Lessons for the industry from a year of change

Much has been written about what 2023 would hold in store for the mortgage market, after the turmoil experienced last year.

As we approach the end of Q1, it is certainly worth taking a moment to reflect on the key lessons learned, and how these are being carried forward.

Vikki Jefferies, proposition director at PRIMIS,  a long established mortgage and protection network, noted that in 2022, the turbulent economic environment saw the base rate level rise to its highest in 14 years, culminating in the rise of complexities in borrower cases, as well as affordability issues.

“Meanwhile, new Consumer Duty regulations and the increased use of technology meant the role of professional mortgage advice changed significantly last year,” said Jeffries, “requiring brokers to be more on hand than ever before to provide excellent customer service and the best outcomes to meet their clients’ ever-evolving needs.”

Interest

The Bank of England increased the base rate eight times last year, as inflation continued to soar and households struggled with record high energy costs and other household bills.

“While these increases were, for the most part, priced into mortgage rates, it was the Liz Truss administration’s disastrous mini-Budget which severely rocked the market,” said Jefferies (pictured).

Indeed, she added that lenders struggled to keep up with the ensuing fluctuations in swap rates which became increasingly volatile.

Many were forced to remove and reprice fixed rate products, and the price of fixed rate deals rocketed, Jefferies said, with 40% less deals on offer, consumers started to panic, only increasing instability in the market.

Since then, the market has begun to correct itself, she said, with rates falling through the end of 2022 and into 2023, in line with swap rates.

“The variety and number of products on the market has also recovered, as both lenders and brokers worked to bring confidence back into the market,” Jefferies said.

Yet, with the Bank of England’s recent financial report predicting that approximately a third of mortgage holders will face monthly repayment increases of more than £100 by the end of 2023, Jefferies said this highlighted the need for greater support for homeowners and brokers alike in the coming months.

Affordability

Throughout 2022, the successive Bank of England interest rate rises and ongoing cost-of-living crisis compounded the affordability issues facing first-time buyers in particular.

As a result, Jefferies said many buyers chose to wait for more favourable market conditions before making a purchase.

“2022 saw the number of first-time buyers fall 9% year-on-year, as the average price of first-time buyer homes rose 10% to £272,500,” she said.

As 2023 progressed, Jefferies said affordability was becoming tighter and, as a result, she believes more needed to be done to give first-time buyers a leg up onto the property ladder.

Borrowing

Due to mounting cost-of-living pressures and rising affordability issues, Jefferies said the mortgage advice sector had to deal with increasingly intricate borrowing needs last year and a growth in the number of vulnerable customers.

Jefferies added that the rise in complicated cases also reflected the growing complexity of the mortgage market, as lenders reduced the number of products in their portfolio, before increasing them again towards the end of the year.

“Brokers therefore played an even more integral role in helping consumers with convoluted financial circumstances find a mortgage product,” she said.

Jefferies said brokers guided customers through this period by acting as quickly and proactively as possible, to help them find and secure the most suitable deal while it was still available.

Drawing on their wealth of resources and their access to a broad range of products, she said brokers enabled customers to lock into appropriate, affordable products before time ran out.

Brokers who were part of a network had the additional benefit of a support system to help them manage borrowers’ changing needs, she reasoned.

“Markets are showing signs of normalising, however as we continue to navigate unchartered economic waters, brokers may benefit from joining a network in 2023 in order to more easily and efficiently access the tools they need to support their customers amid ongoing unpredictability,” Jefferies said.

Consumer Duty

Alongside handling the vast array of intricate borrowing needs last year, Jefferies said brokers also had to consider their approach to what will be one of the largest regulatory shake-ups of the past 10 years.

The Financial Conduct Authority’s (FCA) new Consumer Duty will have a huge impact on the mortgage and housing industry when it comes into effect in July 2023, increasing the regulation for mortgage lenders and brokers in relation to both existing and prospective mortgage customers.

“With two-thirds of banks and building societies stating that they would not have been compliant if the new regulations had been in place in 2022, a lot of time and preparation on the part of lenders and brokers is still required if they are to meet the July 2023 deadline,” Jefferies said.

The obligations which will come into force under the duty relate to four outcomes; products and services, price and value, consumer understanding and consumer support. The scope of the regulation, and therefore the associated workload, Jefferies said, was huge.

“However, by prioritising the consumers’ needs in response to Consumer Duty, the mortgage market will ultimately become even more customer-focused and, despite the extra workload, will be better positioned to cater for complex borrowing circumstances,” she said.

Technology

With brokers playing a central role in borrowers’ mortgage journeys and approximately £100 billion mortgages maturing towards the end of 2022, Jefferies said the role of technology expanded to keep pace with the swelling demand.

“Last year saw more and more brokers using a wide range of technological resources to manage demand and drive efficiency,” she said.

Jefferies referenced that throughout 2022, successive interest rate rises, affordability issues, new Consumer Duty regulations and increasing complexity in the market presented many challenges for the mortgage industry.

However, with these hurdles and the expanding role of technology, Jefferies said mortgage advisers had the opportunity to support clients in unique ways, thereby cementing their customer relationships.

“Despite the market showing signs of calming, as we continue to navigate choppy economic waters, in 2023 brokers will need to continue to act proactively, speedily and efficiently to help their customers access the most suitable products, in good time,” she said.

What key lessons did you learn from the mortgage market last year? Let us know in the comment section below.