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There is a high level of uncertainty over international trade, Trump’s initial 100 days, Brexit Article 50 trigger for 2017, European elections, etc. which could lead to a slowdown in investment in the UK, both in house building and in manufacturing and services. We will see the beginnings of the readjustment of the UK’s economic structure more in line with the perceived post-Brexit vision – a more export-based economy.
– Dr Eugene Michaels & Melanie Powell, Senior Lecturers of Economics @ Derby University
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[/one_sixth]Many are excited about the new year and what’s to come for the housing market, whilst others are dreading another year of change and uncertainty – where do your thoughts fit re: 2017?
[one_sixth][/one_sixth]There is a high level of uncertainty over international trade, Trump’s initial 100 days, Brexit Article 50 trigger for 2017, European elections, etc. which could lead to a slowdown in investment in the UK, both in house building and in manufacturing and services. We will see the beginnings of the readjustment of the UK’s economic structure more in line with the perceived post-Brexit vision – a more export-based economy. Companies may soon start relocating and shifting investment and employment, further increasing the uncertainty. Lower productivity may slow wage growth. The lower level of the pound alongside higher oil prices will raise inflation, which will also reduce real wage growth. This is likely to lead to a slowdown in consumer expenditure and possibly demand for mortgages.
Lender Funding
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[/one_sixth]Is 2017 going to be another 2009? Earlier in 2016 there were reports that specialist funding lines were suspended as the dust settled after the vote to leave the EU, whilst many BDMs tell us they have loads of cash and high targets for the next 3-4 years, despite Brexit. How well funded do you think lenders are and is it only a matter of time until the market dries up?
[one_sixth][/one_sixth]It is unlikely that 2017 is going to be another 2009. The underlying position of the retail banking sector has improved since 2009. While the recent low growth and low interest rate environment has weakened the profitability of banks, the higher inflation expected could raise the possibility of a small rise in the UK base rate, which would help retail bank profitability. The latest Bank of England Q4 Credit Condition Survey suggests a small rise in supply of funds for secured lending to households, including high loan to value lending, in Q1 2017, but a small reduction in unsecured lending to households. Banks will continue to reduce branch services and improve technology throughout 2017 to reduce costs and improve lending services to raise profitability and market share. In terms of debt, households have reduced their debt since the pre-2009 peaks so, even though borrowing is now increasing, it is doing so from a lower level.
Brexit & Regulation
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[/one_sixth]Many believe Brexit has (so far) gone much smoother than expected, would you agree and do you think the scaremongering by Remainers pre-referendum was hot air, or are their points just dormant to be seen closer to the time? Is this the clam before the storm?
[one_sixth][/one_sixth]The issue of Brexit has not gone away. It is a matter of the time line. Discussions pre-referendum focused on the long run impact of Brexit, but have been interpreted in the media as short-run and, not surprisingly, these have not happened. The short run expected slide in sterling did happen and the effects of this will show on inflation in 2017. Consumers were protected from the effects on inflation in 2016 because of low oil prices, intense competition in the retail sector, and the impact of prior hedges on costs in manufacturing. Teresa May’s statement on Tuesday merely confirms what economists have been saying all along. The Brexit vote means gaining control of immigration and the ability to set bilateral tariff agreements with non-EU countries are the new key political issues. As a result, the UK cannot be a part of the Single Market or the Customs Union after Brexit. This is not ‘new’ information. However, it is now clearer to the public. The impact of this decision, and the related uncertainty, will be spread over the long run, between two and ten years. It will not be possible to evaluate the predicted long run impacts on productivity and growth until then. So much depends on whether the UK can come to some arrangement on ‘passporting’ for the finance sector, what trade agreements emerge from the negotiations with the EU and how quickly comprehensive bilateral trade deals can be negotiated with strategic non-EU countries.
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[/one_sixth]MMR, MCD, numerous tax changes to impact homeowners and landlords – have these done what they were supposed to do, and if not what’s next? Are we scrapping them all with Brexit as we “take back control” of our own regulation, or will things stay as they are? And what impact do you see Brexit having on FS in the UK if passporting is not part of the agreement?
[one_sixth][/one_sixth]Following the financial crisis, there was clear need for a review of responsible lending rules which culminated in the Mortgage Market Review in 2014. While there may be some debate about interpretation of aspects of the review, the overall effect is increased consumer protection. It is unlikely that this will change. More recently, the European Mortgage Credit Directive has been implemented to create a single market in mortgage services. While the directive comes from Brussels, the change is the result of UK law, designed and implemented in the UK. Changing UK regulation is expensive and time consuming. We can assume that the UK will change very little legislation tied to the EU in the first instance for this reason. It is likely that in the longer run over 10 years, some legislation will be adapted as circumstances change. However, there will be pressure to maintain regulation consistent with the EU in som
