"Brokers’ advice and early engagement will be vital here, as clients rely on them to navigate this new market and the remortgaging and product transfer options available."
It has been acknowledged within the industry that the cost-of-living crisis, Russia’s invasion of Ukraine, rising inflation and the ‘mini budget’ have all affected mortgage rates and product withdrawals. The key question for brokers and lenders moving forward will be the extent to which these effects are felt in 2023.
Despite the political and economic setbacks, mortgage volumes performed relatively well in 2022, and subsequent measures, including the Autumn Statement, helped to calm the markets. However, in this new era of high rates, high inflation and falling house prices, what could 2023 hold for our industry?
Is it all doom and gloom?
With mortgage rates at the end of last year higher than many borrowers will have seen in a decade and ongoing economic uncertainty, the market is seeing a fall in demand from homebuyers. Zoopla’s UK House Price Index showed that buyer demand was down 44% in the four weeks to the 20th of November following the impact of the mini budget on the market. It’s likely that buyers are waiting to assess economic circumstances before committing to their purchase.
However, it’s important to recognise that rates are still not that high by historical standards and are even trending downwards, with average two- and five-year fixed rates falling below 6% in December 2022.
It’s also important to put these changes into context. House prices have risen rapidly over the last two years, with data from the Land Registry showing that the average price rise rose by 12.6% in the year to October 2022. Even if house prices fall by as much as 10% this year, this would only bring the market back to levels seen in early 2021. Not only that, but a fall could actually increase demand by improving affordability for first time buyers looking to step onto the ladder, so while some parts of the market may suffer more, others will continue to outperform.
Out of crisis comes opportunity
Brokers and lenders are set to face a wave of fixed rate mortgage maturities in 2023. Over half of homeowners will see the fixed rate on their mortgages end over the next three years, with over £289bn of fixed rates – both residential and buy to let mortgages – expiring in 2023 alone.
Borrowers who may have locked into a low fixed rate deal a few years ago, might be worried about fixing on a higher rate this time, particularly if their financial circumstances have changed. Brokers’ advice and early engagement will be vital here, as clients rely on them to navigate this new market and the remortgaging and product transfer options available. These changes also provide an opportunity for brokers to strengthen their client relationships by showing their support during these challenging times and helping clients find the most affordable and suitable products.
The green way forward
With environmental concerns a central issue for the property market, and the UK as a whole, we are likely to see lenders increasing their green product ranges. It is therefore essential that brokers keep up with these developments.
With an estimated 59% of property in England and Wales having an EPC rating of D or below, according to Rightmove, making energy efficient improvements could help millions of homeowners to reduce their heating bills, while ensuring their property is cleaner for the planet. Green solutions will also be crucial for landlords who face the prospect of new legislation to raise minimum EPC rating requirements to Band C from 2025 for new tenancies and 2028 for existing ones.
As a result, brokers may find themselves increasingly being asked about green mortgages. Brokers therefore need to have a strong knowledge of the different solutions that are available in this growing market. This includes products with better rates for energy efficient homes, or schemes that offer financial incentives for those who plan to carry out work that improves their property’s energy efficiency rating, such as Coventry’s Green Together Reward.
Staying up to date with new products will also be crucial to meeting brokers’ wider responsibilities under the FCA’s new Consumer Duty, which requires brokers to invest their time, finances and effort to provide the best possible solutions for their customers.
Whilst 2022 was an unusual year for the mortgage market, the hurdles that the industry has overcome not only prove our sector’s resilience, but also that both brokers and lenders are ready to face the challenges of 2023 head on and make the most of the opportunities available.
