Welcome to the shiny, busy and brand-new year!
It is back to business with a vengeance! The mortgage market is a dynamic place to be, and just when you think everything is going in one direction, there can be a sudden turn in the other direction.
January saw a strong start in the levels of new enquiries for both Estate Agents and Mortgage Brokers, as prospective buyers look to finally make that move that they may have put on hold for some time now.
They have been stirred into action by softer prices and easing mortgage rates, knowing that given a continued lack of supply, prices look set to recover over the course of the year as the uptick of demand continues.
First of all, the good news is that so far this year lenders have continued to cut their rates, although in smaller degrees. The cheapest deals on the market are in the remortgage space, where you will find a cluster of products starting with a 3. This is a key statement of where lenders think the market is at present.
Purchase business is also very important for them too this year and we have seen 2-year fixes fall dramatically, and six lenders now have 5-year fixes available from 3.94%, (6.3% APRC) for a purchase or from 3.88% (4.40% APRC) on a remortgage basis.
The lowest rates, however, are often pulled after a short amount of time, one lender had their product out for all of about 3 days, as quite simply they were inundated with business, and SWAP rates have moved slightly upwards in recent days.
It shows the precarious nature for the market and exactly why using a mortgage adviser is essential these days if you want any chance of locking into the best rates. Many of our brokers have already this year been working all hours to make sure no client falls foul of a short-notice rate pull.
The cause of some of this was the latest inflation report that showed that annualised inflation rose to 4% in December, up from 3.9% in November, largely driven by rises in the price of cigarettes and alcohol.
Core inflation was unchanged from 5.1% in November, proving to be sticky.
With the next inflation report due out imminently, there is a possibility that inflation will continue to show its stubborn streak and may even edge up slightly again in January when the official data is published tomorrow, in part due to the rise in the energy price cap from the start of last month.
If it does, we could see SWAP rates rise further and lenders increase rates, although some already seem to be starting to price this potential in now with some mortgage rate rises.
Equally, if inflation surprises to the downside, we could see a reverse again. It does look more like the former at the moment and that’s what the markets think but it’s a topsy-turvy world these days as we know!
These inflation figures are a stark reminder that nothing can be taken for granted, though any small rise should be viewed as a metaphorical speed bump rather than a fundamental change of direction.
The better news is that the all-important wage inflation is falling, but that’ll take some time to flow through.
Those in the mortgage market will be watching SWAP rates closely and it could mean a slight pause to the New Year rate wars we have seen, but competition between lenders is unlikely to wane too much.
It is a timely reminder that it is a fool’s folly to try to play the market and locking into a rate early is a safer play for many. Remember, if rates change further, we can keep an eye on this for our clients and switch to a better one before completion if available.
This wariness was behind The Bank of England’s Monetary Policy Committee’s decision to keep the base rate on hold at 5.25% yet again.
Whilst expected and cautious, some believe this was a missed opportunity to invigorate the economy and ease the anxiety of mortgage holders across the country. The current financial landscape, fraught with uncertainties, may have benefited from a more assertive action in the form of a rate cut, especially as there is an expectation that inflation will still fall to its 2 percent target, which the Bank says could be met by April.
Holding the rate steady, though seemingly prudent, overlooks the potential stimulus that a cut could offer to both the housing market and wider economic activity, and it is worrying that two members of the Committee voted to increase rates further, in a move that looks increasingly out of touch with the average consumer.
Only one MPC member voted to reduce borrowing costs to 5%. But the Governor says “more evidence” is needed of lower inflation before cutting rates. Interestingly, this is the first 3-way split by the committee since 2008, which illuminates the differing opinions at the very heart of the Bank.
The Bank also upgraded its economic forecasts but warned of an almost 50-50 chance of a technical recession in late 2023. Whilst we acknowledge the stability this decision brings; we also recognize the potential growth and relief for consumers that could have been spurred by a bolder move.
The big unknown now is what the Government will do next, especially in the March budget with an election looming. Mr Gove has been very outspoken of late as to what he wants to do to try to invigorate the Housing Market, and with a smaller percentage of younger voters looking set to vote Conservative in the next election you can see why the Government is finally keen to address one of the key issues younger voters are concerned with, housing.
Whilst it is about time this issue is front and centre and will be a key battleground for all parties, one of their latest ideas, the 99% Loan-To-Value mortgage, with just a 1% deposit, comes with more questions than answers.
In theory, 99% mortgages could well help some people struggling to save a deposit get onto the housing ladder, but there are more questions around affordability calculations, interest rate costs, and capital adequacy rules for lenders. Will this be subsidised by the taxpayer like the Help to Buy scheme to help entice lenders to offer them?
There is also the fear that schemes such as these act to increase house price inflation as the stock of property generally is not increased or puts more borrowers at risk of being trapped in negative equity should prices fall in the future.
The housing market needs urgent attention, but it needs long-term, cross-party solutions, a Housing Minister in situ for the duration and more than half-thought-out schemes to secure a re-election.
We will cover in detail everything that is announced in the budget in the next edition so watch this space!
So, there you have it, a strong start to the year, an inflationary rollercoaster, lenders both cutting and increasing mortgage rates, and the potential of artificial stimulus being bought into the market by a government desperate for votes, which could lead to an unexpected strengthening of house prices.
The only certainty is that there is uncertainty, but that does not mean that there is not opportunity.
It is often all about timing, and despite the small ups and downs, a growing number of people believe that 2024 could just be the best time to buy in a while.