There were increased signs of a slowdown in the UK property market last month, as the number of sales has fallen dramatically and even less are taking out mortgages. Analysis by data firm Equifax claims mortgage sales dropped by over 15% between March and April. But why is this happening? Here Mark Homer, Co-Founder of Progressive Property explains more for Finance Monthly.

Mortgage transaction volumes have continued to reduce, dropping in excess of 15% in most regions of the UK in April 2017 versus March 2017. As new mortgages tend to mirror overall property transaction volumes the whole market appears to be taking a breather. Continuing uncertainty caused by Brexit, Britain’s relationship with the EU and more immediately the general election appears to have put buyers off at least for the short term.

House prices have continued to fall in Prime London and growth has continued to moderate outside of the M25 with the Midlands and North showing reduced growth too. Overall UK house price growth has slowed to 4.1% in the year to March 2017. With much of the rest of the UK playing catch up to the huge growth in Central London since 2010 the market appears to be taking a breather.

Increased Stamp duty on buy to let properties, 2nd homes and higher end properties from March 2016 has had had a further dampening effect on the market with many taking a “wait and see” approach to moving house. A new buy to let tax which sees mortgage interest become not 100% off settable against rent for many from April 17 has also contributed to a more negative mood.

Interestingly, first time buyer purchases have increased since the stamp duty changes showing that the government’s policies to encourage these purchases over those of landlords appear to be working. With some lender’s mortgage rates now reaching their lowest ever rates sub 1% buying a home has become more attractive.

House price growth seems set to return to trend with 5%+ growth once these uncertainties subside and wage growth catches up with prices following a period of increased inflation after sterling devalued immediately after the vote to leave the EU.

Over the last few months, house price hiking has had a dramatic slowdown, highlighting a drop in gears for the property market in the UK. ONS statistics show that over the past 12 months, price increases have seen smaller figures in several UK regions.

Before the slowdown the average increase sat at around 15% yoy, however this is still much less than April 2000 when the yearly growth hit 28.3%.

This slowdown now has an effect on buyers who have until now been hit with steep prices and a lesser equal rise in savings interest.

This week Finance Monthly hears Your Thoughts on the slowdown and how it affects the public, the economy and the housing sector in the UK.

Jonathan Hopper, Managing Director, Garrington Property Finders:

This week’s official house price figures suggest the slowdown is sharper and started earlier than first thought.

April’s surprise election announcement applied a dab to the property market's brakes, but this data confirms it had already dropped down a gear in March.

While the speed and severity of the fall in annual price growth – down to its lowest level for more than three years – will alarm some sellers, such national averages mask the wildly different conditions at opposite ends of the market.

Properties in some regions continue to see double-digit price reductions, while at certain price points in the most in-demand areas, gazumping is back with a vengeance.

Nevertheless the broader trend is undeniable. East Anglia’s gravity defying, double-digit rates of price inflation are a thing of the past and it has been forced to share its ‘fastest growing region’ crown with the East Midlands.

Even London finds itself in a position it is unaccustomed to – close to the bottom of the pile.

The chronic shortage of supply is still propping up prices in many areas and mitigating the slowdown. But this snapshot of a slowing market – taken before the election announcement – confirms what many in the industry had feared. For the housing market, the snap election has come at just the wrong time – injecting an unwelcome dose of uncertainty into an already fragile market.

Nevertheless the lull could be short-lived. If the election delivers a clear result that puts Brexit firmly back on track, the property market could receive a huge boost, freeing up more supply and with greater levels of clarity spurring discretionary buyers into action.

Matthew Cooke, Residential Development Director, YOPA:

For me it’s a question of choosing the short or long game. Playing the short game is going to be challenging, until the fallout of Brexit becomes clear. However if you look at the history of the UK property market, it’s performed consistently as one of the most robust on the planet, just like the economy. Although we are in a soft patch the fundamentals remain the same - there are more buyers looking than quality stock available.

Investors - particularly Asian and Americans where the currency is strong against the GBP - have a superb opportunity to enter the UK market at a more attractive price. Although we are enduring turbulence presently, especially across London new homes and PCL, there are significant reasons to buy for those looking beyond the next two years. London remains a global financial, technology and cultural gateway city.

There’s a silver lining in the form of an advantage for first time buyers in this gear shift. Mortgage rates are low, and they aren’t fighting off as many investors as market reforms, Brexit and stamp duty changes on second homes make there presence known. Price increases have also reduced and sellers are more prepared to negotiate.

For upsizers - I think it’s still a good time to sell. Yes it’ll sting if you end up having to accept £10k less on your property than you’d hoped for, but you can always offset by passing the pain up the chain. Now is a superb time to negotiate yourself the dream family home.

Mark Homer, Co-Founder, Progressive Property:

House prices have continued to fall in Prime London and growth has continued to moderate outside of the M25 with the Midlands and North showing reduced growth too. Overall UK house price growth has slowed to 4.1% in the year to March 2017. With much of the rest of the UK playing catch up to the huge growth in Central London since 2010 the market appears to be taking a breather.

Increased Stamp duty on buy to let properties, 2nd homes and higher end properties from March 2016 has had a negative effect on transaction volumes along with the uncertainties which have been created around Brexit and the UK's future relationship with Europe.

Interestingly, first time buyer purchases have increased since the stamp duty changes showing that the government’s policies to encourage these purchases over those of landlords appear to be working. With some lender’s mortgage rates now reaching their lowest ever rates sub 1% buying a home has become more attractive.

We expect house price growth to return to trend with 5%+ growth once these uncertainties subside and wage growth catches up with prices following a period of increased inflation after sterling devalued immediately after the vote to leave the EU.

James Trescothick, Global Strategist, easyMarkets:

The threat of the sterling losing its role as a reserve currency due to the Brexit is looming over many investors’ minds.  Though the GBP is only the third most held global reserve currency, dropping further in the rankings or even losing that status all together, could really have a massive impact on the UK property market.

