Turning market momentum and pent-up demand into volume

David Lownds, head of products and marketing at Hanley Economic Building Society, explores the 'green shoots' emerging in the mortgage market at the start of the year and whether a price war will help stimulate first-time buyer activity in 2024.

Related topics:  Blogs,  Mortgages
David Lownds | Hanley Economic Building Society
15th January 2024
David Lownds Hanley Economic
"One area which the lending community, and the government - if early budget predictions are to be believed – may well focus on in the coming weeks is the all-important first-time buyer market"

Looking back, despite some brave faces and even blind optimism at times, it’s fair to say that the immediate and short-term outlook for the mortgage market looked a little bleak as we entered 2023. Thankfully, as an industry, we managed to navigate a relatively tumultuous start to see some tentative green shoots emerge following some welcomed economic stability.

As we enter 2024, while the housing and mortgage markets are still not operating in optimal conditions, the outlook is far more encouraging. The latest Money and Credit statistics from the Bank of England outlined that November saw mortgage approvals rise for the second consecutive month, with monthly net residential mortgage approvals rising from 47,900 to 50,100.

Gross lending was reported to have increased from £15.9 billion in October to £16.6 billion in November, while gross repayments decreased from £17.2 billion to £15.6 billion over the same period. Net approvals for remortgaging with a different lender also increased from 24,000 to 27,000.

Before we get too carried away, it’s prudent to highlight that annual growth rate for net mortgage lending hit a record low in November, a figure which demonstrates how far we still have to go to get anywhere close to lending conditions of years gone by.

However, the first few days of the new year have seen many lenders reducing rates and introducing new products, with even talk of a ‘price war’ in the offing which should help stimulate some further activity. In addition, a record number of sellers have reportedly come to the market on Boxing Day, meaning 2024 really has started with far more of a bang compared to the 2023 whimper.

One area which the lending community, and the government - if early budget predictions are to be believed – may well focus on in the coming weeks is the all-important first-time buyer market and any substantial uptake in this sector could really reignite the mortgage and housing market moving forward.

Again, I will temper this by highlighting the relatively low base we are working from before getting too ahead of ourselves. Data from Twenty7tec showed that searches by first-time buyers were down 39.6% nationwide in December when compared to November, with the lowest proportion of first-time buyers in the market (15.83%) reported since May 2020 when the pandemic prevented house viewings. Purchase mortgage searches were also down 36.8% in December compared to November, while remortgage searches fell 29.3% and buy-to-let searches were down 32.8%.

As highlighted in the commentary around these figures, December is always a quieter month than November, and December 2023 was busier than prior year ends. Continuing this positivity, the total volume of mortgage products was said to have reached 94.32% of the highest-ever number of available products.

Further data from Rightmove from the first week in January also showed that the average five-year fixed rate mortgage is now 4.96% - the first time it has dipped below 5% since June 2023. The figures show that the average five-year fix at 60% LTV is now 4.36%, down from 4.81% a year ago, with the lowest available rate at 4.19%.

At 85% LTV, the average five-year fix is at 5.06%, down from 5.15% in January 2023. This means the average monthly mortgage payment on a typical first-time buyer type property when taking out an average five-year fix at 85% LTV is now £1,100 per month, down from £1,118 a year ago.

Inevitably, there is still plenty of work to be done at the higher LTV levels to attract more first-time buyer business but there are strong signs that we are moving in the right direction. With a strong degree of pent-up demand out there and both existing and potential borrowers adjusting to what remains a higher interest rate environment, Q1 is set to be an interesting and exciting prospect for lenders and borrowers alike - especially in the wake of a Budget which is likely to see some housing-related incentives in the offing. And it will be fascinating to chart how, if and when this momentum translates into volume.

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