On the first day of Christmas, 2022 sent to me… Three PMs, four Chancellors, five Housing Ministers, and a partridge in a pear tree!
Much like the two years before it, 2022 brought a range of challenges and opportunities to our bumper mortgage market. Our sector continued to move quickly, navigating three prime ministers, four chancellors, and five housing ministers, alongside revisions to the national budget and the MPC’s ninth consecutive base rate rise. Energy prices also hit new heights, as did inflation.
Lenders and brokers worked tirelessly to protect the sector against these threats. Earlier this week, HMRC noted that UK residential transactions remain ‘slightly elevated above pre coronavirus levels’, which is quite an achievement given the complex backdrop. This feat is testament to the skill, diligence, and resilience of our wonderful mortgage professionals.
As we prepare to wrap up the working year and take a well-earned break, it is important to reflect on how our market was shaped this year. There are plenty of opportunities and challenges to digest, but nothing that our famously resilient sector cannot take in its stride.
2022: Lending volume pleasant surprise
The volume of lending completed this year thankfully exceeded many expectations. The purchase market remained stable and was propped up by a burgeoning refinance market, as many customers looked to remortgage or transfer products due to the rising cost of living. The good news for those still hunting for a good deal is that swap rates and interest rates seem to be stabilising. Despite last week’s base rate rise, interest rates continue to fall across the board, with the average rate for a three-year fix the only one to increase last week, according to Moneyfacts.
2022: Policy changes galore
Policy changes also came thick and fast this year. In August, the Bank of England scrapped lenders’ obligation to test borrowers against the 3% stress rate. September brought more good news for prospective buyers in the form of Stamp Duty cuts, before we waved a sad goodbye to Help to Buy at the end of October (which helped over 300,000 first-time buyers in its nine-year lifespan). December brought early gifts in the form of a one-month extension for completions under the Help to Buy scheme – encouraging for those with an Authority to Proceed letter – and a one-year extension to the Mortgage Guarantee Scheme. The Forces Help to Buy scheme was also made permanent. We will have to wait until the new year for the full impact of these changes, but for now at least, they provide plenty of promising signs for strong demand in 2023.
2023: Landlord exodus? Far from it
The Private Rented Sector (PRS) is set for some big changes in 2023. While it should not shrink in size, or at least by much, it will likely end the year in a very different shape. Higher interest rates and fast-approaching changes to Capital Gains tax (due to come into effect in April) are prompting some non-professional landlords to sell up. Most of these properties will be bought by professional, portfolio landlords and first-time buyers, generating transactions either way. Given the UK’s reliance on the PRS – it supports 4.4 million households, according to the government’s latest PRS whitepaper – it is unlikely to suffer a significant decline. However, it could look exceedingly different by the end of the year.
2023: Specialist lending boom
Specialist lending should also continue its strong performance into 2023, helped by a strong demand for niche solutions following the cost-of-living crisis. We’re already seeing a growing number of borrowers dealing with adverse credit, or self-employed borrowers who aren’t supported by traditional high street lending, making these innovative solutions vital to helping them secure a mortgage.
Many brokerages also reported a large uptick in second charge enquiries in 2022, with some as high as 20%. These loans found varied use, with some borrowers locking in following damage to their credit rating (which would have meant higher interest rates on their remortgaged loan), while others sought to avoid early repayment fees on their current mortgage.
According to United Trust Bank’s recent survey, 9 in 10 brokers share my optimism, expecting the specialist market to grow in the next two years despite the recession. More positivity to capitalise on in January.
2023: Client communication
Amidst all the discussion around prospective buyers, we must not forget our fantastic existing customers. Staying in regular contact is vital, particularly when borrowers’ deals are ending soon, making technology an adviser’s best friend. Automating aspects of client communication and reminders around deals coming to an end saves adviser precious time. With further developments around the FCA’s Consumer Duty due to come into effect next year, I expect many firms will rightly kick off their year with a communications audit and potential overhaul.
2023: Capital markets should stabilise
The key factor tying these developments together is lender funding. The economic uncertainty has made securitisations – essentially selling collections of loans – harder for some lenders this year. If this situation was to continue for say another six, nine, or twelve months, we could see some lenders struggle. However, while I don’t have a crystal ball, I cautiously predict markets to stabilise in the new year. Lenders will continue to manage funding, and some have already revisited their warehouse lines. No one can predict with 100% accuracy, but current market data does allow for some degree of optimism.
As we prepare to shut up shop for the festive break, it is important that lenders, advisers, and borrowers use this time to recharge and invest in their wellbeing, particularly after a busy and, at times, challenging year. While it won’t all be smooth sailing next year – it rarely is, in any industry – there is plenty to be positive about as we look towards January.
Danny Belton is head of lender relationships at Legal & General Mortgage Club