First of all, the sterling would lose its prestige and would most likely fall against the USD and EURO. In theory, this could encourage investment due to cheaper exchange rates, however the safe haven appeal which the UK housing market uses to attract foreign investors would be lost.  The UK relies heavily on this foreign investment to maintain prices. This and the levy on landlords and second-home owners which were introduced last year, are combining together to pressure house prices.

Holly Andrews, Managing Director, KIS Finance:

With regards to house prices in London, what we are seeing is due to a number of factors:

1. Stamp duty increases – In particular the increase in stamp duty for properties over £1.5m, with buyers having to pay 12% on any amount over £1.5m. Many people feel it is better to stay or keep existing properties and improve them, saving on the large amount of stamp duty that they would have to pay if they sold and purchased another property. In particular properties worth over £4m have seen a 12% fall in their values, the increases in stamp duty playing a major role.
2. Changes in the domicile and non-domicile rules – this has created a feeling that London is an increasingly harder place to reside long term, in particular amongst high net worth individuals. This is another major contributing factor as to why properties in London worth over £4million have seen a 12% fall in value
3. Local opinion – the view of the man on the street is very important, and in London, for the first time in 8 years, over 50% of people feel that house prices are going to drop. This low confidence also has an effect on property prices.
4. Mansion Tax - Although no mansion tax has been introduced, it is still on the table and a strong possibility in the future. It is therefore still in many peoples’ minds.
5. Brexit – A significant decrease in foreign investors buying property in London. Previously buying property in London was seen as an excellent investment for many foreign investors, but with Brexit there is much more uncertainty, leading foreign investors to invest their money elsewhere.
6. Investing elsewhere – Property investors nervous of London property values are investing in other parts of the UK such as Manchester and Liverpool. This has a negative effect in London prices, yet a positive effect elsewhere.
7. Low interest rates but difficult to obtain funding – The high end properties in London have been worst hit. Properties worth over £4million have seen a 12% fall in their values. Buyers are particularly concerned about this area of the market, making it very difficult to sell these properties, made worse by the high stamp duty charges that these properties attract. Lenders are also nervous about using these properties as security, making it difficult to borrow against them.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Growth expectations for 2017 remain at 2.0%, according to the Fannie Mae Economic & Strategic Research (ESR) Group's May 2017 Economic and Housing Outlook. For the fourth consecutive year, first quarter US growth slowed from the fourth quarter, partly reflecting ongoing seasonality issues. However, incoming data suggest that consumer spending growth will pick up this quarter.

Meanwhile, businesses will likely increase production in an effort to rebuild inventories, turning inventory investment into a positive for, instead of a large drag on, growth. Given the tight labor market, the ESR Group continues to expect rate hikes in June and September. Housing was a bright spot during the first quarter, and home sales performed well going into the spring season, thanks to solid labor market conditions and a recent retreat in mortgage rates.

"Once again, our full-year growth forecast remains intact as the economy grinds along, with the prospect of material policy changes appearing to be delayed," said Fannie Mae Chief Economist Doug Duncan. "We expect consumer spending to resume its role as the biggest driver of growth in the second quarter amid improvements in the labor market. Positive demographic factors should continue to reshape the housing market, as rising employment and incomes appear to be positively influencing millennial homeownership rates. However, the tight supply of homes for sale continues to act as both a boon to home prices and an impediment to affordability."

Visit the Economic & Strategic Research site at www.fanniemae.com to read the full May 2017 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.

(Source: Fannie Mae)

The housing and neighborhood location choices of immigrants will have a significant impact on urban growth in the US for decades to come, particularly as more foreign-born residents seek to own homes in suburban communities, according to new research from the Urban Land Institute's Terwilliger Center for Housing. Homebuilders and developers who can deliver the housing options immigrants want and need stand to benefit in the years to come.

Home in America: Immigrants and Housing Demand examines the influence of immigrants in shaping urban growth patterns, particularly those who have entered the US since the Great Recession (since 2010, the number of immigrants from Asia has surpassed those from Latin America). "Immigrants have helped stabilize and strengthen the housing market throughout the recovery," said Terwilliger Center Executive Director Stockton Williams. "Immigrants' housing purchasing power and preferences are significant economic assets for metropolitan regions across the country. This suggests the potential for much more growth attributable to foreign-born residents in the years ahead," he added.

Among the key findings from the report:

• Without growth of the foreign-population, regions with strong housing markets such as San Francisco would not have recovered as quickly following the recession; and markets that continue to struggle in the recession's aftermath such as Buffalo would have experienced even weaker growth.
• Immigrants have strong aspirations for single-family homeownership, and homeownership rates for immigrants rise with their length of time in the US This suggests that immigrants will be a key driver for owner-occupied housing for years to come.
• Immigrants seeking to own homes as well as those renting homes are increasingly drawn to the suburbs in search of employment opportunities, lower-cost housing and a higher quality of life. Suburbs are home to high-income, high-skilled immigrants as well as lower-income, lesser-skilled immigrants.
• While immigrants represent a key source of demand for new housing, a substantial share of immigrant housing demand will be met through purchases of existing homes. Sellers of these homes – many of whom will be baby boomers seeking to downsize – will create a strong market for smaller units.
• Urban areas experiencing significant immigrant population growth should explore how to best accommodate immigrants and leverage the positive effect they have on the housing industry and economy. Investments in housing, retail, recreational and cultural amenities, as well as social assistance and education programs can help forge a strong connection between immigrants, neighborhoods, and the greater community.
• Just as housing demand by immigrants was a key factor in tempering the worst impacts of the housing collapse, this demand is now helping to build housing market momentum. Demand for homeownership and for single-family housing, as well as the continued growth of both urban and suburban communities throughout the country, will depend on the trajectory of US immigration policy.

