From base rate predictions, lender tactics on pricing, growing remortgage and product transfer activity and the ongoing struggles of the buy-to-let market, next year already looks jampacked.
Base rate to hit 4.25 per cent and bring more stability
The majority of brokers said they expect the Bank of England base rate to hit a peak of 4.25 per cent, which they hoped would bring more stability to the fixed rate mortgage market.
This in turn, most brokers believed, will lead to rates between four and five per cent, but it may take a while to get to that level.
Gary Boakes, director at Verve Financial said: “Speaking to a number of BDMs, lenders are now already priced ahead and have their strategies next year based on a 4-4.5 per cent base rate and similar swap rates, so I’m expecting the rates to be fairly stable next year, which will be welcome.
“Unfortunately, we are a long way away from rates being consistently below four per cent, but stability and confidence in the market is key regardless of the rates.”
Justin Moy, managing director at EHF Mortgages, said: “Mortgage rates will eventually move to a range of three to four per cent with a skew towards lower loan to value (LTV) remortgage business in early 2023. Attracting quality lower risk mortgage lending will be a priority for most lenders.”
Lenders will start year off with rate cuts
The trajectory of rates was the subject of much debate among brokers, with most agreeing that rates would settle at around four per cent.
Some said that lenders would start the year with aggressive rate cuts to secure more business.
Holly Dawson, mortgage and protection consultant at Manchester Money said: “Lenders have money to lend and will be fighting to get that money out during Q1 and Q2, so rates should be around pre-pandemic level within those periods.
“Purchase levels will no doubt drop, in some areas of the country more than others. We are still seeing the migration from South to North and some of the smaller towns and villages will still see an increase in demand.”
Boakes agreed and added: “Lenders generally like to start the year well to keep the shareholders happy, so expect Q1 to have lenders dropping rates for short periods of time to get quick business.”
Riz Malik, director at R3 Mortgages continued that lenders were going to have to “either cut margins and compete on price or innovate if they plan to grow their loan book”.
Craig Fish, founder and director at Lodestone Mortgages and Protection, said the hope was that fixed rates would settle between three and four per cent but it “would be nice to see lenders go further if possible”.
“Lenders will likely be looking for low LTV, good-quality low-risk debt,” he explained.
Fall in purchase and rise of remortgage and PT
Most brokers agreed that purchase activity would fall at the start of next year and there would be more remortgage and product transfer business for brokers.
Mike Staton, director at Staton Mortgages, said that the area of business that would see “huge growth in next year” would be the product transfer market.
He continued: “It’s about time that we saw more major lenders come on board with a full proc fee to recognise the hard work put in by all advisors to get any case over the mark, yet I expect to see several lenders once again throw brokers under the bus and cut out the intermediaries on a product transfer.”
Moy agreed that a significant percentage of mortgage would be kept via product transfers due to rates or affordability rules.
He also concurred that the role of the broker in product transfer transaction was “important” and said brokers “need to be instilling this with our clients”.
“Ideally, mortgage lenders need to make it less attractive for clients to go direct and without advice. Engage with the mortgage broker who introduced you to that client in the first place, ensure the client is pointed positively in our direction, and do not make it easy for the client to get it wrong, without advice. We end up picking up the pieces,” Moy said.
Fish also agreed that one of the biggest areas next year would be remortgage and product transfer, adding that “many clients are going to be coming off ‘never to be seen again’ low-interest rates and need tailored advice as they come to terms with increased payments”.
Buy-to-let will ‘suffer’
Many brokers agreed that the buy-to-let space would become more challenging next year as rising rates and stress tests impacted landlords.
Fish said that buy-to-let is “likely to suffer next year”, adding that this is where product transfer could “become more common”.
“It would be nice to see lenders start recommending clients speak with their original broker in advance of fixed rates ending as we are better placed to offer whole-of-market advice. Next year will be tough but busy for brokers as clients recognize the good quality advice we provide,” he noted.
Imran Hussain, director at Harmony Financial Services, agreed that there would likely be a “drop off” in buy-to-let from “inexperienced or first-time investors” who would look to dispose of properties as they became more expensive to maintain.
Affordability will continue to be a challenge
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said that affordability would be a challenge in the coming year, and this would be the case for residential and buy-to-let cases.
He explained that due to the rising cost of living, lenders’ affordability models have become more constrained as they are based on ONS figures of energy and food.
“It will mean lower potential loans for any given income,” Taylor-Barr said.
He added that this was similar in the buy-to-let space as landlords were struggling to increases rents to “keep pace with the requirements of lenders to pass their interest calculation ratio (ICR) tests”.
This is a trend that has already been noticeable this year, but with many people coming to the end of their deal next year and unable to pass affordability tests they may opt for product transfer as opposed to remortgage.
High LTV loans may become scarce or more expensive
An area that might see some drop off could be higher loan to value loans, and consequently first-time buyers.
Graham Cox, director at Self Employed Mortgage Hub, said: “The biggest drop-off next year will be with first-time buyers, because I think 95 per cent loan to value (LTV) deals will be hard to come by.
“Lenders and borrowers will get cautious as house price falls accelerate. The best thing lenders and the government can do is let them fall, and stop trying to extend and pretend with longer mortgage terms, guarantee schemes and all the rest of it.”
Taylor-Barr added: “We tend to see lenders withdraw from smaller deposit mortgages when there is a fear of house prices falling, this could be minimal and maybe it’s just five per cent deposit deals are at risk, but it could impact 10 per cent deals too if prices fall further.”
More debt consolidation and adverse credit
Lewis Shaw, owner and mortgage broker at Riverside Mortgages, said he was predicting a “massive surge” in debt consolidation remortgaging as people “look to clear down their balance sheets, free up some much-needed disposable income and try to get their finances on a more stable footing now that the era of cheap money has ended”.
He added that he expected an uptick in adverse credit issues as people fall behind on payments due to the cost of living crisis.
“If I were a broker that wasn’t familiar with that part of the market, I’d be brushing up my knowledge over the festive break ready to contend with whatever curve balls 2023 decides to throw at us,” Shaw added.
Amit Patel, adviser at Trinity Finance, agreed and noted that this would bolster the second charge market as people look to consolidate their debts.
