By Legal & General Mortgage Services managing director Kevin Roberts
The recent Easter break has been an excellent opportunity to take a step back and look at where our market stands after the first three months of 2024.
At the end of last year, we saw predictions of gross lending falling to £215bn as cost-of-living challenges and higher rates were expected to continue to impact lending. Yet, the conversations I am having across the mortgage market today paint an altogether more positive picture.
Optimism is creeping in – expectations are emerging of gross lending reaching a more respectable £250bn this year, while product transfer activity is also staying strong. In the first quarter of 2024, almost 35% of lending through Legal & General Mortgage Club was for product transfers – very similar to last year and well above the historic norms of ‘low 20%s of previous years.
The fundamentals are there for a more positive 2024 than many had expected, but as I take a look back at the first quarter there are still some important issues we must keep front of mind.
Time to move from passive to active
The latest figures show inflation has fallen to 3.2% and the anticipation is clearly growing that the Bank of England may soon move to cut the base rate.
That’s promising news, but it is prompting some buyers to take a ‘wait and see’ approach in the expectation that mortgage rates will come down considerably. The reality is that many lenders have already priced in these falls through swap rates, and we may not see mortgage rates reach the levels that some are anticipating.
At the same time, we cannot predict with certainty which direction rates will go and they remain sensitive to a broad range of influences and events.
All this means that now is as good a time as ever for buyers to start moving ahead with their plans, whether that’s to remortgage, or take a first step, or the next step on the housing ladder.
For advisers, the message is clear: If you are taking a ‘wait and see’ approach, this is not the time to be passive. Brokers who return to their backbooks, actively engage with their clients and who encourage borrowers to move forward with their housing plans will be a step ahead of the competition.
First-time buyer market creativity
Despite rates coming down from last year’s highs, first-time buyers are continuing to face affordability challenges.
However, lenders are stepping up and innovating to support these borrowers. At the end of March, we saw welcome news from lender Accord Mortgages with the launch of the £5,000 deposit mortgage, which is available up to 99% LTV. This is true innovation which will help to grow this important part of the mortgage market, allowing FTBs to become homeowners with as little as a £5,000 deposit.
Accord’s product follows last year’s 100% mortgage from Skipton, and I am hopeful that we will see even more lenders put a focus on innovation for FTBs.
As new products like Accord’s emerge, advisers will need to ensure they keep up to date on these solutions and understand exactly how they work and what they offer customers. I suspect there will be plenty of incoming questions from eager FTBs.
Addressing unintended consequences
The Mortgage Charter has undoubtedly provided consumers with more flexibility since it was announced last year and supported borrowers during what has been a challenging time.
However, it is becoming increasingly clear that the focus on a six-month window for borrowers to move rates has the potential to create unintended consequences which could negatively affect consumers.
On this issue, it is important we have an honest debate – we must strive to support borrowers as best we can, but the current framework means advisers are having to work harder than ever before and rework cases far more often.
This could potentially lead some to start charging customers to re-run applications, or increase their current fees.
Meanwhile, lenders have also had to rework cases at the last minute, adding inefficiencies and making it harder for them to effectively hedge rates. This raises the possibility of rates rising to compensate for less stability and more work, which is why I support Nationwide’s recent decision to reduce their window to a four-month period.
The building society’s move strikes the right balance between recognising the important role the Mortgage Charter continues to play, but avoiding any unintended consequences and reaching for what I believe is a better outcome for borrowers.
One eye on the future
Buyers returning to the market to take advantage of lower rates will keep us all busy, but it’s important we don’t forget to consider how we can continue to improve our businesses over the longer term.
Now is still a great time to be looking at how we can drive efficiencies and deliver a better service to customers.
The role of data and AI is only going to grow in the mortgage market. Smart advice firms are already planning ahead to see how it can transform their operations. My advice is to be curious about these new technologies – from generative AI to machine learning – and see how this tech could take up the burden of more admin-intensive processes.
I am having to embrace this shift as well. There is an inevitable move towards the greater use of data in mortgage valuations for example, and this is an area of focus for the team at Legal & General and a regular topic in my conversations with lenders.
A busier mortgage market this year would be warmly welcomed, but while we must strive to support customers today, we must also keep one eye on what the future may bring.