The findings in Home in America are drawn in part from analyses of the housing and neighborhood preferences of immigrants in five metropolitan areas that represent different types of immigrant gateways:

• San Francisco – a major continuous gateway, with a large and sustained immigrant population throughout the 20^th century and into the 21^st century (other examples are New York City, Chicago, Boston)
• Houston – a post-World War II gateway that has attracted large numbers of immigrants since the mid-20^th century (other examples: Los Angeles, Miami, Washington, D.C.)
• Buffalo -- a former gateway that was a major entry point in the early-to-mid-20^th century due to its strong manufacturing economy (other examples: Cleveland, Detroit, St.  Louis)
• Minneapolis-St. Paul -- a re-emerging gateway marked by a renewal of immigrants at the end of the 20^th century into the 21^st century (other examples: Baltimore, Denver, Seattle); and
• Charlotte – a major emerging gateway that started experiencing a wave of immigrants at the beginning of the 21^st century (other examples: Atlanta, Las Vegas, Orlando)

Home in America notes that foreign-born population growth in most of gateways outpaced overall population growth between 2006 and 2014 (the time period from just prior to the housing market collapse through the housing rally). Emerging gateways, which experienced strong overall population growth, were the only exception. The report also looks at the neighborhood choices of immigrants within the five metro areas, focusing on five categories of suburbs (typologies developed for ULI by RCLCO):

• Economically challenged suburb – characterized by lower home values and little population growth
• Stable middle-income suburb – having a wide range of home values, usually more centrally located
• Established high-end suburb – having high home values, established development patterns, often near employment centers
• Greenfield lifestyle suburb – close to the edge of metro areas, developed mainly in the past 15 years, typically adjacent to established high-end suburbs; and
• Greenfield value suburb -- close to the edge of metro areas, often adjacent to stable or economically challenged suburbs, more affordable than greenfield lifestyle suburbs.

The differences in where immigrants are locating in the five cities is an indicator of how they could influence future growth within these markets, the report says. In San Francisco, immigrants are spread across nearly all types of suburban communities, with the highestpercentage, 35%, living in economically challenged neighborhoods. In Houston, the largest share of immigrants, 39%, live in stable middle-income suburbs, followed by 29% in economically challenged suburbs. In Buffalo, 30% live in established high-end suburbs (a greater share than the native-born population) and 27% live in urban neighborhoods. In Minneapolis, the highestpercentage, 32%, live in economically challenged suburbs, followed by 27% in stable middle-income suburbs. In Charlotte, 27% live in economically challenged suburbs. Nineteen% live in stable-income suburbs and an additional 19% live in established high-end suburbs.

Home in America points out that the presence of immigrants could help boost revitalization in economically challenged suburbs; sustain the success of stable middle-income suburbs; and contribute to the growth and diversity of established high-end suburbs. "If recent shifts in immigration flows continue, an increase in higher-income immigrants – including rising numbers from China and India – could accelerate the demand for homeownership among the foreign-born population," the report says. "Without sustained immigration, the housing market could weaken and in many markets the impact could be dramatic."

(Source: Urban Land Institute)

With real estate markets in a bubble of volatility from year to year, mortgage rates due to rebound, and increasing purchase struggle for first time buyers, it’s about time we looked back through the years and really understood how we’ve arrived where we are today. This month Finance Monthly has heard from Tracie Pearce, Head of Mortgages at HSBC. Tracie gives us a rundown of mortgage history from day 1, and points towards the shifts that are set to further shape how buyers afford their bricks.

I’ve always had misgivings about birthdays. But a 21^st industry birthday taking us back to 1996, the year when the British Olympics team won 15 medals in Atlanta, Trainspotting was released and just 16% of households had mobile phones, feels worth a little retrospection. A lot has happened!

In 1996, I was an assistant analyst at specialist lender Sun Bank based in Stevenage, building and maintaining PCs and hardware for mortgage platforms. In that same year, 1996, a handful of lenders formed the Association of Residential Letting Agents (ARLA) marking the beginnings of the buy-to-let market with industry self-regulation in the shape of the Mortgage Code emerging the following year.

Through the 1990s, the building society sector, which did 72% of lending in the mid-80s saw further demutualisation but by 2000, the banks held sway with 70% of gross mortgage lending and mortgage brokers were estimated to be introducing just over half of this business.

The rise of the mortgage adviser

The early naughties saw the rise of the intermediated mortgage market, which brought mortgage choice and mass regulatory compliance ahead of the advice industry’s regulation on M Day, on 31 October 2004.

Disclosure documents including the Key Facts Illustration (KFI) became mandatory and more importantly advisers became Directly Authorised (DA) or Appointed Representatives (AR) to networks to comply with regulation.

The 2000s were arguably a fantastic time for the majority of mortgage consumers with immense mortgage product choice and loss-leading two-year fixed rates. There was easy access to credit fuelled by lender competition and record house price inflation hit 26.5% in January 2003, according to Nationwide.

On the timeline, was when I was lucky enough to be involved in launching The Mortgage Works brand. The market was buoyant, spirits were high and product innovation relatively fast and furious. It was around this time that the market moved from a position of bespoke products and pricing calibrated by risk, to more of a mass market offering and more agile processing timescales. Lenders were investing in automation, including conveyancer and valuation instructions and time to offer shortened to around 10-14 days, not so far from where we are now.

 Mortgage Strategy ran a hero and villain of the week column and all the lenders were vying for the hero of the week position but desperate to avoid being called out as the villain. It was just a bit of fun, but certainly showed what was motivating product teams at the time.

The economic crunch

Meanwhile, the downside, of course, was that this perceived ‘magic porridge pot’ of equity also arguably softened the perception of borrowing risk for lenders and customers alike. By 2007, gross mortgage lending had ballooned to hit £360bn – and then, the market imploded as the credit crunch hit.

The bleak economic period and soul searching that followed handed culpability to borrowers, lenders, advisers and the credit reference agencies, alike.

One of my most vivid memories was Thursday 6^th November 2008 when the Monetary Policy Committee slashed Bank Base Rate from 4.5% to 3% in one go, a really deep cut! The market was shocked. In the days and weeks that followed, products were withdrawn, lending criteria tightened and lenders retrenched to serving their direct channels first.

