Northern Ireland’s three-speed mortgage market finds a reverse gear

Two out of three categories of mortgage activity (first-time buyer, home mover and remortgage) posted faster rates of annual growth in Northern Ireland relative to the UK. However, these three segments of the mortgage market are moving at three different speeds.


Rapid growth (from a low base)The remortgage market is the fastest growing sector with the number of loans surging by 21.6% y/y in Q3. Remortgage activity (8,300 loans) are up almost one-fifth in the first three quarters of 2019 relative to the same period a year ago which compares with a 1% y/y decline for the UK market as a whole.


Prior to Northern Ireland’s severe house price slump, remortgages were the most active segment of the mortgage market followed by home-movers and first-time buyers. After the crash, however, remortgage activity slumped by a massive 85% between 2007 and 2013. Six years of house price growth with a cumulative rise of over 40% has boosted residential property equity. In turn, this has facilitated remortgage growth for home improvements / extensions. H1 2019 has already seen the remortgage market overtake the first-time buyer sector. Despite this growth, the level of remortgage activity remains one-third of what it was in 2007.


Steady growth (from a high base). Since 2013, the first-time buyer market has become the most significant part of the local mortgage market. Indeed, last year FTB mortgage activity hit a 14-year high. 2019 looks set to be a 15-year high with the number of FTB loans up over 5% y/y with just one-quarter remaining.  Looking at the UK as a whole, its FTB market was flat year-on-year for the first three quarters of 2019. NI’s FTB market is strongly reliant on the Bank of Mum and Dad (BOMAD) or financial support from grandparents.  The average deposit in Q3 2019 is over £27,200. Very few first-time buyers will have saved a deposit of that size independently. 


Reverse gear (reversing slowly). The home mover market has traditionally been more significant than the FTB market.  However, the house price crash and the widespread incidence of negative equity acted as a barrier to first-time buyers moving up the property ladder. Home mover activity slumped by 80% from 2006 to 2012. While the level of home mover activity has doubled from its post-downturn trough, the level of activity remains subdued and now looks to be dipping. Home mover activity in NI in Q3 fell by almost 3% y/y.  During the first nine-months of 2019, the home mover market has fallen by over 1% y/y. This compares unfavourably with the UK where growth is over 9% y/y. 


Overall, Northern Ireland’s mortgage market remains in expansion mode, albeit different segments are growing at different speeds with the home mover market now falling. Stripping out the refinance, or remortgage market, the growth in mortgage activity for house purchase has halved in 2019 (+2.5% y/y) relative to that of 2018. Given the challenging economic outlook, the mortgage market will not be insulated from wider economic developments. Expect a further slowdown in activity (outside of remortgages) in 2020. The latter is expected to remain the strongest performer in 2020 with attractive mortgage rates at or close to record lows. 2020 is also expected to see the Bank of England cut its Bank Rate by at least 25 basis points from 0.75% to 0.5% in Q2 2020.

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