The IMLA report, What is the new ‘normal’?, shows that mortgages contributed just £4 in every £10 spent on house purchases last year: even less than in the depths of the recession. Just 63% of housing transactions in 2013 were mortgaged – another post-recession low, down from 67% in 2010.
A strong recovery is now underway, helped by the improving economy and government schemes to boost access to loans. IMLA forecasts gross lending will reach £215bn this year as a result and £240bn in 2015.
But the report shows this growth remains subdued compared with past recoveries and would still leave the market 47% below its pre-recession peak by 2015 in real terms. With house prices also below 2007 levels, IMLA argues that fears of a ‘bubble’ have been greatly exaggerated.
The report suggests a long term, sustainable recovery in mortgage lending can develop beyond 2017. Key factors include pent-up demand from first time buyers, improving funding markets – backed by strong retail deposit growth – and the likelihood of low interest rates continuing.
But it argues the market is a long way from full health and identifies three looming threats to future growth: the unwinding of special measures such as Help to Buy and quantitative easing; ‘woefully inadequate’ housing supply; and the ‘triple lock’ of new regulation.
IMLA warns that new capital requirements, the Mortgage Market Review and the new macro-prudential regime may prevent lenders from serving the full range of responsible borrowers in future, and dampen activity by creating a more subdued market once support measures have gone.
Peter Williams, executive director for IMLA, said: “The market fell further in 2007 than the previous crash of 1989, and recovery has taken longer to materialise. What we forecast between now and 2015 is a steady growth which still leaves us well below the market’s last peak. But we have now started on the long march back to a sustainable market.
“Government support has assisted the recovery to date but we need to plan for what an unassisted mortgage market will look like in the years ahead. This report offers a welcome look ahead and suggests that an ordinary level of gross mortgage lending would be significantly higher than our 2014-15 forecast in a normal market.
“But as the report makes clear the market has a long way to go before it achieves normal health. We must hope that the new regulatory set up will not artificially constrain the market when normal conditions return and greet consumer confidence with a false dawn.”
The report was authored by IMLA’s head of research, Rob Thomas – a former Bank of England economist and City analyst – with input from IMLA members.