The FSA, was abolished on 1^st April 2013 and replaced by a twin peak FCA/PRA regulatory system, with a new steely zeal for conduct regulation under the leadership of CEO Martin Wheatley.

The Mortgage Market Review was initially signposted in 2009 but took until 26 April 2014 to finally arrive after full consultation. For a period, lenders struggled to meet consumer demand as they embedded processes and training to give advice (in some channels) for the first time. Brokers leaned in to bridge this capacity gap and the industry (on the whole) gave the regulator credit for an exhaustive, clearly-trailed process.

In October 2014 HSBC entered the intermediary market for the first time, which was one of the single biggest strategic changes the bank has ever made on the mortgage side. As the adviser market’s star rose and the regulatory landscape changed, the bank made a commitment to the intermediary market, which has brought successes for both sides and clear benefit for customers.

We started with a pilot one intermediary partner – Countrywide – and London & Country joined the panel in August 15, over the last 18 months, we have been methodically and systematically expanding our reach and we now have 16 intermediary partner firms, with around 7,000 individual brokers, with more on the immediate horizon.

We are committed to working effectively with our broker partners, ensuring the best products and customer service as well as continuous improvement to deliver a market-leading customer experience.

So, George Osborne’s focus on landlords and the buy-to-let market almost brings us up to date. The Chancellor announced changes to mortgage interest tax relief in 2015 which will gradually be reduced to 20% between 2017 and 2020. The Stamp Duty surcharge of 3% was introduced from April 2016 was the next in a raft of affordability-focused, tweaks, joined the rule changes bringing in tighter underwriting on 1 January.

Inevitably the plethora of rule changes have slowed it down a little but the market is professional and I believe it is resilient. I believe it has the strength to recover, albeit it may be in a slightly different guise. As lenders have adjusted credit criteria, landlords will rethink how they choose to invest.

Looking forward to evolution

The last 21 years have been a whirlwind, and there is no doubt the next 21 years in this industry will bring more change, surprises and evolution than the last.

Mortgage lenders are on the horns of several dilemmas. Lenders understand the value of common sense lending into sectors like later life, interest-only or self-employed mortgages but must be considerate of capital adequacy and conduct.

Speaking more broadly, the demographic imperative is that the UK must build more homes and the buy-to-let market remains key to the overall health of the housing market, so should be left to adjust and recover. Not all customers can or want to own their own homes so it is just as important to help those who want to rent a property. The government has recognised this with its commitment to supporting mixed tenure homes.

What about the adviser?

Advice will remain central to the mortgage process, but I suspect honed and supported by technology. Digitalisation is set to reinvigorate the homebuying and mortgage application journey for consumers. This could mean automated confidential documentation exchanges allowing all parties in the process easy access to the same proofs of identity or even online passports which offer instant authentication.

We are going to see more screen-to-screen technology supporting the customer conversation at the front-end, for example with a tablet or mobile device from the comfort of the customer's living room.

For the adviser, online fact finds will help speed up the advice process and authentication of documents and I see Digital Advice, known more generally as RoboAdvice, working particularly well for an execution-only sale for seasoned remortgage customers who may choose to sidestep or not need face-to-face advice.

I strongly believe that those who work in the mortgage industry are very privileged to work with a product that has such a deep emotional connection for the customer.

Getting your first home, buying a bigger home to start a family in, or somewhere to retreat to if your relationship breaks down are all hugely impactful purchases. It is our pleasure to do everything we can to help people through this process. HSBC aims to empower customers with the right tools and advice to help them become knowledgeable as homebuyers and learn as much as they want to during the process.

The competition commission reporting in the summer will have plenty to say on how we could achieve this and benchmark good practice. But it’s safe to say we’ll have just as much to do and think about over the next 21 years.

Website: https://www.hsbc.co.uk/1/2/

With real estate markets in a bubble of volatility from year to year, mortgage rates due to rebound, and increasing purchase struggle for first time buyers, it’s about time we looked back through the years and really understood how we’ve arrived where we are today. This week Finance Monthly has heard from Tracie Pearce, Head of Mortgages at HSBC. Tracie gives us a rundown of mortgage history from day one, and points towards the shifts that are set to further shape how buyers afford their bricks.

I’ve always had misgivings about birthdays. But a 21^st industry birthday taking us back to 1996, the year when the British Olympics team won 15 medals in Atlanta, Trainspotting was released and just 16% of households had mobile phones, feels worth a little retrospection. A lot has happened!

In 1996, I was an assistant analyst at specialist lender Sun Bank based in Stevenage, building and maintaining PCs and hardware for mortgage platforms. In that same year, 1996, a handful of lenders formed the Association of Residential Letting Agents (ARLA) marking the beginnings of the buy-to-let market with industry self-regulation in the shape of the Mortgage Code emerging the following year.

Through the 1990s, the building society sector, which did 72% of lending in the mid-80s saw further demutualisation but by 2000, the banks held sway with 70% of gross mortgage lending and mortgage brokers were estimated to be introducing just over half of this business.

The rise of the mortgage adviser

The early naughties saw the rise of the intermediated mortgage market, which brought mortgage choice and mass regulatory compliance ahead of the advice industry’s regulation on M Day, on 31 October 2004.

Disclosure documents including the Key Facts Illustration (KFI) became mandatory and more importantly advisers became Directly Authorised (DA) or Appointed Representatives (AR) to networks to comply with regulation.

The 2000s were arguably a fantastic time for the majority of mortgage consumers with immense mortgage product choice and loss-leading two-year fixed rates. There was easy access to credit fuelled by lender competition and record house price inflation hit 26.5% in January 2003, according to Nationwide.

On the timeline, was when I was lucky enough to be involved in launching The Mortgage Works brand. The market was buoyant, spirits were high and product innovation relatively fast and furious. It was around this time that the market moved from a position of bespoke products and pricing calibrated by risk, to more of a mass market offering and more agile processing timescales. Lenders were investing in automation, including conveyancer and valuation instructions and time to offer shortened to around 10-14 days, not so far from where we are now.

