Mortgage market set for growth in 2021 despite coronavirus disruption, IMLA report shows

15 January 2021

  • The Intermediary Mortgage Lenders Association (IMLA) has published its 2021 New Normal report which looks at how the mortgage market could perform in 2021 and 2022
  • Industry data suggests that the UK mortgage market will avoid an arrears crisis this year, with the majority of homeowners having returned to making regular repayments
  • However, IMLA has called on Government to consider how to ease the impact of the current hard deadline to the Stamp Duty holiday, which currently represents the single biggest short-term barrier to recovery

Despite ongoing coronavirus disruption mortgage market growth is set to continue in 2021 according to the latest report from the Intermediary Mortgage Lenders Association (IMLA). The New Normal report predicts a rise in gross mortgage lending to £283 billion this year together with a swift return to household spending as Covid-19 lockdown restrictions are eased.

The report, which makes a series of predictions about the mortgage market over the coming year, observes that household finances generally remain robust and will continue to weather the current economic volatility. Unlike previous financial crises, the unique Government support package provided since the start of the Covid-19 crisis has helped the majority of households to maintain financial stability. 

The predictions follow data which show the number of mortgage borrowers on payment deferrals at the end of 2020 had fallen from a peak of more than 1.8 million in June to just 127,000 by 20 November. The number of mortgages in arrears of three- to six-months continued to fall in the third quarter of 2020 to just 0.28% of all loans — the lowest figure since current records began. This combination of factors suggests that the UK’s mortgage market will not face an arrears crisis in 2021.

IMLA’s report also found that while household consumption — which comprises two-thirds of economic activity in the UK in a normal year — was constrained in 2020 by social distancing measures, the subsequent build-up of household cash balances (£222 billion between February and November 2020 — an average of £13,400 for a family of four) provides the opportunity for a rapid return to spending in 2021. This will provide a valuable injection to the economy and could help revive the hardest hit sectors, such as the hospitality and leisure industries.

Kate Davies, Executive Director, IMLA comments:

“Many have predicted doom and gloom for the housing market since the crisis began. However, our analysis shows there is room for more optimistic thinking. Since the first lockdown back in March, the mortgage market has shown remarkable resilience. Spending more time at home has led many to reconsider their living arrangements, helping to boost demand for homes across the UK. This surge in interest has been supported by the Government’s stimulus package, which in most cases has helped to support individuals far better than has been the case in previous financial crises. The combination of these factors leads us to believe that 2021 will be a year of modest growth for the housing and mortgage markets.”

The report’s conclusions confirm and support a number of areas in which IMLA has been lobbying for change:

  1. An extension or tapering of the Stamp Duty holiday deadline: The Stamp Duty holiday undoubtedly played a part in stimulating the current surge in demand for property purchases. This has, however, created operational problems for lenders, valuers and solicitors, who are struggling to meet the demand. The imposition of an absolute cut-off deadline to the holiday of 31st March means that pressure will continue to increase right up to that date, and a number of borrowers who just miss it will be left having to find extra cash to pay the duty due. Those who have not planned for this, and cannot afford the extra cost, may have to abandon their transactions — losing their deposits and very likely causing other buyers to lose or delay their purchases if chains collapse. Some may miss the 31st March deadline through no fault of their own: in those circumstances, it seems harsh that those people should not be able to benefit from the Stamp Duty holiday — and that it should be possible to adopt some flexibility that would ease pressure on those cases and remove the imperative to complete by the deadline.
  2. Affordability and stress tests: Current transactions levels are proof of a continuing demand for property — meaning that prices will continue to rise after the Stamp Duty holiday ends. IMLA’s Intergenerational Divide report previously identified a large number of individuals who might, based on historical trends, have been expected to buy their own homes, but who did not do so. Many may have been prevented from obtaining mortgages as a result of the current combination of affordability and “stress” tests which are required by regulators. IMLA has consistently argued that the 3% stress test, which was put in place in 2014, is no longer relevant to market conditions, given that long-term interest rates have fallen substantially since then. It therefore welcomes the news that the Financial Policy Committee is currently reviewing the requirement.
  3. Building a long-term housing and mortgage strategy: The housing and mortgage markets have remained remarkably resilient against the impact of Covid-19. While the Government is rightly focused on trying to respond to the current crisis, there is a continuing need for long-term strategic thinking to ensure that the housing market remains a driving force behind the UK’s economic recovery. This will need to include bold plans for increasing promised levels of new-build homes and developing products which promote a return to higher LTV lending, enabling homeowners who start out with modest deposits to borrow sustainably. And all this will need to take place within a context of improving energy efficiency and the drive towards the reduction of carbon emissions.
Kate Davies continues:

“This year presents an opportunity for positive change in the housing and mortgage market. While the market faces immediate challenges in the form of the Stamp Duty deadline, there is a clear opportunity once we are through this crisis to lay the foundations for a sector which is more vibrant, fair and efficient than what has come before.

“A coherent, long-term housing strategy from the Government, including the delivery of thousands of new homes for a new generation of homeowners, and collaboration with the mortgage industry to enable those homes to be purchased will be vital to delivering a market that meet Britain’s housing needs for the decades to come.”

For further information please contact:

Nick Seymour, Rostrum
Tel: 07551 129 500

Notes to Editors

About IMLA

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 43 banks, building societies and specialist lenders include 18 of the 20 largest UK mortgage lenders (measured by gross lending) and account for about 90% of mortgage lending (91.6% of balances and 92.8% of gross lending).

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