There is always considerable interest in predictions about what might happen in the mortgage market in the future, and luckily, organisations have a wealth of data to scrutinise and are quite willing to put their head over the parapet to do this.
Before Christmas, we had the much-anticipated figures from UK Finance which, after several conversations we have had with certain lenders recently, came in far more optimistic than some have been predicting.
Gross lending starting at a £180 billion level would put us back to a disappointingly miserable figure not seen since 2013’s £177bn outcome, but that’s a number which had been whispered about, by various lenders.
So, it was helpful to see UK Finance predicting this will be more likely £215bn this year, plus of course a considerable product transfer (PT) value of £202bn. Then it suggests £216bn the year after, with PTs falling to £195bn. Still, a substantial market to go after, especially if we do begin to see greater demand emanating from a lower rate environment than we have had over the last nine months. And even since the turn of the year, some commentators think that £125bn is conservative and that we might all see the fruits of a £220bn-£225bn market, with some luck and a few positive surprises.
Lending levels – and particularly consumer confidence in purchasing – will be determined by interest rates, and in that sense, it’s been positive to see the Bank of England’s MPC holding Bank Base Rate (BBR) on the last three occasions, but also swap rates continuing to trend downwards.
Shift in swap rates and positive trends
As I write we have reached something of a cross-over point whereby three, five and seven-year SONIA swaps are all currently below their levels from a year ago. Two-year and 10-year rates are just above but it will be clear to all the significant shift we have seen over the past two to three months, not just in terms of product rates but product numbers especially given how many were pulled in the middle of the year.
It might be convenient to treat the whole of 2023 as one significantly challenging period, but the first three or so months were marked by a pick-up in activity as we had not seen the big jumps in inflation or the subsequent jump in rates that followed in the Spring.
For that reason, and the trending of rates downwards in recent months, I am positive about what 2024 can bring, what it might continue to mean in terms of product rates – perhaps we are not so far away from seeing rates beginning with a three – and what could follow if inflation continues to move more towards its 2% target.
Certainly, the mood music appears to be shifting. Even though the Governor of the Bank of England, Andrew Bailey, was at pains to stress last month that it is far too early to talk about rate cuts, that hasn’t stopped others from speculating to this effect or some significant metrics moving in that direction.
Indeed, the money markets now are suggesting there will be four quarter-point cuts required in 2024, which is clearly some way removed from what the Governor is saying.
And a long way removed from, for example, what the CBI suggested. Not just that there will be no cuts to BBR during 2024, but no change until 2026. A prediction which, currently at least – and given the recent falls in inflation – appears to be something of an outlier and I completely disagree with.
Only time will tell. But what does appear clear is that – as things stand – lenders are willing to countenance ongoing cuts to product rates, and my suspicion is that those that can, are more willing to price aggressively to secure the business available.
And, if as widely suggested, 2024 will be a year of considerably fewer maturities, then that means fewer PTs, and therefore a greater requirement to be competitive from a remortgage and purchase point of view.
As we know, lower rates make affordability easier to traverse, and therefore more borrowers might find themselves able to move their mortgage to a different lender, rather than simply stay put and take what is offered to them.
Adviser considerations and the role of technology
At the same time, advisers might need to acknowledge that this doesn’t represent a huge shifting of the playing field. In that sense, the need to look at all product opportunities and cover all customer needs is not moving at all.
We, as a mortgage network, continue to have confidence in our growth forecasts in terms of more AR firms choosing to join us, while at the same time supporting them with everything they require to not just cover the mortgage, but all other ancillary products. We’ve recently added John Scrivens to our Senior Management Team to lead our organisation’s investment in this area to help member firms increase their income.
I would recommend that all other firms think similarly. We all know that the most successful and resilient advice firms are those who do a thorough job of making sure each customer has fully considered protection and other insurances as well as their borrowing requirements. To do that optimally needs great technology and robust advice processes as well as commercial propositions – which all good networks deliver to their members.
Rob Clifford is Chief Executive of Stonebridge