 Mortgage Strategy ran a hero and villain of the week column and all the lenders were vying for the hero of the week position but desperate to avoid being called out as the villain. It was just a bit of fun, but certainly showed what was motivating product teams at the time.

The economic crunch

Meanwhile, the downside, of course, was that this perceived ‘magic porridge pot’ of equity also arguably softened the perception of borrowing risk for lenders and customers alike. By 2007, gross mortgage lending had ballooned to hit £360bn – and then, the market imploded as the credit crunch hit.

The bleak economic period and soul searching that followed handed culpability to borrowers, lenders, advisers and the credit reference agencies, alike.

One of my most vivid memories was Thursday 6^th November 2008 when the Monetary Policy Committee slashed Bank Base Rate from 4.5% to 3% in one go, a really deep cut! The market was shocked. In the days and weeks that followed, products were withdrawn, lending criteria tightened and lenders retrenched to serving their direct channels first.

The FSA, was abolished on 1^st April 2013 and replaced by a twin peak FCA/PRA regulatory system, with a new steely zeal for conduct regulation under the leadership of CEO Martin Wheatley.

The Mortgage Market Review was initially signposted in 2009 but took until 26 April 2014 to finally arrive after full consultation. For a period, lenders struggled to meet consumer demand as they embedded processes and training to give advice (in some channels) for the first time. Brokers leaned in to bridge this capacity gap and the industry (on the whole) gave the regulator credit for an exhaustive, clearly-trailed process.

In October 2014 HSBC entered the intermediary market for the first time, which was one of the single biggest strategic changes the bank has ever made on the mortgage side. As the adviser market’s star rose and the regulatory landscape changed, the bank made a commitment to the intermediary market, which has brought successes for both sides and clear benefit for customers.

We started with a pilot one intermediary partner – Countrywide – and London & Country joined the panel in August 15, over the last 18 months, we have been methodically and systematically expanding our reach and we now have 16 intermediary partner firms, with around 7,000 individual brokers, with more on the immediate horizon.

We are committed to working effectively with our broker partners, ensuring the best products and customer service as well as continuous improvement to deliver a market-leading customer experience.

So, George Osborne’s focus on landlords and the buy-to-let market almost brings us up to date. The Chancellor announced changes to mortgage interest tax relief in 2015 which will gradually be reduced to 20% between 2017 and 2020. The Stamp Duty surcharge of 3% was introduced from April 2016 was the next in a raft of affordability-focused, tweaks, joined the rule changes bringing in tighter underwriting on 1 January.

Inevitably the plethora of rule changes have slowed it down a little but the market is professional and I believe it is resilient. I believe it has the strength to recover, albeit it may be in a slightly different guise. As lenders have adjusted credit criteria, landlords will rethink how they choose to invest.

Looking forward to evolution

The last 21 years have been a whirlwind, and there is no doubt the next 21 years in this industry will bring more change, surprises and evolution than the last.

Mortgage lenders are on the horns of several dilemmas. Lenders understand the value of common sense lending into sectors like later life, interest-only or self-employed mortgages but must be considerate of capital adequacy and conduct.

Speaking more broadly, the demographic imperative is that the UK must build more homes and the buy-to-let market remains key to the overall health of the housing market, so should be left to adjust and recover. Not all customers can or want to own their own homes so it is just as important to help those who want to rent a property. The government has recognised this with its commitment to supporting mixed tenure homes.

What about the adviser?

Advice will remain central to the mortgage process, but I suspect honed and supported by technology. Digitalisation is set to reinvigorate the homebuying and mortgage application journey for consumers. This could mean automated confidential documentation exchanges allowing all parties in the process easy access to the same proofs of identity or even online passports which offer instant authentication.

We are going to see more screen-to-screen technology supporting the customer conversation at the front-end, for example with a tablet or mobile device from the comfort of the customer's living room.

For the adviser, online fact finds will help speed up the advice process and authentication of documents and I see Digital Advice, known more generally as RoboAdvice, working particularly well for an execution-only sale for seasoned remortgage customers who may choose to sidestep or not need face-to-face advice.

I strongly believe that those who work in the mortgage industry are very privileged to work with a product that has such a deep emotional connection for the customer.

Getting your first home, buying a bigger home to start a family in, or somewhere to retreat to if your relationship breaks down are all hugely impactful purchases. It is our pleasure to do everything we can to help people through this process. HSBC aims to empower customers with the right tools and advice to help them become knowledgeable as homebuyers and learn as much as they want to during the process.

The competition commission reporting in the summer will have plenty to say on how we could achieve this and benchmark good practice. But it’s safe to say we’ll have just as much to do and think about over the next 21 years.

According to UK mortgage lender Halifax, February saw the lowest increase in house price since July 29013, going up just 5.1% YoY. This means that house price inflation has halved over the course of 11 months.

Halifax’s housing economist, Martin Ellis says this is down to a sustained period of house price growth in excess of pay rises making it more and more difficult for many to buy a home. He says that this, alongside a reduced momentum in the job market and less consumer spending will equate to a further slowdown in inflation rise throughout 2017.

This week Finance Monthly has heard from a number of sources in the housing markets sector, to see what their thoughts are on the slowdown, and whether indeed more growth curbing is to occur in the coming months.

Neil Bainbridge, Ashcox & Stone:

Why is it slowing down? The key factor in this is uncertainty and it's slowing in some areas and not others. In Swindon, we were looking at six per cent average growth in 2016 in house sales, this year it's predicted to be around four per cent but we are only in March. So far, we've had a strong start to the year and that shows no signs of slowing down. I suspect we will be between five to six per cent by the end of the year.

We have to remember that our economy's growth is consumer led and consumer confidence is attached to our love of property and if people stop having that confidence, spending will slow, credit will slow and consequently growth will slow. it's a fragile position we are in when our economy's growth relies on the confidence of the average consumer.

