COUNCIL of MORTGAGE LENDERS 1 UK housing and mortgage market outlook Jim Cunningham Senior Economist...
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Transcript of COUNCIL of MORTGAGE LENDERS 1 UK housing and mortgage market outlook Jim Cunningham Senior Economist...
COUNCIL of MORTGAGELENDERS
1
UK housing and mortgage market outlook
Jim Cunningham
Senior Economist
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
2004 2005 2006 2007
World output, % 5.3 4.9 5.1 4.9Advanced economies 3.2 2.6 3.1 2.7
United States 3.9 3.2 3.4 2.9EU 2.4 1.8 2.8 2.4Japan 2.3 2.6 2.7 2.1
Emerging market and developing economies 7.7 7.4 7.3 7.2China 10.1 10.2 10.0 10.0
World trade volume, % 11 7 9 8
Commodity prices (US dollars), %Oil 31 41 30 9Non-fuel 19 10 22 -5
Consumer prices, %Advanced economies 2.0 2.3 2.6 2.3Emerging market and developing economies 5.6 5.3 5.2 5.0
Interest rates (LIBOR, percent)US deposits 1.8 3.8 5.4 5.5Euro deposits 2.1 2.2 3.1 3.7Japanese yen deposits 0.1 0.1 0.5 1.1
Source: IMF World Economic Outlook, September 2006
Annual percent change unless statedProjections
COUNCIL of MORTGAGELENDERS
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Global economic risks
• Slanted to downside: 1. Inflationary pressure and tighter monetary policy
2. Even higher oil prices
3. Weakening US housing market
• Concern over disorderly unwinding of global imbalances
• US current account deficit 7% of GDP
COUNCIL of MORTGAGELENDERS
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• International background
• UK economy and interest rates• UK housing and mortgage markets
• Product, segment and channel
• Looking forward – issues and prospects
COUNCIL of MORTGAGELENDERS
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UK growth
0
1
2
3
4
5
Q1 95 Q1 97 Q1 99 Q1 01 Q1 03 Q1 05
%
Quarterly % change Annual % change
Source: National Statistics
COUNCIL of MORTGAGELENDERS
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UK labour market
27,500
28,000
28,500
29,000
29,500
Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06
000s
1,300
1,400
1,500
1,600
1,700000s
ILO Employment (LHS) ILO Unemployment (RHS)
Source: National Statistics
COUNCIL of MORTGAGELENDERS
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UK inflation
Source: National Statistics
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06
%
Consumer prices Consumer prices excluding energy 2% target
COUNCIL of MORTGAGELENDERS
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Market interest rates
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06
%
Bank of England repo rate 2 year rate 3 year rate 5 year rate
Source: Bank of England
COUNCIL of MORTGAGELENDERS
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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
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Interest rate expectations
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
%
Bank of England repo rate Market expectation 31 DecemberMarket expectation 20 September 90% range 20 September90% range 20 September
Source: Bank of EnglandNotes: 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
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• International background
• UK economy and interest rates
• UK housing and mortgage markets
• Product, segment and channel
• Looking forward – issues and prospects
COUNCIL of MORTGAGELENDERS
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Mortgage approvals
Source: Bank of England
60
80
100
120
140
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Thousands
House purchase Remortgaging Other
COUNCIL of MORTGAGELENDERS
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House prices
Source: Halifax and Nationwide
0
5
10
15
20
25
30
35
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Annual %
Nationwide HBOS
COUNCIL of MORTGAGELENDERS
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Gross and net lending
5
10
15
20
25
30
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
£ billion
Gross advances Net advances
Source: Bank of England
COUNCIL of MORTGAGELENDERS
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• International background
• UK economy and interest rates
• UK housing and mortgage markets
• Product, segment and channel• Looking forward – issues and prospects
COUNCIL of MORTGAGELENDERS
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Fixed and variable rate lending
0
20
40
60
80
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
% new loans
Variable rate Fixed rate
Source: Survey of Mortgage Lenders, Regulated Mortgage Survey
Note: Break in series from April 2005
COUNCIL of MORTGAGELENDERS
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Maturing of remortgaging
0
200
400
600
800
1,000
1,200
1,400
1,600
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Thousands
Number of remortgage loans S-curve
Source: Survey of Mortgage Lenders, Regulated Mortgage Survey, CML
Note: Break in series after 2005 Q1
COUNCIL of MORTGAGELENDERS
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Growth of buy-to-let
0
2
4
6
8
10
12
H1 99 H1 00 H1 01 H1 02 H1 03 H1 04 H1 05 H1 06
Buy-to-let as % total
Mortgage lending outstanding Gross advances
Source: CML
COUNCIL of MORTGAGELENDERS
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Growth of equity release
Source: CML
0.2
0.3
0.4
0.5
0.6
0.7
2004 Q1 2004 Q3 2005 Q1 2005 Q3 2006 Q1
% of total market
New initial advances Outstanding balance
COUNCIL of MORTGAGELENDERS
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Importance of specialist lenders
0
5
10
15
20
25
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
% all HP approvals
Other specialist lenders approvals for house purchase
Source: Bank of England
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Importance of intermediaries
Source: Regulated Mortgage Survey
Intermediary share of total regulated mortgage lending, %
2005 Q2 LatestNumber of loans
All regulated 54 56Homebuyers 58 60Remortgage 53 53
Value of loansAll regulated 61 62
Homebuyers 61 63Remortgage 61 63
COUNCIL of MORTGAGELENDERS
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• 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?
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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?
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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
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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