Experts discuss how the mortgage market is evolving in 2023
The number of mortgage approvals rose in February, breaking the five consecutive month trend of declines, according to the latest Bank of England data.
However, when looking at mortgage market activity, it is always advisable to take a longer-term view for more accurate results, in the eyes of one expert.
Danny Belton (pictured), head of lender relationships at Legal & General, said there are four key factors which primarily influence customer behaviour and therefore approval levels; these being mortgage rates, affordability, house prices, and the cost-of-living.
Market conditions
Though the recent base rate rise will deter or delay some customers, Belton said he has seen some rates for fixed products fall since the decision, primarily due to falling swap rates for five-year fixes.
“Nevertheless, affordability is still a challenge, but these pressure will ease if rates remain low or dip even further,” he said.
Buyers have also benefited from lenders revising their stress testing, and Belton believes lenders still have some levers they can pull, but, given the current risks, he said they will need a more settled market to do so.
Indeed, while customers are seizing their chance to step on to the property ladder, Belton said many others are holding out for house prices to fall. However, while a fall in prices is possible, he believes it is unlikely to be substantial, particularly when the previous decades of house price rises are taken into account.
“That is not to say the market is unattractive or inaccessible to buyers by any means; the latest government figures noted 232,820 net additional dwellings in 2021-22, a huge 10% increase on 2020-21, giving buyers more choice,” Belton said.
The cost-of-living remains the primary concern for the majority right now though, and unless a customer needs to remortgage in the immediate future, Belton said they may postpone their activity until inflation falls.
Returning confidence
Felicity Holloway, head of mortgages at Moneybox, said confidence in the market needs to grow further in order to improve approval levels on a longer-term basis.
“The more confident consumers feel, the more properties we will start to see coming back on to the market,” Holloway said.
Conor Murphy, chief executive of Smartr365 and founder of Capricorn Financial Consultancy, said
without any major shocks, approval levels should continue to climb over the course of 2023.
“Internally, firms should look at how they can improve the quality and efficiency of case packaging and processing, by utilising mortgage technology to streamline the homebuying journey,” he said.
Expectations going forward
Holloway said inflation is forecast to fall faster than expected this year as a result of Budget measures, so she believes it is possible that we have seen one of the last base rate increases.
“Lenders are still competing for business, many of them had already priced in the latest base rate increase and some even cut their rates despite it,” she said.
As such, Holloway is hopeful that mortgage approvals will continue to increase over the course of the year.
“While rates have undoubtedly increased, there are still plenty of great options available for those looking to buy a home or remortgage,” Holloway added.
Murphy said he is confident that mortgage approvals will remain consistent with the previous year, with the final figure sitting within 5% of the 2022 total. As inflation, mortgage rates, and the cost-of-living settle, Belton said consumer confidence should improve and boost market activity.
“We must also remember that the number of deals coming to term this year is enormous, especially in H2, with UK Finance estimating that it could reach 1.8 million for fixed-rate products alone,” he said.
Belton believes advisers should be reaching out to these customers now to ensure they get the right advice well in advance.
How do you expect mortgage approval levels to fair over the course of the year? Let us know in the comment section below.
