Building on the positive mortgage market messages
Tue, 23 May 2023
Image of Couple sat in boxes

David Lownds, Head of Products & Marketing at Hanley Economic Building Society:

"Understanding the huge variety and volume of working parts which keep the wheels of the UK economy turning has never been easy. However, there are times when it’s easier than others and I think it’s fair to say that we are not currently in the midst of one of those easier times as mixed messages continue to emerge for consumers.

It was widely anticipated that the UK would enter into a recession towards the end of 2022. Thankfully, revised figures from the Office for National Statistics have just emerged to show that the UK economy performed better than previously estimated at the end of last year, meaning we have officially avoided entering into a recession.

Although this news has not put the brakes on the Bank of England continuing to raise interest rates, with May 2023 seeing the 12th consecutive rise since December 2021. This time the increase is 0.25 percentage points – taking the base rate to 4.5 but is such a move having the desired impact on inflation, saving rates or the mortgage market? I’m no economist and this is a tricky one to answer with any great certainty, so I’ll leave this to the experts.

Expectations have been cast around house prices falling but is this really what we are experiencing? This seems to depend on which index you see, what type of data this is collated from and when, but what is abundantly clear is how resilient and robust the UK housing market is, and how strong homeownership aspirations continue to be.

A softer lending market was widely anticipated throughout the year, particularly compared with the buoyant levels of the past two years. While this still appears to be the case, is there an argument to suggest that it is performing better than expected?

Well, according to the latest EY forecast, net mortgage lending is now expected to grow 1.2% in 2023, up from 0.4% predicted in February. This represents a net increase of £29bn, upgraded from a 0.1% fall forecast in February. Falling inflation, lower-than-anticipated energy bills and a resilient jobs market mean UK GDP is expected to increase by 0.2% in 2023 rather than contracting, driving an increase in consumer and business borrowing.

This makes for some highly encouraging news with sustained economic stability and a sturdier market outlook filtering through to the intermediary community to generate increased levels of confidence.

The latest report from the Intermediary Mortgage Lenders Association (IMLA) highlighted that the mortgage market is showing ‘growing optimism’ with intermediaries placing an average of 99 cases over the past 12 months. The figure represents a small rise on Q1 2022 (an average of 97 cases) and only four cases off the peak of 103 in Q4 2021. Despite recent suggestions that the buy-to-let sector is struggling, the data also shows that this market held steady, with 28% of all cases handled in the buy-to-let space, up from 26% in the previous quarter.

Despite ongoing concern about the impact of rising interest rates, the report shows that confidence is returning to the mortgage market. Almost four out of five intermediaries (79%) said they are ‘confident’ about the outlook for the mortgage industry, up from just 65% in Q4. Confidence in the intermediary sector is even more marked, with 87% saying they are ‘confident about the sector’s outlook’, a number almost on par with the level before last year’s mini budget.

As alluded to in this data, the growing confidence expressed by intermediaries is a strong signal that the mortgage market is weathering current volatility and, dare I say it, starting to flourish as competition hots up in the lending arena. From our perspective, we are experiencing a slight uplift in the number of first-time buyer enquiries from our intermediary partners which also indicates an encouraging development.

Adjustments are being made by an array of potential borrowers to a higher interest rate norm and H2 2023 is likely to see this forward momentum continue across the industry. Momentum which will allow us to build on the positive messages emerging and hopefully leave the negative ones in the shadows."