Things could start slowing as people take stock and think, "if I don't sell my house or buy a new home this year, what's the market going to be like next year? Am I better off sitting tight?" Will they wait for decisions regarding Brexit, interest rates and a wealth of other economic uncertainties?

As a non-Londoner, it seems to me that that market is still very much an 'anomaly' with outside investors with strong currencies against the pound, being able to buy more for their money. However, uncertainty over Brexit may cause those people to think twice before rushing to buy that investment property if concerns over jobs being relocated overseas are realised.

Less of an impact but still one to watch is the trans-Atlantic effect of the American dollar as they consider a rise in interest rates in the USA and that's likely to have a knock-on effect on economies around the world, including here in the UK.  Interest rates in the UK are likely to rise at the end of 2017, beginning of 2018 to counteract the inevitable rise in inflation, caused by the increase in food and fuel prices that we are already beginning to see. These are the sorts of headline costs that most affect consumer confidence.

Another factor to bear in mind is the massive effort by the government to put the brakes on the buy-to-let market which is causing a huge number of potential landlords or investors to avoid investing in the property market. But that's a whole other debate.

Professor Ivan Paya, Lancaster University Management School:

The results of our forecasts suggest that house prices in the national and all regional property markets will grow this year. For the UK national market, the considered forecasting models predict a slowdown in the rate of house price inflation to 3.5% in 2017 (we note that the value of the corresponding statistic in 2016 was 4.4%). Although house prices are expected to grow at a lower rate than last year, the two main factors responsible for the positive forecasted growth in the housing market are (i) the sound domestic economic conditions (mainly a healthy growth rate of consumption), and (ii) the fall in the real mortgage rate (mainly due to the recent rise in inflation rate). At the same time, we note a slight reduction in the number of housing starts in the past year, which can also explain the continued positive trend in the national property prices.

When it comes to the regional housing markets, the predicted patterns of property price behaviour vary across regions. We note that expectation about the future interest rate increases, which is an important determinant of housing dynamics in London but not in the other regional markets, is the key factor that puts a downward pressure on the house price growth in this region. On the other hand, we note a small decrease in the ratio of property prices to personal income in the last quarter for the first time since the early 2013. This measure is an indicator of housing affordability, and it has been gradually deteriorating until the third quarter of 2016, when the ratio of prices to income reached its historical maximum. The improvement in housing affordability together with the fall in the real mortgage rate and the sluggish supply of housing are all factors responsible for continued growth in London property prices. According to the forecasting results, housing inflation in London will slow down in the first quarters of 2017, but the growth in property prices is predicted to build up towards the end of the year. Overall, the forecasts indicate a 3.9% growth in London property prices in the course of 2017.

The forecasts predict a similar pattern of house price behaviour in the regions contiguous to London, including Outer Metropolitan, Outer South East and South West. We note that the property market of East Anglia, which is currently growing faster than any other regional market of the country, is predicted to slow down in 2017, but still remain the market with the highest housing inflation (the forecasts suggest that house prices in this region will grow by 5.7% over the year). We see deterioration in housing affordability in all these regional property markets: the ratios of house prices to households’ disposable income are at or close to their historical maxima.

Charles Fletcher, Head of Analysis, Cogress:

The news is not particularly surprising when you consider the series of unprecedented events over the past twelve months that have rocked the UK economy and property market. From the stamp duty changes, to rising inflation rates squeezing consumer-spending power, and the shocking referendum results in the UK, a house price slowdown amidst such economic uncertainty was effectively inevitable.

With that said, property values are still 5.1% higher than they were at the same time last year. Even though the growth rate is slowing, a shortage in supply of both new homes and existing properties will continue to lift UK house prices. Meanwhile, demand for housing is being supported by an economy that continues to perform well with employment still expanding.

Over the next few months, we expect that the UK’s financial resilience will be reflected in the property market. Although prices and transaction levels in prime central London areas like Chelsea and Kensington may keep dropping, this will be offset by properties valued below £1,000,000, which are still trading well. This trend towards more affordable properties is indicative of mounting consumer caution over major spending decisions and the difference between one’s ‘need’ for property and one’s ‘want’ for property. The large disparity between supply and demand for property across the country means that competition will remain fierce for properties at the more affordable end of the market, even against Brexit’s uncertainty. Which means that cities such as Manchester, Bristol and Leeds will continue to benefit from ongoing tenant demand.

While issues of affordability will remain top-of-mind for many UK consumers and first-time buyers, falling house prices in central London represent an opportunity for foreign buyers. Many central London estate agents have been reporting that a large portion of their applicants are $-based buyers hoping to take advantage of currency fluctuations to invest in valuable long-term property assets.

Despite predictions of a price crash, we expect that house prices will continue to grow at a stable rate over the next few months. This is as a result of the country’s sound economic conditions and a resilient property market that can withstand any potential volatility Brexit brings.

Gavriel Merkado, Founder & CEO, REalyse:

The recent announcement that the UK housing market has slowed to its lowest pace in three and a half years was not a surprise. The UK market has experienced a period of instability, with an imbalance in supply and demand leading to properties becoming overpriced. If you pair this with the low interest rates the UK has been experiencing and the relative ease of access to debt finance, you are left with a market that is unaffordable for the masses.

Over the past year, the government has been instructed that to help solve the housing crisis 300,000 more homes must be built in England alone, year-on-year. Despite this goal, we are still experiencing low levels of housebuilding and development, which have subsequently added to high prices. Therefore, it appears that a key reason for the slowdown is affordability.

It will be interesting to see the impact this shift has on the market over the next few months. We have already endured a period of uncertainty following the Brexit vote, and while the initial shock period is calming, implications are still far reaching. Brexit may well lead to an increase in inflation, with the Bank of England forced into increasing interest rates, which in turn may put pressure on the purchasing market.

There is also the impact of movement of EU migrants to consider, with many of them residing in the UK expecting to return home in the lead-up to Brexit. If this does prove to be the case, we may experience a drop in demand for rental property, which in turn could balance out the demand for buying property.

