Mortgage Market Update
Richard Howes
17 February 2023Of course there are headwinds, but in the main no one area is falling off a cliff as sellers, buyers, advisers, lenders and distributors start to navigate this intriguing of years for the industry.
The signs are 2022 finished really strongly potentially going well over the £300Bn mark which when one then adds on the Product Transfer market makes 2022 commercially really strong for all of the groups mentioned above.
The signs from January leave many to be cautiously optimistic that, whilst we will be operating in a smaller market, there are opportunities and business can and will be written.
A snapshot of various areas involved in the market allow such a view:
- ESIS requests from Twenty7Tec (who have 33% of the sourcing market) in January show requests breached the 30,000 mark in 4 out of 5 weeks, where 30,000 is seen as an excellent return. Indeed, in 2022 (which was a phenomenal year for lending), the 30,000 mark was only breached 12 times in total.
- Their figures also show the resilience of the purchase market, with the average of all requests being 52%, higher than Remortgages at 48%, and fixed rates are climbing again in broker recommendations at 83%, where after the mini budget they had dropped to 73%.
- Halifax reported UK house prices were unchanged in January, compared to the previous month and the annual rate of change was 1.9% compared to 2.1% the previous month.
- There were 1.2m transactions last year, with expectations for 2023 to be at 1.1m. Prior to the recent bounce in the housing market, there were traditionally 1m transactions per year with 70% of those requiring finance. So again, there are signs that the market will continue to be resilient. The share of lending through mortgage advisers in 2022 was 82%, IMLA report this figure in 2023 will grow to circa 85%, and rising again to 90% in 2024.
- Rightmove reported that house prices had rebounded in January, providing further confidence to any metrics – however, it’s worth noting that this is not house prices but asking prices. Nevertheless, it does play to the cautiously optimistic narrative.
With Help to Buy now having ended, it is interesting to see how the New Build sector is responding given it acts as a reasonable guide to future performance, as it feeds and fuels the First Time Buyer market which in turns gives impetus to the rest of the market. Three of the main builders Bellway, Barrett, and Redrow reported their private reservation rates were down in Q4, but January 2023 started to move upwards.
It was interesting to note the reaction from the markets to the recent Bank Base Rate increase, where Lenders had already priced this in, and then proceeded to drop rates against the BBR rise! However, one can’t help but think that commercial pressures are forcing many Lenders to forgo margin, (or pay it back when they made excellent returns last year when putting rates up to try and stall run rates into them). Thus, the week of 6th February saw rates starting at a 3 with some Lenders. It will be interesting to see if this trend continues as another rise in the BBR appears to be expected given the BOE has restricted levers to control inflation and they do not appear to be working as fast as required. Indeed, average quoted rates, (those available in the market) fell from their previous highs though are still well above rates this time last year. The spread between rates on high vs. low loan-to-value ratios has also increased though is smaller than January last year.
The overall buy to let market continues to cause concern, with any signs of a revival being very slow as Lenders continue to battle to make cases fit against stress rates. It appears a 5% interest rate could be the lever that starts the market moving, but there are few Lenders able to price at this level currently.
The split between the amateur landlord and the portfolio landlord, and who is better positioned in this market remains, as reports suggest that the amateur landlord will be selling up, but actual data confirming this - as opposed to anecdotal evidence which suits the authors narrative - is hard to find.
Interestingly, in a move seen as potentially helping this market, MPs have called for a review of the recent tax changes on the buy to let market and said changes need to be made to make buy to let more financially attractive to smaller landlords. In the Levelling Up report, the Housing and Communities select committee provided a number of recommendations in response to the Government’s proposals on reforming the private rented sector, so perhaps it may get a “bounce” from this.
What is true is that this market needs advisers more than ever and we are working hard to provide ideas and motivation at our online and face-to-face events to help support our members in this area.
https://www.paradigm.co.uk/CPD/events
The Product Transfer market continues to grow; interestingly IMLA reported in their end of year note, the number of product transfers has been on a rising trend since 2015 while the number of re-mortgages has been broadly flat. While in 2015 there were two product transfers for each re-mortgage, by 2021 there were nearly four. However, 2022 saw a reversal of the trend with re-mortgage levels coming back, as rising interest rates encouraged borrowers to shop around more, with product transfers falling back.
Will 2023 be the time advisers can retain more in Product Transfers than those lenders that offer them? As this is the last piece of the jigsaw in terms of the strength of the intermediary in the mortgage market.
With intermediary share expected to grow to around 90% in 2024 of advised mortgages, this figure is much lower when it comes to advising existing clients of their options as their fixed rate comes to an end and effecting a Product Transfer.
Technology, I believe, is key here in terms of providing a simple but effective service to start the customer engagement from month one of when the client completes their mortgage. A simple client login or customer button on your website not only helps your journey into consumer duty, but allows your new client to feel special and well regarded, as well being informed and educated during their journey with you the adviser.
As Charles Darwin is quoted: “It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change.”
There are so many customer engagement facilities available it is wise to get extra council to enable a clear decision to be made as mistakes can prove to be expensive, which is where clubs like ourselves can help.
As always, Paradigm are here to help and support our intermediary member firms. We are committed to helping you grow and develop your business, identify sales opportunities, create new revenue streams, protect your business against risk, seek to innovate and introduce technology and more. Please don’t hesitate to get in touch if you’d like to understand how we can work with you in 2023.
