As it always does, another Christmas has passed in the blink of an eye, and as the festive period drew to a close, we raised a glass as we left behind many may describe as a turbulent year.
Some will have used recent weeks as an opportunity to consider how best to prepare for 2023, whilst taking a moment to reflect on the lessons learnt during 2022.
Reflections
It cannot be disputed that 2022 was a challenging year for the entire mortgage industry, carrying with it a sense of unyielding insecurity. With a shortage of housing stock, rising inflation, and a revolving door of Prime Ministers, at times it felt the only thing certain was more uncertainty.
We are unlikely to forget how former Chancellor Kwasi Kwarteng’s mini-budget shook the economy. His plan for excessive tax cuts, in an attempt to stimulate economic growth, backfired, and the pound fell to a record low. Mortgage rates rocketed as financial markets became incredibly volatile. Despite Kwarteng’s replacement, Jeremy Hunt, attempting to stabilise the markets with the reversal of almost all of Kwarteng’s plans, rates are still yet to fall to below pre-mini-budget levels.
However, the mini-Budget cannot be held solely responsible for the disarray within the mortgage industry during the last year. War, inflation, and the cost-of-living crisis were also at the root of the widespread uncertainty across the market. Banks struggled to anticipate what would come next, and with the demand for property far outweighing the stock available, the volatility that ensued resulted in product ranges changing almost daily.
Consumer behaviours
2022 saw interest rates soar at record pace and, with affordability being stretched to the limit, buyers made quick decisions, keen to lock in rates before they rose further. After examining the impact of market conditions on the behaviour of buyers, we unveiled the market’s first House Pace Index. Our research tells us that, during 2022, 48% of properties received an offer within one day of being on the market, and 40% of people made an offer having viewed only two properties. This data demonstrates how buyers are acting in unprecedented ways to secure a home.
The trend that the House Pace Index has highlighted closely follows trends we were seeing before the pandemic. This suggests the shift in attitude from consumers towards the property market is, in fact, long-term. We live in a world where consumers are accustomed to making purchases within a matter of minutes; it is no wonder people want the same when it comes to securing a house. However, with consistently fluctuating rates, the window of availability on mortgage deals is shorter than ever before, and brokers simply cannot keep up. Around half of the offers made are, sadly, falling through.
2023: What we can expect
During the final months of 2022, we saw UK house prices, finally, begin to fall, and we expect this to continue into this year. Jeremy Hunt’s decision not to discard Kwarteng’s cuts to the Stamp Duty Land Tax informs us that the government is serious about tackling the issues facing homebuyers. However, despite this support, we anticipate that with the Bank of England base rate now standing at 3.5% (as of 15th Dec 2022), the ongoing cost-of-living crisis, and mounting energy bills, the pressure on new mortgage affordability will continue to increase. As a result, we will potentially see a decrease in the demand for new house purchase mortgages.
On the other hand, what we will see this year is around 1.8 million homeowners with fixed-rate mortgage due to expire, 36% more than during 2022. With the same affordability issues facing current homeowners as first-time buyers, we anticipate many of those with expiring fixed-rates will want to remortgage to avoid costly product transfers.
Helping consumers
Now, more than ever, supporting both homebuyers and homeowners is a priority. Lenders should be adaptable, altering mortgage products to suit the requirements of consumers. Since our launch into the prime residential mortgage space last year, we have continually evolved our proposition, ensuring we meet the needs of as many consumers as possible. We’ve onboarded a plethora of new partners, increased our LTV to 85%, and now offer three, seven and ten-year fixed rates. We also offer a free valuation on every application and cashback options, as we understand how these features can be integral for consumers who are already under financial strain.
At MPowered Mortgages, we are all too aware of the issues stemming from the combination of recent consumer behaviour, the outlook for this year, and the lack of speed and certainty within our industry. This is where our core focus of delivering better customer outcomes by offering a smoother mortgage journey is crucial.
Technology
Currently, brokers are wasting precious hours keying in mortgage applications on systems that are not equipped to handle the existing demand or crippling time pressure. As well as utilising our business relationships to try to give brokers ample notice of any product changes, at MPowered, we know that making the application process simple, streamlined, and automated will offer everyone stability.
Our revolutionary mortgage origination platform harnesses the power of smart technology and AI to make the mortgage process as efficient, swift, and certain as possible for homebuyers. Simpler user journeys, instant document verification, automation, and affordability models built on data are allowing us to facilitate this. We are removing time consuming tasks from mortgage applications and replacing them with a quicker, more sure options, allowing brokers to spend longer responding to market updates, giving advice to their clients, and securing further business. The popularity of AI is guaranteed to grow as more brokers provide their clients with control and assurance, increasing customer confidence.
Inarguably, the Covid-19 crisis accelerated the implementation of technology in the mortgage market; however, even before the pandemic, we were witnessing an economic shift towards digitisation. Many other sectors were embracing and adopting new technologies to increase operational efficiencies and improve results. Looking to 2023, it seems inevitable that this is the direction in which our industry is heading.
In America, AI and data-fuelled systems are becoming more conventional and are establishing stability in the U.S. mortgage market. Clearly, the way forward is to innovate. Technology will allow the whole mortgage chain (advisers, lenders, buyers, conveyancers, underwriters) to work collaboratively, and it is this improved integration that will help provide homebuyers with the security they need during a time when consumer budgets are being stretched to their limit.
The recent Consumer Duty publication is a reminder to all firms that we must be customer centric, and technology is, unquestionably, fundamental to delivering the best customer outcomes.
We will continue to develop our technology, ensuring processes are in place to provide consumers with some highly sought-after certainty throughout the buying or remortgaging process during 2023.
Emma Hollingworth is managing director of mortgages at MPowered Mortgages