Investors and developers should monitor the situation closely, as we are already noticing a shift in the patterns of growth and decline. Central areas, such as London and Manchester, that were previously viewed as overpriced, could experience a stabilisation in prices, whilst some regional cities and suburban areas, such as Cambridge, could continue to rise in price. Other socio-economic factors, such as the development of the high-speed rail links may also lead to the increase in value of other regional towns and cities.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Giving up "modern day luxuries" for one year could save you over £5,000 towards a deposit for a house, new research from online estate agent Hatched, has found.

With research suggesting that you need, on average, £33,000 for a deposit on a house in the UK, people are increasingly starting to really crunch the numbers, budget and save the pennies wherever possible.

By focussing on eight "modern day luxuries", the team at Hatched have looked at simple savings that could be made to get a bit of extra cash in the piggy bank, helping people get a foot onto the property ladder through some choice (but relatively easy) lifestyle changes.

The eight "luxuries" include: morning coffee fix; weekly treat meal out; a gym membership; body "maintenance" treatments; summer holiday abroad; nights out on the town with friends; a smartphone contract; and monthly cinema trips.

If you can abstain from all eight examples of these "luxuries" at once, you would save an impressive £5,433.30 in a year. If you can keep this up, in six years you could have saved almost enough for a deposit (£32,599.80), without needing any other savings at all.

If you rely on that first sip of your morning coffee from a branded paper cup in order to start your 9-5, over a one-year period you will have consumed approximately 250 coffees, at a calculated cost of over £680 - so the potential savings to be had by bringing your own (or giving up altogether) are quite the buzz.

If you really can't quit your coffee habit, just think of it like this – after 12,223 coffees you will have spent the equivalent of a deposit on a house.

But, interestingly, this wasn't the biggest potential saving to be had out of all of the examples we reviewed. Calculations suggest that by forgoing fortnightly nights out, you could save an eye-watering £1,403.52 over 12 months, which might be incentive enough to suggest a night-in instead of painting the town red next time you arrange to see your friends.

Other indulgences that can be cut out to help you on to the property ladder include:

• Home workouts rather than costly gym memberships will see you £627 closer a year to that first home
• By cutting out a weekly treat meal out, say at a popular chicken restaurant, you could save around £650 per year – cheeky!
• By resisting the urge to treat yourself to a pamper session, body "maintenance" treatments (such as haircut, hair colour, tanning, hair removal, nail treatments, facials, massage, and so on) can add up to a cool £876 over a year
• Forgoing the annual summer holiday will add £554.50 on average to the property ladder coffers
• The full list of luxuries than can be cut out to save a deposit can be seen here: https://www.hatched.co.uk/blog/134/saving-for-a-deposit-on-a-house-cut-out-these-luxuries

Adam Day, Managing Director at Hatched, commented on the findings: “The formula, in essence, is simple – spend less and save more – but we know this can be easier said than done. By consciously cutting out things that you don't need, you can substantially add to your pot of savings towards a deposit on a new home.

"In isolation, these specific sacrifices won't be enough, and so you'd have to be committed and willing to cut out multiple luxuries to make a real impact. But remember - when it comes to saving for a deposit on a house, making sure to put a chunk from your pay-check into a savings account each month is still as important as it ever was.

"This amount of lifestyle changes that we are suggesting might be difficult for some people to implement in their everyday lives, but it's only a short-term sacrifice in the long run, and if you're looking to buy a property with another person, say a partner, then you can get to your goal twice as quick.

“With our advice, prospective homeowners can sooner be in better financial positions to get themselves onto the property ladder. As they say, 'Look after the pennies, and the pounds will look after themselves'. A mantra to stick by, if you ask us..."

(Source: Hatched)

Here Professor of Urban & Property Economics at Henley Business School, Michael Ball gives his own thoughts on the current real estate market slowdown in the UK, and presents his expectations for the remainder of 2017.

2017 could well be the year when the UK housing market hits one of its periodic turning points after a sustained five-year run of 5 to 10% annual price rises and an up-coming ten-year anniversary since the last crash. Price averages, of course, belie much greater rises in places like London and the South East. Indications of a slowing market abound, particularly with respect to prices and time on the market. Many rightly attribute the slowdown to affordability factors following such strong price growth. Optimistically, that could lead to a less frenetic market with government homeowner initiatives sustaining the expansion in new build. Nonetheless, digging beneath the headlines suggests that many drivers of recent housing market expansion are no longer humming so positively.

Market-wise, Inner London often leads the way and news from there has been bleak for some time and not just at the top of the market. So, Rightmove’s report of a 15% price drop in Kensington and Chelsea for 2016 may indicate lost froth at the top but also raises wider concerns.

The biggest change is the falling away of overseas investment. Uncertainty over the pound plus capital and credit constraints in places like China have all contributed but home-grown factors have played a key part. Though stamp-duty rises are often blamed, some classic bubble features seem to be unwinding, especially in London, related to over-supply and mis-pricing, the super-hyping of neighbourhoods and over-estimates of the long-term demand for small ‘luxury’ accommodation. Chastened investors may take quite some time to return. This is of broader importance because experience following the financial crisis suggests that international activity has wider impacts on the market and sentiment.

Nationally, classic market drivers are turning negative. Earnings have been rising ahead of inflation but forecasts suggest this trend is coming to an end. Moderation in real earnings growth not only dampens house purchase and trading up but it also limits the potential for rent increases, depressing landlord returns.

On the mortgage front, some rise in interest rates is in the offing. Though interest rate rises are likely to be limited in the near future, they may currently have a disproportionate effect on the housing market as affordability is so stretched. Cautious lenders if they fear rising default rates may add higher risk premiums to mortgage rates and restrict lending as well.

Landlords are now major holders and purchasers of homes. They face the prospect of a rising tax burden as relief on some expenses is withdrawn and mortgage interest write-offs gradually limited. Moreover, if the Government’s stated aim of drastically reducing immigration has any effect, landlords will lose a key source of new demand. Poor prospects for rents and tenant demand combined with rising costs and taxes could create a depressing scissors effect on landlord returns, significantly discouraging investment.

