At this time of the year, it’s impossible not to focus on what the rest of the year is likely to serve up. Certainly, as a mortgage market stakeholder, we are always interested to hear what others in our market feel will happen over the course of the 2023 and to also see if previous predictions end up close to being correct.
UK Finance’s forecasts for lending activity in 2023 and 2024 were published in December last year and it is interesting to see how it views the next two years, compared to what it believed at the tail-end of 2021 when the same exercise was carried out.
In 2021 it felt gross mortgage lending would hit £281bn in 2022, now it suggests – subject to the final figures – that it will come in at a materially higher £322bn. Good news, and certainly there were very busy periods of activity over the year for both purchasing and remortgaging, as you know.
However, it has now revised its view on what 2023 will bring. Back at the end of 2021, UK Finance was predicting a further year of growth, now that positivity has disappeared slightly.
From the £313bn it suggested back then, it is now more sanguine about the year ahead, suggesting gross lending will fall back to £275bn this year, with a further fall in 2024 to £253bn.
It will perhaps not surprise you to learn it puts much of this anticipated fall down to a less vibrant purchase market, predicting it will drop from last year’s £171bn down to £131bn this year and a further drop in £122bn. Remortgaging however is predicted to hold steady and actually increase this year, up from £82bn in 2022 to £89bn this year, with a slight drop in 2024 to £81bn.
IMLA also produced its forecast in December following a similar path to UK Finance, but slightly less bullish. In 2021 it felt £275bn gross lending was achievable for 2022 but also suggests this has now come in around the £310bn mark.
Last year IMLA predicted that gross lending of £265bn was achievable in 2023 and it sticks to that forecast and now believes 2024 will go on to deliver a relatively disappointing £250bn. This likely fall is clearly a reflection of fewer purchase transactions, predicting consecutive drops from £188bn in 2022, to £165bn this year, and £155bn next.
IMLA believes remortgage business will hold up, suggesting it broke the £100bn barrier last year and will hit £88bn this year, followed by £83bn next.
Of course, predictions are a notoriously difficult business to get right, particularly when many issues and events are impossible to predict. Think particularly of the ongoing Ukraine war, rising global energy prices, significant increases in inflation in the UK, and the cost of living crisis, plus the ‘Mini Budget’ catastrophe and the resulting increase in swap and product rates, albeit we have seen these falling off their recent highs.
What it has meant, however – and I suspect many firms will be able to testify to this and anticipate a somewhat similar trend going forward – is a real impact in terms of consumer demand for purchasing in recent months especially, and ongoing concerns from many borrowers about their ability to remortgage, and the deals they might be able to secure in this very different mortgage rate environment.
Again, the Stonebridge network has certainly seen an impact regarding early-stage consumer demand, ESIS numbers, applications, and completions, in terms of a comparison with 2021/2022 but again we must recognise they were very different years in that regard.
The huge boost provided to the housing market post-pandemic was not there in 2022, and neither was there (for the majority of the time) any element of stamp duty incentive, although the market did of course see thresholds increased in September, and I suspect this will begin to have an impact in terms of increasing purchase demand, especially if house prices/values do settle a little, as recent data suggests.
Our view is that housing transactions, which reached well over a million last year, will still break the 1m barrier again in 2023. I know that some economic forecasters are less positive than us on that – Capital Economics suggests 950k – but there are a number of non-negotiables when it comes to housing purchase activity and they are the many transactoins that will always be there as a result of death, divorce, forced moves and the like.
That being the case, we are not overly concerned by any likelihood of transactions falling off a cliff; indeed, if you look at 2022’s activity they were essentially mirroring the pre-pandemic period and, in that sense, look like a more normal pattern, rather than the extraordinary highs we saw post-pandemic.
Certainly, I fully anticipate lenders wanting to get off to a good start this year. In recent weeks, almost every single product communication from each lender detailed helpful product repricing. Overall, I know many lenders had a strong (and highly profitable) 2022, and lending targets were not reduced as a result. Therefore, for a couple of reasons, I expect to see product pricing looking more like pre-‘Mini Budget’ norms very soon.
I am positive about 2023 and what it might bring. One of the figures that jumped off the page of IMLA’s market report was the fact that 2022 saw the intermediary share of mortgage distribution rise 4% to 84%.
To say this is hugely positive for our sector would be an understatement. I’m old enough to remember when we, as advisers, were fighting for parity with direct channels and achieving a 50% market share of UK lending. Now our sector takes the lion’s share of all mortgage business and IMLA even muses this could rise to 90% in 2024 given that lenders get ‘lower fixed costs, flexibility in controlling volumes and some insulation from conduct risk issues’ thanks to intermediary business.
Not forgetting, of course, the consumer in all this and the huge benefits to be had by securing professional advice. 2023 should be all about reiterating the benefits of professional advice, particularly in an uncertain recessionary economic environment, and making the most of every single client interaction you have. You don’t need to predict the future to deliver positive outcomes and even to grow your business, despite a smaller lending market.
Rob Clifford is chief executive of Stonebridge