from borrowers, particularly first-time buyers, looking for higher LTV home loans. 

The initiative provides a government guarantee to lenders on mortgages where a borrower has a deposit of between 5% and 20%, with a view to offering banks and building societies peace of mind and therefore encouraging them to offer larger LTV products of between 80% and 95%.

But BoE’s Financial Policy Committee recently said that the scheme was no longer needed, and now the chancellor Phillip Hammond has confirmed that it will not go on beyond the end of 2016 as planned.

“It was neither desirable nor sustainable for high loan-to-value (LTV) lending to be carried permanently on government shoulders,” said Patrick Bamford, business development director for AmTrust International. 

But Bamford insists that attention must now focus on ensuring the “right commitments and support structures” are in place, so that help for aspiring homebuyers with modest deposits remains on the table “without building up extra risk in the financial system”.

Buy-to-let investors 

With competition between mortgage providers continuing to grow, property investors now have access to some of the cheapest ever buy-to-let mortgages deals. 

According to Moneyfacts.co.uk, the average fixed rate deal at 75% LTV has fallen by 0.49% over the past six months taking this rate to less than 4% for the first time ever.

“The reduction in the Bank of England Base Rate to 0.25% has already affected buy-to-let rates, with the average five-year fixed rate at 70% LTV falling by 0.15% in just one month,” said Charlotte Nelson, finance expert at Moneyfacts.co.uk. 

But while low rates may make a buy-to-let investment an attractive option, there are other costs to factor in, such as high stamp duty costs, which largely explains why new lending in the buy-to-let sector remains subdued. 

Also, with many lenders now demanding rental coverage of 145% for buy-to-let mortgages, ahead of new restrictions on the amount of tax relief landlords will be able to claim on mortgage interest from April 2017, cheaper buy-to-let mortgage rates are failing to entice many investors. 

Mike Richards, director of Mortgage Concepts Associates, said: “Lenders reducing rates is not going to help at all because the government has crucified buy-to-let.

“While an interest rate is one of the concerns, it is not the only concern. People have a finite amount of money for deposits and most people will have to pay 3% extra stamp duty while lenders are increasing their stress rates.”

While new lending in the buy-to-let sector has slowed in recent months, remortgage activity has soared as property owners look to take advantage of cheaper borrowing rates.  

“The low interest rate environment we are currently witnessing is the perfect time for borrowers to take stock of their existing mortgage deals, and speak to an adviser to ensure they are on the most competitive product available to them,” said Jeremy Duncombe, director at Legal & General Mortgage Club. 


Remortgaging activity hit a seven-year high in August, after increasing by 45% year-on-year to a total of 36,195, fuelled by record low rates and rising house prices, which have encouraged homeowners to reconsider their finances and see if they can secure a better deal, with 11% of homeowners who remortgaged in August successfully cutting their monthly repayments by more than £500, according to data from LMS.

However, despite the rise in remortgage transactions during August, the value of those transactions slipped, with the overall value of gross remortgage lending totalling £5.9bn in August, down 2% from £6bn in July.

Andy Knee, chief executive of LMS, commented: “The Bank of England’s decision to cut the base interest rate continues to have a positive impact on the remortgage market [and] has encouraged a greater number of homeowners to remortgage their homes.”

It may not quite be business as usual just yet 

Despite a higher level of remortgaging activity and greater confidence among first-time buyers, overall mortgage approval rates have fallen, as illustrated by fresh data from BoE which show that approvals dropped for the third consecutive month in August, with just 60,058 loans approved for home purchases compared with an average of 66,734 over the previous six months. 

These figures are in stark contrast to the upbeat prediction for mortgage lending in August from the CML, which suggests that the seasonal lull may have had more of an impact on the market than initially thought. 

Knee (below right) added: “In spite of this rise [in remortgaging], homeowners appear to be in a more cautious mood; borrowing less in the wake of a couple of turbulent months, both politically and economically, and lowering their LTV in the process.”

But with more lenders passing on the recent cut in interest rates to borrows and consumer confidence continuing to grow, it is likely that BoE will see some improvement in its mortgage lending figures as we head into the busy autumn period, especially if the Bank opts to cut interest rates further. 

Economists predict that the BoE is likely to announce a further cut to the base rate in November, bringing it down from 0.25% to just 0.1%.

Either way, with finance being so cost-effective at the moment, there are plenty of opportunities to be taken advantage of; whether your clients are taking out new home loans or remortgaging their existing properties. 


- e.surv
- Council of Mortgage Lenders
- haart
- Mortgage Brain
- Aldermore
- AmTrust International
- Moneyfacts.co.uk
- Mortgage Concepts Associates
Legal & General Mortgage Club

*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno 

**All best buy tables courtesy of moneyfacts.co.uk, compiled on September 27 2016


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