Expectations matter and can suddenly switch. That Britain has a housing shortage has clearly been absorbed by home owners and investors alike. But there is a danger of thinking of demand as purely population driven and so always there, whereas it is incomes and affordability that count far more. Variations in them, combined with tight supply, make the UK’s housing market particularly prone to sharp price swings.

Counter to all this gloom is the prospect that an improving global economy may lift the UK and its housing market with it. Nevertheless, the balance of risks is shifting towards the downside. So, forecast-wise, this year may turn out fine but clouds abound and are likely to thicken as the year progresses.

The Fannie Mae Home Purchase Sentiment Index® (HPSI) increased by 2% in January to 82.7, ending a five-month decline. Four of the six components that comprise the HPSI were up in January.

The net share of Americans who believe that home prices will go up in the next 12 months rose by 7%, and the net share reporting significantly higher household income in the past 12 months rose by 5%. The net percentage of those who say that it is a good time to sell a house rose by 2%, while the net share of those who say it is a good time to buy a house fell by 3%. On net, consumers demonstrated slightly greater confidence about not losing their jobs, while the net share of those who believe mortgage rates will go down remained unchanged.

"Three months after the presidential election, measures of consumer optimism regarding personal financial prospects and the economy are at or near the highest levels we've seen in the nearly seven-year history of the National Housing Survey," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "However, any significant acceleration in housing activity will depend on whether consumers' favorable expectations are realized in the form of income gains sufficient to offset constrained housing affordability. If consumers' anticipation of further increases in home prices and mortgage rates materialize over the next 12 months, then we may see housing affordability tighten even more."

Home Purchase Sentiment Index – Component Highlights:

Fannie Mae's 2017 Home Purchase Sentiment Index (HPSI) increased in January by 2% to 82.7. The HPSI is up 1.2 percentage points compared with the same time last year.

• The net share of Americans who say it is a good time to buy a house fell by 3 percentage points to 29%, matching the survey low from May and September 2016.
• The net percentage of those who say it is a good time to sell rose by 2 percentage points to 15%.
• The net share of Americans who say that home prices will go up increased by 7 percentage points in January to 42%.
• The net share of those who say mortgage rates will go down over the next 12 months remained constant this month at -55%.
• The net share of Americans who say they are not concerned about losing their job rose 1 percentage point to 69%.
• The net share of Americans who say their household income is significantly higher than it was 12 months ago rose 5 percentage points to 15% in December, reversing the drop in December.

(Source: Fannie Mae)

With news that average UK house prices surged by almost £4,000 in December, specialists from a leading Midlands law firm are questioning whether the so called ‘bank of Mum and Dad’ has started to have an effect on the property market.

“According to the Halifax, house prices rose by 1.7% in December, with the average cost of a property reaching a new high of just over £222,000,” says Neil Stockall, a Partner at Higgs & Sons and head of the Residential Property team.

“This represents the fastest acceleration in property values since the Brexit vote. According to the Office for National Statistics the number of 18-24 year olds living at home is around 3.3m.”

Neil added: “Perhaps the combination of being able to save more, plus some much needed input from parents, has helped some of these young people to take their first step on to the property ladder, thus resulting in this surge.”

Many parents want to help their grown up children in whatever way they can and it is increasingly common for first time buyers to turn to the 'Bank of Mum and Dad' for help in raising the required mortgage deposit.  Often parents use their nest eggs to provide that support – particularly with interest rates on savings being so low at the moment. However, there are several things that parents and their children should bear in mind if they want to avoid future problems.

“A common way for parents to help is to ‘advance their inheritance’ to children. This comes with dangers as, should a parent die within seven years of making such a gift, inheritance tax will be payable if the total gifts within those seven years exceed the parents’ inheritance tax allowance.

“Further, if the child is in a relationship or marriage that later breaks down, then the ‘gift’ from the parents may become part of any financial settlement, with half required to be paid to the child's ex-partner.”

Financial gifts of this nature can, however, be protected.

“It is important that when the new home is bought, the professional advisers involved in the process are made aware that the deposit has been given by a family member. The property title will be noted to reflect this, and an appropriate Declaration of Trust can be prepared.

“An alternative approach is to make any such payment by way of a loan rather than a gift and to have a suitable loan agreement drawn up which can be secured against the property. This approach would need sanctioning by any lender, so full disclosure should be made when applying for a mortgage.

“Any such loan could be interest free and the parent may not even really expect that it would actually be repaid, but in the event of a breakdown in their child’s relationship, they will at least know that that payment will fall outside any dispute.

“When it comes to the possibility of a breakdown in a child’s relationship, nuptial agreements may be extremely helpful. These are being given ever greater weight by the courts, provided they are entered into properly. Such agreements would be subject to various qualifications and it is important that expert advice is sought from a specialist in this area of family law prior to committing.”

(Source: Higgs & Sons)

In March, CPIH will become ONS’s headline measure of inflation. CPIH is more comprehensive than the current CPI measure as it includes the costs associated with owning and maintaining a home, known as owner occupiers’ housing costs (OOH).

The CPIH estimates these costs using a method known as ‘rental equivalence’. ONS has today published an article which looks at other methods for estimating OOH and what impact changing the method for estimating OOH would have on CPIH. The article finds that over the period 2006-2015, changing the method for calculating OOH would change the average annual CPIH inflation rate by a maximum of 0.2 percentage points compared with CPIH using the rental equivalence method. When looking at the period 2012-2015, which is less affected by the economic downturn, the average annual rate only varies by a maximum of 0.1 percentage points.

ONS Deputy National Statistician Jonathan Athow recently published a blog post about the challenges of measuring owner occupier housing costs and why ONS favours using the rental equivalence method for estimating these costs.

Commenting, Jonathan Athow said: “Estimating the costs associated with owning and maintaining your home is one of the most difficult issues in inflation measurement. However, we believe that the rental equivalence method best reflects these important costs.”

(Source: Office for National Statistics)