What does the new financial year mean for the mortgage market?

With the new financial year well and truly upon us, it’s the perfect time to take stock of the UK’s economic outlook in terms of what’s going well and what could use some work. With a general election steadily approaching, it’s likely that there’s going to be plenty of movement in the economy, and shifting tides have a way of breaking up the shoreline.

Ben Thompson, deputy CEO at Mortgage Advice Bureau, reflects on where our market is now, and what brokers can do to support both new and existing mortgage customers in this current climate.

Related topics:  Blogs,  Mortgages
Ben Thompson | Mortgage Advice Bureau
15th May 2024
Ben Thompson MAB
"While there’s been plenty of stabilisation and positive movement on the horizon - with potential rate drops by the Bank of England in the summer - the mortgage market is still facing some bumps in the road"

Rising mortgage rates

One of the biggest concerns for homeowners is the rise in mortgage rates following recent hikes. Several lenders have increased their fixed-term mortgage rates, putting pressure on household finances. Experts predict that mortgage rates are unlikely to fall below 4% in the immediate future, which could lead to higher monthly payments for homeowners that have fixed rates expiring this year.

This trend is partly due to the Bank of England's (BoE) decision to hold off on cutting the bank rate as anticipated, global conflict and uncertainty - not to mention UK inflation dropping slower than many had expected. Some economists have also speculated that another factor may be stubbornly high wage growth, preventing the BoE from dropping rates sooner. The positive bi-product of this is real wage growth, which should of course be a positive for the UK economy.

An array of factors play into economic decision making, and strained public finances are likely to play a part in the government’s policies. We may see a decrease in borrowing overall across the medium term, predicted by The Office for Budget Responsibility (OBR). Public debt is set to increase, attributed largely to tax freezes and government spending increases.

It’s also worth noting that in their March 2024 ‘Economic and fiscal outlook’ report, the OBR states that the UK economy entered a recession by the end of 2023, although they don’t expect this to persist throughout 2024. In fact, GDP figures have now confirmed the UK is out of recession, with the fastest growth in nearly three years.

Impact on first-time buyers

All of the above contributes to an increase in the cost of living and mortgage rates, making it increasingly difficult for first-time buyers to get onto the property ladder. Saving for a deposit and affording monthly payments can be a significant challenge for many young adults. In fact, a recent report suggests that government intervention might be necessary to make homeownership more accessible, even though there are many innovative mortgage schemes in place to help first time buyers at the moment.

It’s becoming increasingly common for younger first-time buyers to rely on their parents and other family to contribute funds to their deposits. Prospective buyers who are living away from their parents in privately rented accommodation are also facing rising costs, with official figures stating that private rental costs have risen by 9.2% in the last year. For this cohort of customers, 5% mortgage rates are not an issue, versus their current position of paying their landlord’s mortgage (and at a significantly increasing rate). As long as they have an appropriate deposit saved, they will want to get into homeownership as quickly as possible.

On a positive note, according to research led by Hargreaves Lansdown, up to 11% of first-time buyers bought their property using a lifetime ISA. We’ve also seen the number of first time buyers increasing, with a rise of 7% from 2023.

Housing market outlook

The housing market has seen a challenging few years, and the story remains the same today. While there’s been plenty of stabilisation and positive movement on the horizon - with potential rate drops by the Bank of England in the summer - the mortgage market is still facing some bumps in the road and should prepare accordingly.

Market analysis by Octane Capital revealed that mortgage business has dropped by almost 30% (28.6%) over the course of the year. The data (between March 2022 and February 2024) showed that total mortgage lending reached £217.7bn, whereas total lending in the previous year was £304.9bn.

We can see evidence of this in various reports from estate agents - Zoopla’s latest House Price Index data, for example. According to Zoopla, the number of homes up for sale is at a five-year high (20% higher compared to April 2023).

Rightmove’s own House Price Index revealed that in April 2024, the average asking price for a new-to-market property increased to £372,324 (a 1.1% increase). The record is currently sitting at almost £600 above this.

Renting challenges

Renter groups have expressed concerns that the Renters' Reform Bill does not adequately address their needs. They argue that the Bill prioritises landlord interests and that amendments have weakened renter protections. The Coalition of renter groups is calling for changes to the Bill to strengthen renter protections. When we consider that many renters are ‘pre-homeowners’ struggling with many of the challenges listed above, it’s vital that we continue to push for fairer conditions for all in the wider housing sector.

A more positive outlook

To summarise where we are in terms of the UK economy, we’re essentially recovering from a low base following a difficult 18 months. We have an outlook of reducing mortgage rates, real wage growth, and an election upcoming. Irrespective of one’s political beliefs and allegiances, sometimes change marks a fresh start – 1997 leaps to mind. It ought to be onwards and upwards from here, and we can all very much look forward to and welcome that.

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