It’s no exaggeration to say that 2022 was something of a rollercoaster.
From a steady – but constant – rise in base rates to September’s disastrous ‘mini budget’, we were certainly kept on our toes.
With that hopefully behind us, we took a look at what might happen in 2023.
Slowdown in base rate rises
Nine consecutive rate rises since December 2021 dominated the headlines, taking base rate to 3.5 per cent by the year end, and borrowers will be concerned as to what comes next.
The first Monetary Policy Meeting of the year is on the 2nd of February and it is highly likely that the base rate will edge up further.
By how much is another question, although taking base rate to anything between 4 and 4.25 per cent seems possible.
It could well be that we start to see a slowdown of consecutive increases with less frequent but steeper hikes.
If that does happen, it would not be a surprise to either lenders or buyers.
As we become accustomed to the idea that borrowing is going to be more expensive for the foreseeable future, prospective buyers will need to manage their expectations in relation to affordability and monthly mortgage payments.
Confidence returning to the mortgage market
After the mortgage market was upended in September, with 40 per cent of products withdrawn in the wake of the ‘mini budget’, a sense of stability is returning to the industry as high-street lenders such as NatWest reduce rates across their residential and buy-to-let mortgage ranges.
This should, in turn, help restore confidence among buyers.
There is, of course, the drop in property prices to contend with but considering that annual house prices in the UK rose by 8.5 per cent in 2020 and 10.8 per cent in 2021, according to the Land Registry, any decrease should be outweighed by previous rises.
In fact, Rightmove is forecasting that the average asking price will drip by 2 per cent this year, meaning prices should still remain higher than they were in 2020 and 2021.
Confidence will be strengthened by Prime Minister Rishi Sunak’s plans to halve inflation this year. Getting this under control and reducing the high cost of living will be crucial to have markets and lenders react in 2023.
Stamp duty changes are welcome but more can be done
At MT Finance, we have long advocated for wholesale reform of stamp duty.
While the increased threshold for both first-time buyers and those looking to move onwards is welcome – despite this now only being valid until 31 March 2025 – we believe it doesn’t go far enough.
We would like to see more focus on those who live in large properties and have reached an age where they would prefer a smaller home.
Giving this sector of society an incentive to downsize has multiple benefits.
Firstly, it would help free up more in-demand properties and therefore help stabilise prices across the market due to an increased amount of desirable stock.
This would also benefit those looking to get higher on the property ladder who have seen their dream homes become further and further out of reach due to spiralling costs.
Secondly, it would allow the older generation to manage their finances during their retirement more effectively with savings being used as gifts or inheritance.
Tomer Aboody is director at MT Finance
