It’s no secret that we entered a somewhat tumultuous stage in the real estate market at the end of last year. Moving and mortgages often go together. So, when the mortgage market hit a period of turbulence, it was time to buckle up and hold on tight.
Now we’ve all taken a post-festive breath; it’s time to look at where you want to be in 2023 and whether that involves a move. Many potential sellers and buyers might still be jittery about home loans and financing. So, we thought we’d delve into our little black book of experts to find someone with the inside story on mortgage markets and what we can all expect to see in 2023 and beyond.
We caught up with Independent Mortgage Broker, Christopher Pain.
Q: What caused the turbulence in the mortgage market in 2022?
A: Following Liz Truss’s mini-budget in September, the financial markets reacted very adversely to the significant reduction in proposed taxes without the details of how this was to be funded. This move caused a considerable loss of confidence in the Government, and the cost of Gilts (the rate at which Government pays banks and investors to borrow money) shot up overnight. The days following the budget with poorly ill-prepared statements did little to repair the damage, and Gilts continued to rise.
Building Societies and Banks use the Gilt rate for funding and pricing their loans. This unprecedented increase caused massive rises in their cost of funds. As such, the mortgage rates had to increase, or there would have been considerable losses to the lenders. Another significant aspect of this crisis was the volatility of these increases. They were happening so fast that lenders could not keep pace with the changes. Any lenders offering the lowest mortgage rates were at a considerable risk of attracting massive levels of applications in a very short space of time and potentially funding these loans at a considerable loss. This situation saw lenders pulling their rates with hours or sometimes no notice.
A change in Prime Minister and Senior Ministers has seen the turbulence settle, and a much calmer market has emerged. Gilt rates are still slightly higher than in September but much lower than in early to mid-October. We are in a far more stable market and fixed rates started to fall in November and have continued that slide into January.
In thirty-five years in the business, I’ve never witnessed anything like this before. While there is still a nervous element within the markets, we are unlikely to see another episode like this. Lessons have been learned about supplying the required backup information and carrying out significant due diligence before policies are announced.
Q: Where do lenders stand on mortgage deals now? Are there still suspensions?
A: No. The number of mortgage deals is close to where they were, albeit at a different pricing structure. Several lenders now offer 95% mortgages, which had all but disappeared in the height of the troubles. We are seeing lower rates being launched in the first few weeks of January and whilst this is standard practice at the beginning of a new year, the number of new offerings is unusually high.
Q: What does all this turbulence mean for borrowers?
A: Rates have now peaked and continue to fall. I expect the bank base rate will stabilise around the 4% to 4.25% level. Money is still readily available, and lenders are keen and willing to lend. This situation is nothing like the credit crunch of 2008/09, and liquidity is not an issue. Lenders have adjusted their affordability calculators to reflect the higher rates, and we see slightly reduced lending levels compared to income.
When it comes to remortgaging, lenders are still very keen to support this sector. It’s generally considered to be low risk, given the borrower’s track record of managing a similar size mortgage. The rates will be higher than borrowers were previously used to but being realistic, a base rate of 0.5% was never going to be sustainable in the long term.
Q: What are the Pros and Cons of fixing for a more extended period?
A: The decision on how long a period to fix a mortgage rate will always depend on personal circumstances, so readers should discuss this with their mortgage broker. But generally, a longer fixed rate will offer stability and the ability to budget. The downside, of course, is that you may lock into a rate that could fall further.
Q: So, it’s not all doom and gloom for moving and mortgages in 2023?
A: Absolutely not. Arguably the key driver in the property and mortgage world is job security. If the potential purchaser/borrower has confidence in their ability to earn and sustain an income, then the decision to move and borrow money is a straightforward one and reflects the desire to improve their standard of life. The interest rate at the time of making that move affects the amount of the borrowing and their budget as opposed to being a barrier to moving home.
We currently have one of the lowest unemployment rates in modern times, which is unlikely to change soon.
Inflation is again a budgeting consideration but very unlikely to be a barrier against people’s overall desire to own their home or improve the one they have.
If you would like more advice on moving and mortgages, do get in touch, and we’ll help you get the advice you need.
