The UK Mortgage Market in 2023: What does the uncertain outlook for the UK property market mean for mortgage brokers?
A culmination of factors in 2022 has created an uncertain and potentially volatile situation in the UK housing market. This is likely to continue in 2023 and beyond. However, there are still opportunities for proactive mortgage brokers.
We’ve reviewed the current state of the mortgage market to explore what this uncertainty means for mortgage brokers and what we expect to see over the next 12-18 months. What steps are likely to be taken to stabilise interest and mortgage rates? What will the housing market look like in 2023 and beyond? Keep reading to find out more.
What Has Led to the Current State of the UK Housing Market?
Although a long time in the making, one of the primary drivers of the current state of the UK housing market is the combination of historic levels of demand with low levels of supply of available properties for purchase, especially for first-time buyers. Consequently, this has driven up the values across the country, although it is felt especially acutely in London and the South East.
Rising Interest Rates & the Cost-of-Living Crisis
Although demand has outstripped supply for some time, 2021 and 2022 saw high inflation and stagnant wage growth. This was further exacerbated by Brexit, Covid-19, global supply chain issues, and rising energy prices driven by the war in Ukraine. Consequently, the Bank of England has raised interest rates to around 4.5%, when they had been around 0% since the financial crash of 2008. When the Truss-Kwarteng mini budget did nothing to settle the markets, many providers simply pulled their mortgage deals from the shelves.
Average incomes have not been increasing in line with inflation, and mortgages are becoming more expensive for both homeowners and buy-to-let landlords. Therefore, it’s expected that 2023 will be a challenging year for mortgage brokers, although not one without plenty of opportunity.
What Can Mortgage Brokers Expect to See in 2023?
Although November and December 2022 saw decreases in average UK house prices, Rightmove suggests there have been early signs of recovery, with a 0.9% increase in January 2023.
They also report that there has been a 4% increase in would-be buyers contacting estate agents in January 2023 compared to the same month in 2019. There has also been a 55% increase in the same metric for the first two weeks of January 2023 compared to the two weeks before Christmas 2022. Finally, the 5th of January 2023 was Rightmove’s third busiest day on record for people booking home valuations.
Tim Bannister, Director of Property Science at Rightmove, says:
“We expect that the full effect of affordability constraints and last year’s mortgage rate rises will hold back some segments of the market in the first half of the year, but our leading market indicators may start to identify some green shoots of growth that will go on to strengthen in the second half of 2023.”
The Mortgage Market forecast for 2023 and 2024 by UK Finance suggests that mortgage lending trends returned to pre-pandemic trends in 2022. However, mortgage brokers can expect that the UK mortgage market will experience a period of relative weakness. There are certainly challenges in the marketplace, but opportunities still remain for those who seek guidance from the right firms with the right strategies.
UK Finance expect that:
Overall, mortgage lending will fall by 15% and return to pre-pandemic levels.
Cost-of-living pressures and rising interest rates affecting affordability are predicted to cause a 23% decrease in lending for house purchase mortgages.
New lending to buy-to-let landlords is predicted to fall 27% in 2023.
Property transactions are predicted to fall by 21% next year.
The high number of fixed-rate deals coming to an end in 2023 is expected to lead to an increase in refinancing.
However, product transfer activity may strengthen due to the high level of activity during the 2021 Stamp Duty holiday. Many of these borrowers will be due to refinance in 2023, and the overall economic outlook may put pressure on households to seek alternative options. Some may have even seen their property decrease in value over the period and may now fail affordability tests.
For mortgage brokers, this represents an opportunity. Borrowers are likely to require the services of a broker to take advantage of interest rate changes and secure the best deal. Either way, expect the first half of 2023 to contain more uncertainty.
Stabilising UK House Prices in 2023/4
Efforts have already been undertaken to stabilise the UK housing market, and we can expect to see these continue through 2023. Whether they will be successful remains to be seen.
We can expect to see further changes to interest rates, and it’s expected for average house prices to fall by anywhere between 5% and 15%. As part of Kwarteng’s September mini-budget, cuts were made to Stamp Duty in an effort to make houses more affordable. Jeremy Hunt’s subsequent autumn budget kept these tax cuts in place until April 2025.
Experts believe that the Bank of England will continue to raise the base rate as they did through 2022. However, competition between lenders and reduced inflationary pressures such as from Covid and the war in Ukraine is expected to lead to mortgage providers reducing their own rates.
It’s possible that the Bank of England will reduce the base rate at some point in 2023, easing pressures on the mortgage market for lenders, brokers and borrowers. However, it seems very unlikely that interest rates will return to anything like their pre-pandemic levels; something lenders and brokers will have to get used to.
It is likely to be an uncertain few months as the downturn from 2022 continues, with increasing interest rates and a turbulent market. However, the signs of recovery may start to be evident in Q3 and Q4 of 2023. Brokers who have forged good relationships with clients will be in a sought-after position; lenders still want to do business, and clients are likely to be looking for trusted guidance. Those that can gain a great understanding of investors’ needs while offering specialist, customised products will be able to capitalise on the opportunities that do exist and emerge from 2023 in great shape.