The findings come as the first FPC recommendations – the interest rate stress test against a 3% base rate increase for borrowers, and a 15% cap for lenders on the volume of new loans above 4.5x loan to income (LTI ) – take effect across the mortgage market this month.
IMLA’s research reveals lenders and brokers are in agreement that the 3% stress test will have the biggest impact of the two measures. Over half (54%) of brokers and 26% of lenders believe this will have a high impact, compared with just 34% of brokers and 11% of lenders who feel the same about the cap on high LTI loans.
Following the implementation of the Mortgage Market Review (MMR) on 26 April and the FPC recommendations in its Financial Stability Report on 26 June, IMLA’s research found that industry optimism over the mortgage market recovery has cooled.
Just 44% of lenders and 41% of brokers feel market conditions were improving in Q3 2014, down from 100% of lenders and 90% of brokers in Q1 2014. Just 3% of brokers felt conditions were worsening in Q1, but 45% took this view in Q3. The proportion that felt lending volumes were growing faster than expected dropped from 87% to 31% among lenders from Q1 to Q3 and from 60% to 45% among brokers.
Concerns remained over the housing market with the Q3 findings showing 31% of lenders and 38% of brokers believing house price growth was unsustainable, up from 13% and 25% in Q1. However, subsequent data from national house price indices show that the monthly growth of house prices has since slowed.¹
¹ Nationwide’s House Price Index for September showed house prices fell 0.2% from August, ending 16 months of consecutive rises. Halifax’s September House Price Index suggested “annual house price growth may have peaked around 10 per cent”.
Peter Williams, Executive Director of IMLA, comments
“These findings show the industry is well aware that its recovery will be closely monitored in the interests of maintaining economic and financial stability. The announcement that the FPC is considering loan to value (LTV) limits shows it remains vigilant, but recent changes – including MMR – have already had a calming effect on activity and the full effects are still to emerge. IMLA’s research has clearly shown that some would-be borrowers are not passing initial broker checks which have been tightened to fully reflect the lender assessments that follow.
“While caution is needed for the good of consumers and the economy, this applies to regulation as well as lending. Market interventions have been reasonable to date, but an immediate push for further regulation would be excessive, especially when house price growth appears to be slowing.
“Using credit policies to compensate for weak supply in the housing market can have a major impact on who can borrow at an individual level and is no replacement for a long term supply solution. Lenders are focused on fulfilling their side of the bargain and a future where regulatory restraint prevents them from helping creditworthy consumers is a no-win situation.”
For further information please contact:
Andy Lane / Barney McCarthy, The Wriglesworth Consultancy
Tel: 0207 427 1400
Notes to Editors
The Intermediary Lending Outlook compares views from IMLA members – including senior representatives of banks, building societies and specialist lenders – and 1,895 mortgage intermediaries from across the UK on mortgage market conditions since January 2012.
Over 390 brokers were surveyed independently by Wriglesworth Research as part of the latest wave of research in July and August 2014. Among the respondents, 44% were Directly Authorised firms, 54% were Appointed Representatives and the remaining were unauthorised.
IMLA’s membership comprises 22 lenders and accounts for over 70% of mortgage lending via intermediaries.
The Intermediary Mortgage Lenders Association (IMLA) is the trade association that represents mortgage lenders who lend to UK consumers and businesses via the broker channel. Its membership of 40 banks, building societies and specialist lenders include 16 of the 20 largest UK mortgage lenders (measured by gross lending) and account for about 90% of mortgage lending (89.4% of balances and 90.6% of gross lending).