Many effectively froze and decided to wait and see where things like market interest rates would land before making any mortgage-related decisions.
Not surprising really, given the wild speculation that abounded, suggesting we might even see bank base rate hit a heady 7%. If that were to happen, the knock-on effects would be significant and disruptive in a market environment where borrowers have become used to rates closer to 1% for almost two decades now.
However, as often happens during periods of turmoil like this, things don’t look set to turn out as badly as they at first seemed. More signposting from policymakers, unpicking most of the proposed mini budget policies, and a period of calm, among other things, have helped rebuild the sense of stability the markets rely on, and so renew the confidence they need. As a result, the swap rates which help determine the future direction of mortgage product rates, have come down significantly. Therefore, base rate settling out at closer to 4.5% now looks much more likely.
Against this backdrop, and having had chance to take stock over the festive season, there are positive early signs that consumers’ nerves are, similarly, starting to calm, and they are adapting to the ‘new normal’ in terms of the kinds of rates they are likely to pay for their mortgages.
As a result, we’ve seen a return to a more positive level of mortgage activity than we would have ever dared expect back in October. December and January were surprisingly strong lending months for us at Accord and, although purchase activity is, expectedly, more subdued than usual, there are encouraging signs in terms of factors like the number of available properties within the housing market – which is good for the supply that ultimately keeps the cogs turning – and consumer search activity, which indicates that people are stepping back in.
In fact, our telephone business development advisor team are seeing strong levels of enquiries, for residential and buy-to-let cases – both purchase and remortgage. And mortgage sourcing platform Twenty7tec reported its busiest ever January product search day as 2023 got under way, so brokers and their clients are definitely looking for mortgages.
How could business shape up?
We know that 2023 is going to be a big year for maturities, and therefore remortgage activity is likely to be strong, but given the green shoots we’re seeing so far, we’re hopeful that purchase activity could also pick up pace more than we might have expected, too.
Ultimately, the UK is a small island with a shortage of housing supply and a population with a unique love of homeownership. We think this, coupled the fact of life that changing circumstances will always ensure people want to buy houses for all sorts of reasons, will ensure demand remains robust.
Of course, we’re not complacent, and we know that there are likely to be further challenges to overcome for some considerable time yet, including ongoing cost-of-living constraints and interest rates that – though settling – are still much higher than borrowers are used to. However, there is no doubt things are looking more optimistic than they were back in October.
Against this backdrop, we’re keeping a watchful eye and looking to react quickly to pass on as much value as possible to brokers and their clients, whenever the opportunity arises. As a result, we’ve delivered no less than 13 mortgage range adjustments, featuring extensive rate cuts and more than a few best-buy products, since last October.
But it’s not just about rates, of course, and we’re coupling this with the kind of flexibility borrowers need to see them through this period of heavy weather. Because our underwriters are mandated to look at cases individually, they can take a personal approach to making decisions on those cases which are just that little bit less clear cut – which are, after all, much more common given today’s evolving lifestyles and factors such as people living longer and relying on more complex income sources. As a result of this, I’m proud to say that, in the last three months of 2022, almost a quarter of our new lending decisions showed a degree of flexibility or what we like to call ‘common sense’ in enabling the right outcome for the borrower.
Some surprising developments
At the same time, there is evidence that borrowers, too, are thinking on their feet and being resourceful in order to put themselves in the best position when it comes to achieving their homeownership goals. We saw significantly more take-up of tracker products post-the mini budget and, where our levels of fixed-rate business have traditionally hovered around the 95% mark, this changed significantly as people sought to keep their options open and ensure they were in a position to benefit from any future base rate reductions. More people than normal have also been opting for longer-term products, perhaps down to the human instinct to create certainty where there is little, which seems to be kicking in even if the rate they’re getting is less favourable than they might have hoped.
Interestingly, buy-to-let volumes have bounced right back too, with our top slicing proposition proving particularly popular. This flies in the face of some of the more doom-laden predictions surrounding a segment that is undoubtedly facing challenges in the form of the impact of higher interest rates on rental yields and affordability, and potential new energy performance certificate legislation.
If I’ve learned anything during my years in different areas of financial services, it’s that the markets are always full of surprises. I’ve seen them come back from the apparent brink of doom many times – including the 2008 Financial Crisis and more recently the Covid-19 pandemic. So, I feel an unshakable sense that if we can come through all that, we can come through pretty much anything.
It’s still early to get ahead of ourselves, but let’s hope 2023 has started as it means to go on, and continues to pan out positively!
Jeremy Duncombe is managing director of Accord Mortgages
