This year has certainly been an interesting one, politically, financially and socially and the mortgage industry has arguably reflected this turbulence more than many sectors, as markets and lenders have needed to respond to the numerous external economic and political influences.
In one recent development, this year’s latest Chancellor, Jeremy Hunt, delivered his Autumn Statement, which contained little in the way of direct impact for the mortgage industry but did seem to appease the swap markets. Within a few days, Moneyfacts reported that the average rate for a five-year fixed mortgage had fallen to 5.95 per cent, which was the first time since October that pricing has been below six per cent and, at the time of writing five-year swap rates are just over four per cent.
Fixed rate pricing may have settled, with five-year rates starting to fall, but further Base Rate rises are expected in the coming months and research from Octane Capital already suggests that mortgages now account for 22 per cent of the average household’s monthly income, up from 16 per cent at the beginning of this year.
Economists expect the impact of these rate increases, coupled with the ongoing cost of living crisis and economic uncertainty, to hit house prices and the OBR has predicted property prices to fall nine per cent by 2024.
A hardy market
However, the market is resilient, and lenders have learned to adapt, with many now taking a more data-driven approach to developing their affordability propositions. Falling house prices present an opportunity for first-time buyers and some lenders, including HSBC, have actually enhanced their first-time buyer propositions recently.
Others have remained steady in the face of economic pressures, rather than pulling products or clamping down on affordability.
It’s not just the big banks that are offering clients options.
There are a variety of specialist lenders and building societies that have recognised they no longer need to challenge on rate alone but are now able to compete with the big banks on affordability. This is good news for brokers as it means there continue to be options for their clients, but it also means they might need to work a bit harder to find the right solution. Fortunately, affordability platforms, which have grown in usage by brokers in recent years, provide a quick and easy way to review the options available from a wide range of lenders.
The Chancellor’s statement included another blow for landlords, with the reduction of the Capital Gains Tax threshold and the buy-to-let sector has probably been the most impacted part of the market as a result of recent rate rises.
Mortgage Broker Tools data shows that the average loan size offered by buy-to-let lenders decreased by almost 24 per cent between July and October this year. However, there continues to be appetite from landlords to secure the right finance and the number of buy-to-let affordability searches on Mortgage Broker Tools actually increased by 22 per cent in the same period.
Affordability is a complex subject, and it becomes even more intricate during a challenging economic environment. Lenders need to take a responsible and robust approach, but with greater analysis of data, they are also able to provide appropriate solutions based on more granular detail. As we lead into Christmas, the market may seem quiet, but there are signs that lenders are gearing up to be more competitive in the New Year – both in terms of rates and affordability options.
The right broker, working with the right tools and considering as wide a range of lenders as possible, should still be able to make the most of this diverse and multifaceted market to fulfill the needs of their clients.
