We’re a long way from 2021’s mortgage marketWe are entering a very interesting time for the mortgage market, of that there cannot be any doubt.
There are, as usual, some prevailing winds which appear to be picking up in strength, namely high, and getting higher, levels of inflation. The impact this is having on the cost of living and monthly incomes, plus of course what this means for Bank Base Rate (BBR) and whether the rises we have seen will ultimately feed into product rates, beyond their obvious impact on trackers, discounts and standard variable rates (SVRs).
At the same time, we have a highly competitive mortgage market, with the number of lenders seemingly growing each month, and an overwhelming want, and indeed need, to write business based for many on deposit reserves and the urge to get them out of the door.
Plus we have fears about stricter affordability checks being made by lenders because of the rise in the cost of living, while the Bank of England is consulting on whether lenders need to stress test to the level they currently do, or whether this could be eased.
That’s before we even get into mainstays such as the supply of new-build, the supply of property for sale, the demand to purchase, house price levels, and new catalysts such as those mentioned in the government’s recent Levelling Up Paper.
Individual borrower complexity is going to be ‘much more intense’To misquote Dorothy in The Wizard of Oz: “We’re a long way from 2021, Toto,” and those days when it was purely about dealing with demand and trying to get all those purchases completed before the end of the stamp duty holiday.
It would be a very wise, or perhaps foolish, individual who would try to pick the bones out of all that, and give you a clear understanding of what will come out in the wash. But, what it does certainly say to me, is that the individual complexity of almost every borrower, or would-be borrower, that crosses an adviser’s threshold – virtual or otherwise – is going to be more intense over the course of 2022.
Because let’s be frank here, those prevailing winds are going to be here with us for the duration. Inflation is predicted to hit 7.25 per cent by April this year, BBR will continue to be increased because this is one of the only mechanisms the Bank has at its disposal to try and counter it. Indeed, the fact that four members of the MPC voted for a rise to 0.75 per cent not 0.5 per cent perhaps tells you where we are truly at.
BBR is forecast to be 1.5 per cent by mid-2023, and inflation is not due to be near the two per cent target until the year after. Advisers are going to be dealing with, what is likely to be, a very changeable situation in the medium-term, and that is before we’ve even really got to grips with what might be the true fallout from the pandemic and Brexit.
Demand will remain strongNow, of course, employment levels are strong at the moment, wages are going up – although not in line with house prices or the cost of living – and the UK economy looks in a much better position than we had any right to expect back in early 2020.
However, this situation will need some getting to grips with, certainly by lenders who will have sales functions perhaps wanting to do one thing, and credit risk and compliance perhaps wanting to do another. ‘Twas ever this way, you might argue, but these do feel like unique times and circumstances, especially in terms of borrower affordability and what might be happening to borrower outgoings in the months ahead, and how lenders view their suitability for mortgage finance.
Of course, the central aspect of this will be clients themselves, who might well be looking at the current environment and wondering what the hell it all means for them, especially if they are trying to buy or coming up to a remortgage, or seeking a further advance, or wondering whether now might be the time to make a long-term financial decision, or have just received that product transfer offer, or really want to carry out those home renovations, or add to a portfolio. The list goes on.
Demand for all of this remains strong, and therefore demand for advice should be just as strong. Which means we really need to be marketing adviser services right now – there is really no better time to be calling on a professional adviser. Make sure consumers know this because this fluctuating and buffeting situation looks to be with us all for some time to come.