It has been an interesting start to the year, with the mortgage market – perhaps as per usual – full of contradictions, certainly when it comes to certain perceptions of it, and predictions made for it.
On the one hand, from our perspective, there is a normality returning to the sector, certainly in terms of activity but also rates and clients’ acceptance of what mortgage finance now costs.
Of course, anyone remortgaging this year is most likely going to see their monthly mortgage costs increase, but residential rates continue to inch down, even as Bank Base Rate is likely to be moved up again this week.
The irony is that perhaps as BBR hits 4%, five-year mortgage rates look likely to go below this level. We already have a 4.19% five-year fix from Santander available and it seems inevitable that one mainstream lender will drop their offering below the 4% level soon, at which point others will follow.
Again, this is a long way from Autumn 2021 when you could pick up a five-year fix below 1%, but in what world would we count this as normal for the mortgage market?
We have lived in an aberration of a mortgage world for the past decade in which rates were historically low due to series of events – Credit Crunch, austerity, Brexit, the pandemic – all contributed to the need to keep rates low, but clearly as inflation has become the number one economic issue to be tackled, that ability to keep rates where they have been was no longer sustainable.
Indeed, there is a very good argument to suggest the Bank waited too long to act, and that weaning the UK mortgaged public off such low rates sooner would have been far more desirable than waiting until the start of 2022 to act.
However, from a rates point of view, ‘history’ is now righting itself and the rate environment we are moving into is much more in keeping with the norms of the past.
Rates for some mortgage products however are still not where they should be, and we’re seeing that particularly in terms of shorter-term fixes – an area lenders have struggled with over the past four to five months, unsure of what they should be doing or indeed what rates they should be offering.
The two-year fixed-rate market is still to recover from the ‘Mini Budget’ but the signs now point in the right direction. Two-year swap rates are (at the time of writing) below 4% and they haven’t been there for six months, so you can see that current product rates are still higher than they should be.
Action here from one or two lenders will – as per usual – lead to a raft of others following suit, particularly in this current market where we suspect lenders have had relatively slow starts to the year, and will be working out how they can up their business levels.
There have been plenty of suggestions that whatever lenders do with rates this year, it is likely to be a subdued market, particularly for purchasing.
However, again from our perspective, the demand is there – we have worked recently with clients who have said they are competing with a number of other buyers on certain properties, and the ‘baked in’ falls in house prices that many indices/economists have predicted, might not be so baked in after all.
Rightmove’s recent asking house price index actually showed an increase in January – something most commentators said was almost impossible.
But the fundamentals remain what they are – low supply of property to purchase, demand to buy still strong, mortgage finance readily available for those with the deposit and who can meet the affordability, and as mentioned, an acceptance that if they want to buy, then they will need to accept the rates currently available.
Given that, will house prices fall off a cliff? It’s highly doubtful.
There may be an element of certain potential purchasers waiting a little to see if rates do continue to track downwards, but we anticipate that by middle/end of February – with BBR changed and unlikely to be increased significantly again – we will have much greater certainty on rates to allow product changes to take place and to have a settled mortgage picture for the rest of 2023.
And, lest we forget, lenders need to bring in the business. We are already a fair way down the track from Autumn last year; we will move further and there is no reason to think the rest of 2023 can’t be a strong year for advisers’ business levels, particularly if we continue to take market share.
This is an increasingly stable market and we should be able to take advantage of that for both our own businesses and our clients.
Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services, the mortgage and protection network.
