So, with just over three months left of the year, what are we to make of the current mortgage market, and what the next quarter might bring as we motor towards the end of 2023?
To say that August was a sluggish month for activity would be an understatement. The final month of summer was far slower than anyone would have liked, more so than you would expect in any ‘normal’ year but how ‘normal’ is this one? We’d contend that, in terms of recent history, not normal at all.
That said, we have seen a pick-up in September albeit predominantly focused on the remortgage and product transfer sectors – quelle surprise – but if anyone can spot a resurrection of the purchase market, then please let us know.
There’s no doubting that on this side of the housing market equation, we find some very small numbers being achieved and, given the nature of the economy/market/political landscape, you might well wonder whether this will can be turned around any time soon? Thank goodness for refinance.
Certainly, upping purchase numbers is going to need a number of ducks to be lined up in a row, not least some serious government intervention accompanied by lender focus, innovation and appetite, not just in terms of first-timer buyers but also for those second and third steppers who currently feel stuck in their starter homes with no way to move up the ladder.
Whether we get the former remains a moot point. The Autumn Statement in November is going to be key here, but certainly lenders have a massive role to play, in terms of price, flexibility, innovation and criteria shifts which should be focused on making it easier to buy, not harder.
Have lenders taken their eye off the ball here? Well, let’s just say that what we are likely to see over the coming weeks from them is, in our view, going to be something akin to mild price panic.
This theory is based on the fall in product rates we’ve been seeing in recent weeks from some of our biggest lenders, which could not be said to be determined by, for example, swap or base rate movements, but instead is being driven by a realisation that hitting targets for 2023 on current activity levels is nigh on impossible.
And one of the drags on activity is of course the high rates we have seen. It is perhaps no wonder that such a fuss has been made about the discrepancy between what rates the banks have been offering to savers, with Base Rate over 5%, and what they have been charging borrowers. There has appeared to be little correlation between the two.
Instead, in an attempt to grab greater margin levels from lending, they have effectively set pricing too high for too long and, as a result, are now belatedly realising that rates need to come down if there’s any chance of business activity picking up in the rest of the year.
Lest we forget, purchasing is – by any admission – at pretty much ‘necessity’ levels. That is, the only purchases that are happening right now are the result of death or divorce; essentially forced sales moves – those that absolutely have to happen, like relocating for a job.
Speculative entrants to the housing market are non-existent because, well, why would you? Prices falling, rates high, affordability challenging, mortgage payments up, stamp duty costs, moving costs – all have to be taken into account and people faced with these circumstances are more likely to determine that now is not the time, even if they really need that extra bedroom.
Clearly, we also need a more strategic focus on housing supply as that impacts on the ability of people to buy. We’ve seen a major drop-off in activity from first-timers with the cull of Help to Buy, plus you question why many developments are focused on one-bedroom flats when what people really need is two/three-bedroom houses.
In simple terms, the housing market needs a reset and it needs to be focused on as an area where a few simple initiatives, schemes and incentives can make a major difference. We should not write off the rest of 2023 but it is hard to see a significant difference in the market over the next three months, compared to what we have witnessed/endured in the first nine.
The narrative for 2024 could be much more positive though. We can accept what happened in the past but we need to see a vision for the future, and an understanding that to keep on like this is not in anyone’s interest. All property market stakeholders, but particularly Government and the lenders, have the weeks ahead to make that clear, and show clear leadership and action to shift the dial.
Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services