Experts give advice amid expected drop in mortgage demand
Industry experts have reacted to the latest UK Finance report predicting that the cost-of-living crisis will soften mortgage demand this year.
The Household Finance Review for Q1 said consumer confidence had plunged to an all-time low, adding that “forward-looking surveys and early indicators suggest a far bleaker outlook for the rest of 2022”.
It said the impacts of rising energy prices, inflation and the war in Ukraine were “now starting to be felt by business and consumers alike”, and that it put the UK “in the eye of a cost-of-living storm”.
The report also anticipated a squeeze on household finances for the remainder of the year, particularly on lower-income families, due to expected additional interest rate increases by the Bank of England.
Read more: Halifax releases latest house price index – industry reacts
The cost-of-living crisis could lead to a 3% drop in disposable incomes for the average mortgaged household.
Significantly for the housing sector, the report noted that house purchase borrowing had dropped sharply year-on-year, but that it was too early to say whether the COVID-driven demand for property…“has yet run its course”.
It also revealed that the number of people moving home in the first three months of the year dropped 42% compared to the same period last year, while the number of first-time buyers was down by 12%.
On a more positive side, remortgaging was strong and “set to remain so through the year”, while the amounts withdrawn for home improvement remained “significantly elevated”.
Simon Webb, managing director of capital markets and finance at LiveMore, a specialist lender for more senior borrowers, commented: “It was a good start to 2022 for mortgage lending, but we have already seen from the Bank of England’s April data a downturn has started.
“The rise in the cost-of-living for essentials such as food, gas, electricity and petrol coupled with the 1.25% rise in National Insurance will see many people struggling financially.
“Add into this interest rates going up then it makes sense to take out a long-term fixed rate mortgage for both new home loans and remortgaging, which is fuelling much of the current lending. Long-term fixes will provide peace of mind that monthly repayments will never go up during the term of the mortgage.”
Read more: Households dipping into savings due to cost-of-living crisis, report finds
Emma Hollingworth, distribution director at MPowered Mortgages, said: “It comes as no surprise that house purchase borrowing has dropped in Q1, following the unprecedented levels of activity seen throughout 2021. Mortgage product availability has reduced significantly, with Moneyfacts revealing that there were 518 fewer products for borrowers to choose from in March than there were at the start of February, which was the largest monthly fall in choice since May 2020.
“While rising mortgage rates and the rising cost-of-living have had some impact on the appetite of those looking to buy or move home this year, consumer demand for housing remains strong. Unfortunately, the window of availability on mortgage deals is now shorter than it has ever been before, averaging just 21 days.
“Given the increasingly challenging market for homebuyers, what’s crucial is that we as an industry continue to support customers as best we can through their homebuying journey. Our proprietary research shows that homebuyers placed getting the best service over getting the best rate, and we know there is more to be done to both improve and speed up the mortgage process.”
Richard Pike, Phoebus Software sales and marketing director, said: “With applications trending above the number of completions there is clearly a disconnect somewhere in our current market.
“(It’s) hardly surprising when the average time it is taking from instruction to completion has risen 48% since 2020. If the rate of applications continues on its current path, then the trend will be similar to that pre-pandemic.
“However, there is a lot more to consider in the current climate and it would be optimistic to think that we will see this trend continuing over the next few months. Although first-time buyers have fared well recently it is difficult to see, with real-time wages floundering against the rising rate of inflation, that the current downward drift will change.
“On the other hand, the number of remortgage applications is on an upward path as borrowers try to avoid rising interest rates by locking into a fixed rate deal.”
For his part, Stuart Wilson, CEO at Air Mortgage Club, said the data demonstrated “the true strength of the UK property market…which has weathered the recent spikes in the cost-of-living with relative ease”.
He, however, added: “The outlook isn’t entirely without a cloud. Unsurprisingly, consumers may cut back on spending as a raised energy price cap and climbing inflation bite into pension pots and hard-earned savings. In the coming months, advisers in the later life finance sector will have a vital opportunity to help older clients achieve some peace of mind during an economically challenging time.”
