Both new mortgage affordability and extra borrowing through refinancing are likely to take a hit this year, UK Finance has stated in its household review for Q4.
Coming off 2021, which UK Finance calls a “quite remarkable, expectation-busting year,” the trade body says that pressure from rising inflation and the increase in national insurance contributions from April will affect household balance sheets for the worse, “particularly amongst lower-income households, who spend proportionally more of their income on essential items.”
Regarding new mortgages, UK Finance adds that the interest rate rises seen in December 2021 and February this year will place upward pressure on rates, although it concedes that volatility in money and bond markets “makes the precise path of longer-term interest rates hard to predict.”
And specific to equity withdrawal, the closing of the stamp duty holiday has led to the amounts of money taken out following a downward, “if erratic” path – an intuitive consequence of the tax break ending.
The report also shows that refinancing through product transfers and external remortgages were one of the main themes of Q4 2021, especially in November. UK Finance believes that the increased popularity of five-year fixed rates for the last few years means this trend will continue into 2023.
Overall arrears numbers continued to fall at the close of last year, the reports adds, although the number of borrows with mortgages over 10% of their balance in arrears has grown – which it puts down to a result of the restricted capacity of courts.
“This increasing stock of heavy arrears cases will gradually ease over the course of 2022 into 2023, as the backlog of delayed possessions is cleared,” concludes UK Finance.
“It’s likely that we’ll see fewer surges in house purchase activity, but large mortgage maturities throughout the year. Brokers’ clients will need support to find the right mortgage for their needs with rising mortgage rates, living costs and house prices to contend with.
“Plus, we’d expect to see first-time buyers making up a significant proportion of the market this year, which will provide opportunities for brokers to demonstrate their expertise and add value at a crucial time for their clients, says Coventry Building Society head of intermediary relationships Jonathan Stinton.
