The Intermediary Mortgage Lenders Association (IMLA) released a report on the impact of the COVID-19 pandemic on the UK economy and the mortgage and real estate market a year later. The association also made forecasts for the second half of this year and 2022.
Economy and unemployment rate
The UK economy has experienced a strong recovery from the crisis caused by COVID-19. Despite the lockdown restrictions imposed, UK production in May 2021 was only 3.2% lower than the February 2020 figure, which predated the first lockdown.
Unemployment levels were also lower than earlier forecasts. The Office for Budget Responsibility predicted that unemployment would reach 7.5% by the second quarter of 2021. However, it was only 4.8% in April and was down from 5.2% in November.
Real estate transactions and mortgage loans
The UK housing market defied expectations, recording a strong rally in transaction levels and house prices. With purchase demand at such high levels, the market has been characterized by insufficient supply levels since mid-2020.
This worsened with the stamp duty holiday pushing up house prices further. The housing market hit record highs in 2021. Average house prices in the UK recently hit a record high of £ 237,000, according to Zoopla.
Along with this strong activity in the housing market, this has also resulted in an increase in mortgage lending. In the first five months of 2021, home loans were 87% higher than the same period in 2020. They were also 51% higher than in the same period of 2019.
What will happen the rest of the year?
After the stamp duty holiday ends in September, a more subdued picture is expected for the rest of the year. And house prices are only expected to fall if interest rates are raised significantly. IMLA expects house prices to be broadly stable in the second half of the year.
The IMLA already predicted that 2021 would see the highest level of mortgage lending since 2007. However, the association increased its mortgage loan forecast from £ 283 billion to £ 285 billion.
Kate Davies, Executive Director of IMLA, said: “After a difficult period following the coronavirus crisis, it is very encouraging to see yet another positive prediction for the remainder of 2021.
“Our results predict that 2021 will see the highest level of mortgage lending since 2007 and, with a combination of government support helping to support new purchases and a bumper year for product maturities, we expect this strong request continues. “
What are the forecasts for 2022?
Stamp duty has prompted many buyers and investors to come forward with property purchase plans. For this reason, IMLA has reduced its gross lending forecast for next year from £ 286 billion to £ 280 billion. The association also predicts that house prices will increase by 1.6% in 2022.
A growing number of companies are implementing a hybrid work model with a mix of office and home work. Professionals will have a greater choice on the location of where to live. And the space race will probably continue too.
The rise of the hybrid working model and fully remote working could lead to more office space being available for conversions to housing. Additional housing is needed to cope with the growing demand and the lack of supply.
The Executive Director of IMLA concludes: “However, with the end of the stamp duty holidays and the purchase assistance program scheduled to end in 2023, there is still a need for a housing strategy. consistent and long-term commitment from the government. that encompasses the public as well as the private sectors – and offers a market that will meet Britain’s housing needs for decades to come.