‘Why move when you can improve’, was very much the approach among large swathes of homeowners as we came out of lockdown.
In 2021 alone, nearly half of all UK homeowners – 49% – made improvements to their homes and demand for tradespeople increased by 32% compared to 2020, according to Rated People’s 2022 Home Improvement Trends Report. A spike in the cost of materials since the start of the year has in turn pushed up costs for builders and homeowners.
Nevertheless, recent research from Checkatrade shows that despite the cost-of-living crisis, almost half – 46% – of the 2,000 homeowners it surveyed intend to make changes to their home this year, with three in five downscaling their plans to smaller jobs.
Even with a tightening of budgets, homeowners have already spent an average of £2,053 this year according to its findings and expect to spend a further £2,413 in the next 12 months.
As uncertainty lingers over the housing market, we may see more homeowners opt to carry out home improvements to their property rather than move, and as such, look at ways to fund them. The increase in bills could also act as a catalyst for some homeowners to carry out energy efficiency measures.
Recent research from NatWest and S&P Global found that almost two thirds – 63% – of UK homeowners now plan to upgrade their property over the next 10 years in a bid to reduce energy bills. This has grown by over 10% since June 2021.
Given the rapid rise in mortgage rates the market has witnessed over the last couple of months, homeowners who are tied into a competitive fixed rate but looking to raise funds will be reluctant to remortgage.
With some economists predicting the Bank of England will increase base rate to around 5/6% next year, mortgage rates will inevitably get higher still. Those tied into a fixed rate – especially a five-year fix – would not only potentially incur a substantial increase in monthly costs by remortgaging but also a large Early Repayment Charge (ERC). Another option, such as a second-charge might work out cheaper.
A second-charge lender, like Evolution, may also offer the added incentive of being able to take a more personal approach to the borrower’s finances, especially if they have changed jobs or have seen a deterioration in their credit score since they last remortgaged. We are starting to see a changing market and brokers will need to be ready for this.
The latest Royal Institution of Chartered Surveyors (RICS) UK Residential Survey shows new buyer interest fell again in September, with a net balance of -36% of respondents citing a fall in enquiries. This is the fifth month in a row in which buyer interest has dropped with all regions/countries of the UK now experiencing this trend.
Sales have unsurprisingly fallen over the month, with the September figure the most negative reading since May 2020, it reports. Looking ahead, it predicts sales over the next three to 12 months will remain on a negative course.
This will have a knock-on effect across the whole market and as advisers see a fall in home mover mortgages they may start to see an increase in demand for other types of finance.
Given the expected slowdown in the housing market, we may also see a resurgence in homeowners choosing to upgrade and renovate their current homes instead of moving. Even before the hikes in the interest rate, we were seeing an ongoing demand for second-charge mortgages for home improvements.
Our last Evolution Money Second Charge Mortgage Tracker shows that between June and August this year, home improvement loans accounted for 21% of all our loans for prime borrowers, up from 16.8% in the three months previously.
We could potentially see this figure climb further given the steep rise in mortgage rates and the detrimental effect this will have on those looking to raise additional funds through remortgaging.
As the market enters a new era of increased interest rates and potentially slower home mover demand, advisers will need to be ready to help clients with their changing needs and look at a whole range of options – including second charges.
Kerri Pender is operations director at Evolution Money
