At the beginning of 2022, the watchwords for many in the industry were hope and optimism. However, by December, those had been replaced by expressions such as swap rates, Autumn Statement and mini Budget (often preceded by the word disastrous).
Other key phrases that marked out last year included base rate, affordability and gilt yields. Several of these have carried over into 2023. Here we reveal the others that could define this pivotal year in the mortgage market.
1. Price reductions
The first major house price survey of the year from Nationwide reported that values had fallen for a fourth straight month and the building society’s chief economist Robert Gardner noted that the downward trajectory was likely to continue.
He said: “The risks are skewed to the downside, but there is still a good chance that we can achieve a relatively soft landing next year with activity stabilising modestly below pre-pandemic levels and house prices edging lower, perhaps by around five per cent.”
And advisers are very much in agreement.
Riz Malik, director at R3 Mortgages, said: “My [first] watchword for 2023 is down valuation. There will be less data to justify property price expectations in the current environment as the number of completions declines.”
Others have a bleaker outlook on where housing prices may land this year.
Lewis Shaw, owner and mortgage broker at Riverside Mortgages said: “[There will be] substantial downward pressure on house prices and a lack of market activity as homeowners arrive at the sullen conclusion that the party of free money is over and their property value has been a chimera.”
2. Consolidation
Given the cost of living crisis (another vintage 2022 phrase you’re likely to be hearing a lot of in 2023), several experts believe that debt consolidation will be on the minds of borrowers.
Indeed, in December, our sister title Specialist Lending Solutions reported that debt consolidation was driving second charge borrowing as Evolution Money found that two thirds of second charge borrowers were using the cash released for debt consolidation only.
And at a Supper Club meeting in November, many speakers felt that brokers would be expanding into the debt counselling arena and giving advice on consolidation among other pieces of budgeting advice.
R3 Mortgages’ Malik added: “My [second] watchword for the year is consolidation. Given the cost of living crisis, those refinancing this year may also take advantage of the opportunity to consolidate their outgoings in order to reduce their monthly expenditure.”
3. Affordability
Affordability is an ever-present in the market’s lexicon but it’s likely to be in bold, italics and 36-point font this year. Indeed, a recent report from UK Finance noted that affordability issues were likely to soften the mortgage market in 2023.
And this morning, Rightmove also noted that that buyer affordability would likely be more stretched.
Justin Moy, managing director at EHF Mortgages, said: “My watchword is affordability. Will lenders allow you to borrow more than you can now? How will they deal with background debts and other commitments? Will we see more borrowers take longer products that might allow you to increase your budget? Will the size of the deposit be a significant price influencer?
“Lenders tell us they have plenty of money to lend, this is now about juggling all those variables to make the mortgages ‘affordable’.”
4. Self-employment
That lack of affordability could hit the self-employed hard. According to latest Mortgage Broker Tools (MBT) Affordability Index, affordability for self-employed customers has dropped to its lowest level since records began.
The report found that only 65 per cent of self-employed mortgage enquiries were considered affordable at the end of 2022, according to data based on thousands of searches.
Meanwhile, more than three-quarters, 77 per cent, of respondents to a study from lender Pepper Money felt that being self-employed made it more difficult for them to be approved for a mortgage.
Austyn Johnson, founder at Mortgages For Actors, said: “Self-employed people will be looking for help. Lenders will be watching the market and if unemployment rises, more people will head towards starting their own businesses. Lenders will need to find ways to help out new companies and new self-employed people.
“Keep in mind too that lenders will be doubly checking the plausibility of certain trades and employments. If the cost of living starts to affect SMEs, they may need to lay off or reduce the hours of staff.”
5. Specialist lending
The downturn in affordability and the rise in self-employment could lead to an upturn for special lenders. Indeed, late last year, Specialist Lending Solutions noted that second charge lending in 2022 hit £1.61bn, marking the highest annual figures since 2007, according to data gathered by Loans Warehouse.
Amit Patel, adviser at Trinity Finance, said: “[My watchwords] are specialist lending. Why? Because more and more borrowers will no longer fit the criteria of mainstream high-street lenders due to credit blips or because they are self-employed and have only one-year trading accounts.”
6. Remortgage
This week, Mortgage Solutions reported on a survey from Paragon, which revealed that over three quarters of respondents thought remortgaging would be the ‘strongest driver’ of business over the next year.
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services noted that while housing activity was likely to drop, remortgages will rise.
He said: “When mortgage costs increase, as they have done now, we see a fall in activity in terms of those looking to buy houses, but an increase in activity from people looking to remortgage – as they are more conscious than ever to ensure they are getting the best deal they can to limit the increase in costs they are inevitably seeing to one of their biggest outgoings.”
7. Swap rates/base rate/gilt yields
Last year, readers of Mortgage Solutions couldn’t get enough of stories about base and swap rate moves. And that is likely to continue.
Today, we reported that economic think tank Oxford Economics has forecast that base rate would reach a terminal limit of four per cent and stay at that figure for the rest of the year.
Meanwhile, in a separate report this week, Deutsche Bank predicted that the bank rate would reach 4.5 per cent.
It said: “We expect a further 50 basis point (bps) hike in February, before a further downshift to 25bps hikes in March and May, taking bank rate to 4.5 per cent – what we think will be the peak in the current hiking cycle.”
Lewis Shaw said: “[Two of my] watchwords for 2023 will be gilt yields and swap rates. With inflation still in double figures and the Bank of England mandated to bring that under control, they only have one lever to increase the base rate. And when the base rate rises like all rising tides, it lifts all boats; even the ones not directly tied to the base rate.”
8. Pivot
The last watchword of the year is slightly different from those above and comes from Samuel Mather-Holgate of Mather and Murray Financial. However, it is still very much linked to the base rate.
He said: “The word is pivot. That will come when the Bank of England, and other central banks, realise they have inflicted enough pain on homeowners and decide to give them a break by reducing rates. However, freezing rates doesn’t count, so don’t expect the pivot until September.”
So, what do you think? Any other watchwords we have missed out? Please add them below and we’ll update the feature accordingly.
