The study, entitled “A New Normal in the Housing Market”, reveals that gross mortgage lending is set to rise to £212bn (up from £142bn this year but below the £363bn seen in 2007) and identifies eight key factors preventing the UK housing market from reverting to a ‘normal’ state.
A weak economy (67%), slow or declining growth in house prices (55%) and restrictive borrowing (53%) were the three most important factors affecting households’ decisions to buy. A weak labour market (49%), lack of government support (43%), Eurozone uncertainty (39%) and lack of housing being built (30%) were other factors holding back buyers.
Ben Thompson, Managing Director of the Legal & General Mortgage Club, said:
“The past five years have been extraordinarily tough for the housing market, but our new report with Cebr suggests good news is on the way. We’ve hit the bottom and over the next 4-5 years we will creep back towards recovery in 2017. However, “The New Normal” represents a very different housing market to the one we have grown accustomed to in the past.”
What does The New Normal look like?
- In 2017, the average UK house price is forecast to be £254,000 – 11.9% higher than the Q3 2007 peak of £227,000.
- By 2017, UK house prices are forecast to be 17.0% higher than this year, in which house prices are forecast to average £217,000. Cebr expects prices to fall or remain broadly flat until mid-2013, after which, house prices are anticipated to climb to £227,000 by 2017.
- House prices are expected to grow at an average of 4.1% per year between 2017-2027 compared to 11.4% per year between1997-2007. Average house price appreciation is expected to be £12,000 per year between 2017 and 2027. The decade of 2010-19 is forecast to have the weakest house price growth on record since the 1950s.
- Borrowing conditions are expected to remain strict compared to the ‘pre-2008 crisis’ period. Cebr forecasts 674,000 mortgage approvals (for House Purchase) in 2017 compared to 1.25m in 2006 peak. This is equivalent to 1,600 daily mortgage approval transactions compared to 3,900 during 2006. The value of gross mortgage lending by 2017 is expected to be £212bn compared to £363bn in 2007.
- The average loan-to-value ratio for first-time buyers is currently 80% in 2012, which compares against 90% in Q4 2007. Looking ahead, we expect first-time buyer LTV ratios to approach 85% by 2017 as structurally weaker earnings growth and higher costs of living imply greater difficulties in raising deposits. LTV ratios for existing homeowners are expected to remain broadly the same at around 70% by 2017.
- Restrictive borrowing conditions and lower transaction activity mean that the average time taken to sell a home is expected to be 9-10 weeks, which compares to 6 weeks in mid-2007.
- Affordability of housing is anticipated to be better by 2017 as disposable income growth catches up with house price appreciation. In 2017, the average house price to disposable income ratio is expected to be 5.8, compared to 6.5 during the 2007 peak.
- The cost of borrowing is expected to be lower than during the ‘pre-2008 crisis’ period. By 2017, mortgage rates are expected to be around 3 percentage points lower than in the 2007 peak.
- However, we expect that it will be more difficult to save for a deposit by 2017. Cash ISA saving rates are expected to be some 3 percentage points lower than 2007 levels
Ben Thompson concludes:
“These findings show that ‘The New Normal’ presents opportunities for many homeowners but challenges for first time buyers. While house prices are expected to climb slowly from 2013 the cost of borrowing is expected to be lower than during the pre-2008 crisis.
"Meanwhile gross mortgage lending is expected to reach £212bn in 2017 up from the current level of £142bn but indicators are that it will be more difficult to save for a deposit. Undoubtedly like any period ‘The New Normal’ will have its challenges but the hope is that following the trauma of the crash what we will have by 2017 is not only a healthier market place but ultimately a more balanced and sustainable one.”
