‘I don’t know about you, but I’m feeling 22.’
Yes, a big hello to 2022 and to y’all from Taylor and me.
May I be the first to wish you a very Happy New Year. What? It’s February already? Well, anyway, welcome to a shiny new year and I hope you all had a great break, however distant it may now be.
This piece represents my 10th anniversary of writing this column as my first Market Watch article was on 9 January 2012. I never thought I would be sitting in my Harry Potter-esque cupboard-under-the-stairs office, with my fragrant relaxation candle burning and my Spotify late-night playlist wooing me, while writing my 323rd column. I am so very honoured to be here.
Some lenders have a clutch of interesting new products, such as Suffolk Building Society’s expat holiday-let deal
Re-reading that very first column, it is amazing to think how much has changed, but also how much of the job we do and the industry we work in remains the same.
This year looks as if it is going to be very interesting, and it seems the market is off to a buoyant start as workers begin to go back to the office, students return and some people who moved out of large cities are already looking to come back. The term ‘pied-à terre’ is likely to have a familiar ring once more.
With the spectre of inflation still looming strongly — there is talk of it now hitting 6% — the chance of further rate rises grows stronger and stronger. When you read this, we already could have seen an increase in the Bank of England (BoE) base rate from 0.25% to 0.5%, with every chance of reaching 1% by the end of the year.
Double-edged sword
The difficulty is that the BoE is walking off the hilt onto the blade of a particularly sharp double-edged sword as it tries to balance the economy and a cost-of-living crisis with the evils of inflation.
Competitive pressure among lenders remains high, so hopefully changes in pricing will not be too dramatic
Initially, this will not have much effect on many mortgage borrowers, who have long since run to the sanctuary of fixed rates. But it will affect future potential borrowers and is yet another slap across the face to those already confronting higher energy costs and food prices, and an ill-judged refusal by the government to hold back on a National Insurance rise.
The problem is that another small increase, or even a couple, is unlikely to temper inflationary pressures without a major change. And, while rates need to return to some semblance of normality sooner rather than later, the public are not ready for this any time soon.
In fact, a report by Bloomberg Economics suggested that, in order to get back to its 2% inflationary target, the BoE would need to deliver a Volcker Shock (named after former chair of the US Federal Reserve Paul Volcker) — a huge interest rate hike that could put up to 1.2 million people out of work and move the economy “from record inflation to deflation” next year.
The BoE is walking off the hilt onto the blade of a particularly sharp double-edged sword
Alarmist, maybe, but it shows the seemingly insurmountable job the Bank has, and one that will get worse before it gets better because of the nature of this cost-push inflation. Don’t worry, though. Boris is organising a cheese-and-wine party at Number 10 to discuss the options and I’m sure he will sort it out.
The good news is that competitive pressure among lenders remains high, so hopefully changes in pricing will not be too dramatic. But much depends on how the money markets react.
Talking of which, and in a near-seamless segue, the money markets themselves make for interesting reading. Three-month Libor has yet to shift its Christmas party weight and has ballooned to 0.64% while three-month Sonia is ordering another sherry at 0.53%.
Swap rates are nibbling the vegan snacks as longer-term money looks cheaper than shorter term.
Since the last column, (and pretty similar to what they were 10 years ago):
2-year money is up 0.22% at 1.29%
3-year money is up 0.15% at 1.35%
5-year money is up 0.09% at 1.30%
10-year money is up 0.08% at 1.20%
Meanwhile, the latest Nationwide house-price index shows that, in January, prices rose by an astonishing 11.2% year on year. Although the property market smashed it last month, the rest of the year will likely see a cool-down in the rate of price growth due to inflation and rising interest rates.
However, values are unlikely to fall as mortgage rates remain exceptionally low, people are keen to avoid renting and the ‘Race for space’ continues. As ever, prices are being propped up by a chronic lack of supply.
Firms that behave badly will still behave badly while the good ones will still be good but have an even tougher time doing so
It’s not just the purchase market that is in demand. Data from Arla Propertymark revealed that rental stock availability in London had fallen by 71% in 12 months, with a shortage of good-quality rentals in many places across the country.
The mortgage market itself, however, seems to be in fine fettle, with lenders mostly all in a good place and eager to lend. It will be interesting to see whether they continue to improve criteria as Covid moves from being a pandemic to being endemic, and whether we will finally see the stress-test hurdle reduced.
Some lenders have a clutch of interesting new products, such as Suffolk Building Society’s expat holiday-let deal, up to 80% loan-to-value. The expat market is still busy and there’s room for more lenders.
Specialist lending darling Kent Reliance has launched an enhanced range of buy-to-let rates up to 85% LTV
Meanwhile, specialist lending darling Kent Reliance has launched an enhanced range of buy-to-let rates up to 85% LTV, some with no maximum loan size.
Elsewhere there is the usual proliferation of rate rises and falls dependent on lenders managing service levels and reacting to market price changes.
TCF on steroids
In the regulatory world, whereas 10 years ago we were talking about how well the Mortgage Market Review was going, this year’s angst is directed at the new Consumer Duty. The aim is to set a higher expectation for the standard of care that firms give consumers, which is, of course, an excellent aim.
This year looks as if it is going to be very interesting
Many brokers’ initial response is, ‘We do this anyway,’ but look carefully and it could be seen as Treating Customers Fairly on steroids! For some firms, this will require a significant shift in both culture and behaviour, a ton more paperwork, cost, and not much time to do it.
Meanwhile, firms that behave badly will still behave badly while the good ones will still be good but have an even tougher time doing so.
Speaking of culture, with Financial Conduct Authority staff on the verge of strike action themselves, there seems to be a need for some inward-looking action before setting up even more regulatory costs for a mortgage market that is working well, with customers experiencing good outcomes, day in, day out.
So there you go. May this year be great for us all.
Hero to Zero
2022 – full of bright hope and the prospect of success for all in this fine industry
Ami’s continued work on diversity, equity and inclusivity – it is so important
Danske Bank entering the UK market with its carbon-neutral mortgage for residential homes
It’s a shame to see Masthaven Bank withdrawing from the UK banking market and we wish everyone there well
Rapidly escalating building insurance premiums on high- and medium-rise blocks of flats caused by the cladding scandal
Boris – surely there is little authority left now?
You Know What Really Grinds My Gears?
It is interesting to reflect on the past 10 years and the huge amount of change we have seen in that time. Although we are facing the same old battles with some adversaries, I definitely think we have improved a lot as an industry.
Coming out of the credit crunch was the main aim for many and since then our relationships with lenders have improved massively, with communication between manufacturer and distributor at an all-time high.
Likewise, a decade ago we would not have dared, perhaps, to launch an industry-wide look at the topic of diversity and inclusivity, or to talk openly about some uncomfortable truths in our industry; nor have been so open about the state of mental health. We have a long way to go, but we need to recognise the positives.
But some things do remain the same. Like the conveyancing process. Like the fact that technology has not yet really enriched the homebuying journey from start to finish, though it is getting closer. Like our familiar dance with regulators who do not seem to trust that our industry is working well; and endless talk about increasing fees and regulatory costs.
We are getting there, but there is always more to do, and we must not stop until our industry is recognised by all as being the shining light we know it can be.
