CML outlook for 2015

Thursday 15 January 2015

Kennedy Foster, Policy Consultant at CML provides our members with an outlook for 2015.

We have recently published our mortgage forecasts for 2015 and 2016. While these are done at UK level the recent trends in Scotland would suggest that the picture here should not differ fundamentally from the rest of the UK.

We are anticipating gross lending in the UK to climb modestly from £207 billion in 2014 to £222billion in 2015, spread across regulated and buy to let (BTL), house purchase, and re-mortgage. We envisage stronger growth to £240 billion in 2016.

A gentle upward trajectory for the mortgage market going forwards should calm macro-prudential concerns. In addition the proportion of cash-financed transactions has shown signs of stabilising in 2014, and may decline gently as mortgage availability continues to improve. The prospects for economic growth, job creation and a pick-up in earnings are relatively positive, and these factors, along with the easing in interest rate expectations over recent months, should underpin housing market sentiment.

The impact of LBTT

The impact on the housing market in Scotland of the introduction of Land and Buildings Transaction Tax (LBTT) from 1 April 2015 will have to be carefully monitored. Those wishing to buy properties above £325,000 will pay more in LBTT and in our view the most affected are going to be particularly those purchasing “family homes” in some of the “hot spot” housing markets in Scotland. The people purchasing in this category are not necessarily “super rich” and the measure has the potential to adversely impact on recovery of the housing market in these areas.

Mortgage Arrears and Possessions

In the area of mortgage arrears and possessions trends have continued to be benign. Arrears and possessions are now at their best levels since 2006. With financial markets moving the prospect of interest rate rises out to late 2015 and beyond, and at least some prospect that the protracted period of declining real incomes may be coming to an end (for the majority, if not all households), there is little reason to anticipate major changes over our forecasting period. 

We expect to see only modest further improvement in 2015 from where we are today. As interest rates begin to rise gently from late 2015 onwards, the long period of advance warning and the benign trajectory should assist in working against a sharp deterioration in arrears and possessions in 2016. 


With strong fundamentals in place for the further expansion of the private rented sector, we expect to see further expansion of buy-to-let activity, relative to gross mortgage lending and the volume of property sales, over time. Buy-to-let activity is subject to a degree of regulatory uncertainty on several fronts, however, and this brings risks for its continuing orderly evolution.

The buy-to-let sector has attracted a degree of attention, both in the context of the Financial Policy Committee ‘s (FPC) deliberations about seeking additional powers of direction and HM Treasury proposals for applying the European mortgage credit directive here in the UK. HM Treasury has deferred a decision on whether the FPC should have powers over the buy-to-let sector, pending a separate review in 2015.

New Tenancy

The evolution of the private rented sector as the second largest form of tenure has also brought with it closer scrutiny from policy-makers. We have seen the Scottish Government consult recently on a new tenancy regime. Many of the proposals contained in their consultation paper are welcome and should assist in the operation of the private rented sector. We particularly welcome the development of a model tenancy agreement and the modernised grounds for possession. However we believe that a number of the proposals contained in the paper are likely to have the unintended consequences of both reducing investment in the sector and the supply of private rented sector housing. In particular, we have concerns about the removal of the no-fault ground for re-gaining possession, the removal of the ability to continue tenancies on a month to month basis at the end of their term, consideration being given to rent controls and the increased time before a lender can take possession when a landlord defaults on their loan.

Looking ahead over the next two years, housing and mortgage market developments appear well supported by relatively favourable economic fundamentals. However, prudent and sustainable lending in the face of affordability pressures necessarily limit the further upside scope for mortgage lending.