So, as one year ends, another comes into view. It has been a truly incredible ride throughout the past 12 months, but where might we all be heading?
What might be odd for our sector right now is the difference between what is likely to be a relatively benign housing/mortgage market environment, and what might be happening in the wider economy, particularly in a post-Brexit world and where we are still likely to be tackling COVID-19 for many months to come.
So, for example, at our recent Business Update for SDL in-house surveyors and network firms, we heard from Kate Faulkner who chairs the Home Buying & Selling Group (HBSG) about where the housing/market might be heading not just in 2021 but potentially further into the future.
Kate focused on a number of key areas, and how we might see little change – so when it comes to Bank Base Rate (BBR), for instance, while we currently have an incredibly low 0.1% rate, there is little suggestion from analysts and commentators that we’re going to see any major shifts in the years to come. Indeed, some are suggesting that while a move to 0.25% might be inevitable, there is a good chance that BBR won’t go much above that level for the next three or so years.
Now, while we all know that mortgage product rates – unless directly correlated – are not really tied to BBR, having that low rate is a positive for mortgage borrowers because the likelihood is that product rates won’t diverge too radically. Lenders’ cost of funds will determine at what rates they lend, and the margin they want/need to secure, but I don’t think any of us believes we’re going back to BBR of 2/3/4% anytime soon.
That will influence product rates and it does appear to suggest that borrowers will benefit from relatively low, competitive rates for the foreseeable future. Kate highlighted recent data from Savills which suggested average mortgage rates of around 2% are therefore on the cards for the next few years. Again, a positive for the mortgage market.
In other areas too, if we are to believe the analysts and commentators, we should have a fairly steady future. House price levels appear to be going up at a rate of knots, according to the more widely-read indices, but there is an anticipation that these increases will dampen down through the course of the year.
Many believe that significant drags on the UK economy – such as rising unemployment, the impact on incomes in the short-term, and how those might hit consumer confidence – will bring average house prices down. Indeed, there is a widespread view that prices will be, at best stable. Kate highlighted that Savills has suggested no annual growth in prices next year, while PWC suggest a 1% increase and JLL suggesting a 1.5% drop.
I think, as with all these predictions, we do need to take them with a pinch of salt – many of the same commentators were also suggesting double-digit house price falls back in May post-Lockdown 1 and that clearly hasn’t been the case, so again I wouldn’t be betting my mortgage on these coming true.
What we can however see is some potential headwinds that could have a major impact – will this stop the UK housing market from achieving over 1 million transactions again in 2021? Probably not – again there is a degree of bullish-ness about the market, even with those economic indicators I mentioned earlier, and a degree of unknowability about what might happen specifically after the ending of the stamp duty holiday.
That is perhaps the big unknown but we also know within the sector that our lending partners have significant ambitions for the year ahead. Their lending targets have not been dropped, and therefore the market may well see some very compelling and competitive mortgage rates and criteria in order to tempt in borrowers. The remortgage market is undoubtedly going to be an important sector for all of us in 2021.
I hope, like we believe in SDL Surveying, you are in a position where you can roll with whatever the market does throw at you, and that you can secure plenty of business from the opportunities that present themselves. There will be lots out there – make sure you get your hands on them.
Simon Jackson is managing director at SDL Surveying
