"The pressure put on household budgets in recent times means that increasing numbers of would-be borrowers are more likely to fall within a near prime category rather than prime."
As we come to the end of 2023, we have the perfect opportunity to reflect a little on what’s happened in the property market over the last 12 months, and what 2024 is likely to have in prospect.
House prices are always a good place to start, and when it comes to movements in headline house prices, it seems likely that the best case scenario will be that they are largely unchanged. Demand from homebuyers has understandably been hit by the increases in mortgage rates - the latest Propertymark report shows that typical estate agent branches have around 60 registered househunters, when a few months ago that average was above 90 - and that is leading to downward pressure on the value of our homes.
However, any drop is likely to be restricted by the simple fact that we have a housing shortage which shows little sign of being addressed in any meaningful way.
The north-south new build divide
Indeed, there are suggestions that we could see a north-south divide in how this shortage continues to materialise.
Builders have seen the costs of developing homes increase substantially over the last few years, on both materials and labour costs. This has put pressure on their profits, leading to them having to make more considered decisions around which developments they focus on in the short term.
We have seen signs that this is leading to them prioritising new build developments in the south, where they are able to charge a premium for the new properties, over the north.
This comes at a time when builders are already slowing the overall number of projects they take on, given the economic circumstances, with the potential result that the few new build homes being produced end up being delivered at prices that are out of the reach of first-time buyers anyway.
It’s a trend to keep an eye on next year. While it’s certainly true that the UK needs more homes, it’s crucial that those homes are delivered in areas and at price points that are accessible to would-be buyers.
The question of rate
Interest rates have understandably been a focal point throughout 2023, with repeated base rate increases feeding through into higher rates for borrowers.
Those base rate increases appear to be at an end though, with inflation dropping to 4.6% in October, suggesting that prior hikes have started to have an impact. Attention now will turn to when the Bank of England will start to cut rates, and while Andrew Bailey, the governor, has warned that it’s too early to think about cuts, the reality is that future rate expectation will have a big impact on mortgage pricing.
Rates have been dropping noticeably in recent weeks anyway, with a host of lenders feeling able to drop fixed rates below the 5% mark. Unless something unexpected happens - and the last few years have had plenty of unforeseen events - then this trend appears likely to continue, meaning more competitive rates across the board.
What about criteria?
It’s not just rates that will be most important to brokers and their clients next year however, but criteria. After all, the pressure put on household budgets in recent times means that increasing numbers of would-be borrowers are more likely to fall within a near prime category rather than prime.
This can be an issue with lenders who insist on relying on using credit scores in their decision-making process, given the challenges that the odd late or missed payment can play with a score. Not all lenders operate like this though; at Atom bank for example we take a more holistic approach, assessing cases on more than just a credit score.
Lenders who judge their cases in this more informed way are likely to become even more important to brokers in 2024 and beyond.
The importance of speed
One factor that is sure to be central throughout 2024 will be the importance of delivering a speedy service to borrowers. Delivering a swift response to an application should be the norm, yet we know that all too often it isn't the case. The uncertainty that follows - what happens if the lender says no, what are the other options? - can result in great stress for the borrower.
It also increases the workload for brokers, given they then have to devote time in their day towards chasing up cases.
By contrast, working with lenders that can provide quick answers means the borrower enjoys greater certainty and the broker can focus their efforts elsewhere.
Given the budget pressures so many households are under, having a swift response is likely to be more sought after than ever before, making it all the more vital that brokers build closer relationships with nimble lenders not just in 2024 but the years that follow.
