Housing Crunch May Be Creating the Best Secured Loans
One of the biggest myths of modern economics is that all economic activity can be reduced to a zero-sum game. The zero-sum game theory states that economic activity in one area, be it positive or negative, is perfectly balanced by equal and opposite activity in another area. But it doesn't hold true as evidenced by the current housing and mortgage markets. For example, the ongoing housing crunch is actually stimulating the mortgage industry by encouraging some of the best secured loans we've seen in years.
The mortgage industry does not limit its business exclusively to new loans for first-time buyers and repeat loans for existing owners looking to move up the property ladder. The industry also offers re-mortgages, home improvement loans, debt consolidation loans, and even multiple equity release programmes. At any one time, a mortgage lender's business may be dominated by one or two products. Right now, secured loans are the hot product.
The Ongoing Housing Shortage
For years, the government has been making promises that it will address the ongoing housing shortage in the UK. They have not lived up to those promises. We still find ourselves in a situation where there simply is not enough affordable housing to keep up with demand. Hopefully, that will change in 2017.
Chancellor Philip Hammond let it be known in the Autumn Statement that the government plans to commit some ¬£1.4 billion to developing significant affordable housing consisting of a wider range of property types, according to Mortgage Strategy contributor and second charge expert Bradley Moore. But what about the interim? What happens to the mortgage lending industry while we wait to see if the government lives up to its latest promise?
Moore makes the case that the ongoing shortage has not really harmed the mortgage industry at all. His assertion is based on the fact that a lower supply of houses encourages homeowners to think twice before attempting to upgrade. Many of those owners are more likely to take on secured loans to make home improvements so they can stay put. Moore says there has been a ‚??significant pickup in home improvements‚?? brought on by the housing crunch and tighter credit requirements.
He goes on to sing the praises of the Mortgage Credit Directive (MCD) for bringing greater awareness of second charge products to the average consumer. Where the MCD was expected to harm the mortgage lending industry, it has actually helped. The demand for the best secured loans on the market has increased some 15% since September 2015.
Solid Mortgage Industry Growth
Getting back to the main point that economics is not a zero-sum game, it's necessary to point out that the mortgage industry has not suffered long-term harm as a result of the financial crisis and the subsequent credit crunch. In fact, things are quite the opposite. An August 2016 report from the Council of Mortgage Lenders showed that mortgage lending in that month was 7% higher than July and 15% higher year-on-year.
Even more impressive is that mortgage lending in August 2016 reached some ¬£22.5 billion. Approximately 70% of the business consisted of second charge products including re-mortgages.
The take-away here is simple: the housing crunch and credit crisis has negatively impacted first mortgages to a small degree. But it has spurred competition in other product categories. Indeed, the housing crunch has resulted in some of the best secured loans we have ever seen; loans that are not only making up for losses in first mortgages but also propelling the mortgage lending industry to ever-increasing profits.
- Mortgage Strategy ‚?? https://www.mortgagestrategy.co.uk/secured-loans-watch-mcd-great-pr-seconds/
- Guardian ‚?? https://www.theguardian.com/money/2016/sep/22/mortgage-lending-august-cml-housing-market-eu-vote
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