2016 was certainly a year of Changes, to quote singer/songwriter David Bowie, whose death in January was for many a portent of the tumultuous year ahead in the political and economic spheres.
The three per cent rise in stamp duty on second homes and buy-to-let purchases was greeted with some dismay, particularly as the government’s initial consultation had suggested that there could be an exemption for investors buying 15 or more properties. The director of policy at the BPF summed up the mood in the industry: “many institutional investors will find it difficult to fathom why something so good – adding to the housing supply – is taxed so highly”.
One of the effects of these changes was to cause a surge in mortgage applications from companies. Given that commercial loan origination requires more onerous diligence processes, title insurance became an even more relevant consideration as a means of reducing risk and diligence costs.
Meanwhile, the post-Brexit property market caused a number of property funds, including Standard Life, Aviva and L&G, to cease trading in order to ward off redemption requests; amounting to as much as £5 billion according to some estimates.
Some viewed an exit from the EU as a means of curbing the increasing regulation of the property market, the lending market in particular, which started in 2014 with the Mortgage Market Review. Later in the year, Theresa May’s warnings that she will trigger Article 50 by the end of March, as well as concerns that a “hard Brexit” will pull the UK out of the single market, meant that the larger banks adopted a particularly cautious approach to lending.
But while the mainstream lenders voiced concern about future access to the European market, smaller challenger banks, which have traditionally tended to focus on the domestic market, saw Brexit as a means of increasing their growing foothold on the lending market. Arguing that Brexit would remove the need for new regulations surrounding the amount of capital that they needed to hold, 2016 therefore proved to be a promising year for such institutions. The internal ratings-based (IRB) methodology for risk-weighted capital calculations that bigger banks use, which was implemented by the Basel II capital framework in 2004, currently means that smaller banks must set aside more capital for certain risks, such as residential mortgages; Brexit may serve to change this however.
In an open letter to the Treasury Select Committee chairman, the heads of seven of the UK’s challenger banks said UK policy makers should use Brexit as an opportunity to set their own financial services rules to reduce the current burdens placed on the challenger banks. It remains to be seen how accommodating the government will be.
The housing market remained resolutely resilient despite the unrest felt in the wider economy. This was partly fuelled by a further base rate cut by the Bank of England in the summer, but predominately by an ongoing and severe shortage of housing.
Government initiatives to increase housebuilding were a prominent feature of Philip Hammond’s Autumn Statement, with news of £1.4 billion of funding for affordable housing, in addition to a relaxation of previous restrictions on grant funding by allowing housing providers to deliver a mix of homes for affordable rent as well as low cost ownership. Meanwhile in September, the government announced that a £2 billion accelerated construction fund would be set up to allow publicly-owned brownfield land to be available for development, along with a £3 billion Home Building Fund to allow housebuilders to build a further 25,000 homes by 2020.
Title insurance has played a significant role in this evolving market place. Throughout 2016, Titlesolv’s developer policy, accompanied by its web-based services, have been consistently proven to speed up transaction times and offset time lost through increased regulation.