Looking back at some of the commentary and news analysis in Mortgage Strategy from mid- to late 2023, there was no shortage of gloom.
Back in June, one headline read, ‘More BoE pain, but little gain’, as the industry’s confidence in Bank of England governor Andrew Bailey hit rock bottom. At the time, rate rises had not had the desired effect of lowering inflation, merely inflicting further pain on borrowers.
Fast-forward to early April 2024 and the outlook is brighter. Inflation has come down and, while the Monetary Policy Committee (MPC) has held rather than lowered the base rate, the committee vote showed not one member supporting a rate rise; the split being between ‘hold’ and ‘cut’.
Confidence gets builders building and sellers selling. Those green shoots just need a bit of fair weather to bed in
This was a shift in thinking at the MPC and the consensus within the industry is that we will see a base rate cut (or cuts) in the summer.
But the BoE is not the only source of indicators to better times ahead. According to research from Bloomberg Intelligence, the easing of mortgage rates from 2023 highs is helping to revive UK housing activity, with 41.5% of prospective buyers accelerating their plans compared to 35% in mid-2023 and 31.2% in October 2022.
The latest Property Tracker report from the Building Societies Association shows a significant reduction in the number of homeowners concerned about paying their mortgage, along with a fall in those who regard mortgage affordability as a barrier to buying.
And, according to the latest UK Residential Market Survey from the Royal Institution of Chartered Surveyors, sales expectations for the near term are positive and sales activity is predicted to gain more momentum over the coming year.
I have plenty of clients on the market and the buyers are serious and want a sale
There have been frequent references to ‘green shoots’ and an economy that is ‘turning a corner’ — the latest GDP figures showed growth, which was more welcome news.
But, before we get carried away, there are some less positive stories too. For instance, the latest Bank of England statistics show that the value of outstanding mortgage balances with arrears is more than 50% higher than a year ago.
In the same way that hints of disaster back in June 2023 may have been overblown, is talk of green shoots too optimistic now? Spicerhaart and Just Mortgages chief executive John Phillips believes there is genuine cause to be upbeat.
“Like many, we have seen a positive start to the year with real confidence and optimism returning to the market. Across our branches, January saw strong levels of buyer registrations and valuations being booked – the highest in many months. This continued into February, with brokers outperforming January results by the third week of the month, while March has been just as positive.”
It’s still an uphill walk with slightly uncertain terrain. I wouldn’t advise ditching the hiking boots for flip-flops quite yet
He added: “Despite the slight uptick in January, improving inflation is helping to nurture some confidence, especially as it has allowed lenders to become more competitive.
“Once the Bank of England finally makes a cut to the base rate, this will likely help with the heavy lifting and really support the efforts of lenders. There’s no question potential buyers are responding to all of this and to the much-improved outlook for the year, and they are seizing the opportunity to get plans back on track.”
Phillips concedes that this isn’t the story for everyone and affordability will remain a challenge for many.
“Arguably, a broker has never been so important to not only help borrowers navigate a changing market but to utilise all the tools at their disposal to help make the numbers work.”
Being serious, 0.2% [GDP growth in January] is hardly a number to get excited about; it’s just a continuation of the trend
Although Phillips is optimistic, his message to brokers is to remain proactive, continue to communicate with clients and nurture this confidence.
“While we can’t be sure of anything these days, it certainly feels like green shoots are beginning to emerge.”
Phoebus chief revenue officer Adam Oldfield points out that, compared to a year ago, so far 2024 has been like “a walk in the park” for lenders and brokers.
“GDP is up, we’re out of recession, swap rates are coming back down and there hasn’t been a hike in base rate for six months. Without question, though, it’s still an uphill walk with slightly uncertain terrain. I wouldn’t advise ditching the hiking boots for flip-flops quite yet.”
Oldfield is optimistic, however.
“Despite UK Finance and the Bank of England having envisaged a drop in lending in the second half of the year, I think we may hit some momentum as the year progresses. For one thing, there are still around a million homeowners scheduled to remortgage this year. And we anticipate interest rate cuts, which will help.”
While we can’t be sure of anything these days, it certainly feels like green shoots are beginning to emerge
RH Dixon mortgage adviser Rachel Dixon takes a similar line.
“This year started exceptionally well with a lot of new first-time buyers and house purchase enquiries. I have plenty of clients on the market and the buyers are serious and want a sale. Estate agents are not overpricing and are also being realistic about the current market conditions.”
She added: “The latest data on inflation gives encouragement to the view that, in the coming months, it will be in line with the Bank of England’s 2% target. I think the positive news will mean more enquiries and the market picking up pace by the middle of the year.”
AJ Bell head of financial analysis Danni Hewson acknowledges the talk of ‘green shoots’ but thinks a sense of perspective is called for.
Improving inflation is helping to nurture some confidence, especially as it has allowed lenders to become more competitive
“Being serious, 0.2% [GDP growth in January] is hardly a number to get excited about; it’s just a continuation of the trend that we’ve seen over the past couple of years: an economy bumping along the bottom, flatlining and stagnating.”
However, she added that, psychologically, shedding the label of recession is important because it helps foster confidence.
“Confidence is crucial. It gets builders building, makers making and sellers selling. And those green shoots are visible — they just need a bit of fair weather to bed in.”
This article featured in the April 2024 edition of MS.
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