A mix of ups and downs in Q1 may reflect the trend for the year ahead

According to February’s UK Finance figures, total mortgage lending for 2020 reached £243bn with buy-to-let lending reaching £37bn. These figures represented falls of around 9% and 12% on 2019 figures respectively, in line with the wider contraction of the overall economy in 2020 which the Office for National Statistics (ONS) has estimated at 9.9%.

Covid-19, the pandemic and lockdown(s) meant 2020 was an extraordinary year. While Q2 saw the biggest economic fall on record at almost 20%, Q3 witnessed GDP growth of 16% and a strong recovery in the housing and mortgage markets fuelled by the stamp duty holiday announced in July. Again, the strong recovery during Q3 was curtailed by the introduction of tiers and the second national lockdown in November, which carried us into 2021.

As we entered 2021, there continued to be mixed economic signs. Unemployment reached 5% in November 2020, and economists predicted it would grow further during 2021 (peaking between 6-7%) as Covid-related economic support measures ended. However, the planned vaccine rollout during H1 2021 and the trade agreement reached with the EU in December 2020 meant growth forecasts for 2021 were more positive in January, estimated at between 4% and 5%.

January 2021 saw mortgage activity weaken as the market slowed ahead of the expected end of the stamp duty holiday in March, with figures showing total gross lending falling to £22.6bn from £25.6bn in December. House purchase activity fell back sharply by almost 25%, while remortgage activity increased.

This slowdown was reflected in house prices, which (according to ONS data) after growing by 8% during 2020 fell back slightly, growing by 7.5% in the year to January 2021.

Figures from Nationwide also showed house price growth falling - to 6.4% in January, but then rebounding in February to 6.9% before slowing again to 5.7% in March.

This mix of ups and downs may well reflect the trend for the year ahead. February saw more positive signs about the vaccination programme and extensions to economic support, and these positives culminated in the Budget in early March, which extended economic support measures including the furlough scheme and confirmed an extension to the stamp duty holiday. This, in particular, looks set to boost mortgage and housing market activity in 2021 across both the owner-occupied and buy-to-let markets. The owner-occupied market also received a boost in the form of the Government’s mortgage guarantee scheme to support lenders with higher LTV lending, targeting the first-time buyer market.

The Budget changed perceptions for 2021 and commentators have been quick to revise their forecasts; for example, Savills upped predicted UK house price growth from zero to 4%, and Knight Frank now expect UK house prices to increase by 5% in 2021, also rising from a forecast of zero at the start of the year. The Budget means the housing market is likely to remain buoyant over the next six months. However, both Nationwide and Savills warn of uncertainties later in the year, in particular, if as expected the labour market weakens, then activity could slow toward the end of 2021.

Outside of the mainstream, it is likely that the specialist market will also benefit from the Budget changes, notably with the extended stamp duty holiday. Buy-to-let started the year fairly strongly (as it tends to do) with gross lending in January increasing to £3.4bn from £3.2bn in December. With the full effects of the changes to mortgage interest tax relief now in place, landlords continue to seek value and yield to maintain profitability across their portfolios. HMOs and (increasingly) short-term and holiday lets are proving popular alternatives to a standard rental property, and lenders such as ourselves are well-placed to support intermediaries and landlords with these specialist requirements.

So, 2021 looks interesting. The Budget should support the housing market for much of the year, but thereafter things could change. We have yet to see the real impact of the pandemic while support measures such as the furlough scheme stay in place; when they end this is likely to have some impact on the housing market. However, more positively, not only has Covid shown the housing market can flourish even in a recession, it has changed the way people think about housing and what they want from their residential and rental properties.

Properties with gardens and space, access to the countryside and with relatively easy commutes are now the popular choice, with house prices in the regions outside cities reflecting this. If this trend continues, and supply continues to lag, then house prices will be supported.

In any event, buyers across all sectors will (as has been said before) need good, professional mortgage advice from you the intermediary to help them navigate the year ahead – whatever it might continue to bring.