By Mark Dickety on



The mortgage market in the context of the UK economy

Despite prevailing challenges, economic forecasts are improving, inflation is falling and there are signs that cost of living pressures are beginning to ease, all good signs for the housing market. Sentiment is generally positive, with customers increasingly accepting the higher mortgage rate environment, and hoping that rates will start to come down in the next few months.

The Bank Rate currently stands at 4.5%, with speculation it could rise to 4.75% when the new figure is announced by the Monetary Policy Committee on 22 June. Despite this, the UK economy is now forecast to grow by 0.4% in 2023, a notable improvement on last month’s forecast when it was predicted to shrink by 0.3% (IMF). Albeit still negative, consumer confidence continues to steadily grow, reaching its highest level in 15 months. An 11-point uptick in May reflects many households becoming more optimistic about the economy and their finances despite persistent inflation. Although taking longer than anticipated, inflation is finally starting to fall, dropping to 8.7% in April. Falling energy prices are set to lower consumer bills in the months to come.

Mortgage approvals rose 14.9% in April versus March (Bank of England), tracking back to more normal levels as prospective purchasers continue to transact and the market continues to normalise. Over the past week, mortgage rates have risen slightly, prompting lenders to be cautious of further interest rate hikes. The average two-year fixed rate deal currently stands at 5.49% (Moneyfacts). A higher base rate will also mean variable and tracker mortgage rates will be increased. Swap rates remain high, with many deals being pulled from the market. The number of residential and buy-to-let deals available has fallen to 5,102 from 5,395 since 22nd May (Moneyfacts).

Affordability is still stretched and many are struggling to get higher Loan-to-values, with 95% lending still happening. However, sustained higher mortgage rates mean that people are buying properties they will be able to afford in a more comfortable and steady market. Lenders are actively trying to encourage borrowing, resulting in a marked increase in flexibility, and loosening criteria to attract business. Product choice is changing rapidly, with new products coming out, such as Skipton Building Society’s 100% loan-to-value mortgage, aimed at getting renters on the property ladder. This has proved highly popular, with more similar deals likely to be brought to market. The first-time-buyer(FTB) mortgage market continues to boom, with more than 60% of FTBs using joint mortgages (Halifax).

The traditional buy-to-let market remains slow, with rates increasing and deals being pulled. Since the start of last week, the number of buy-to-let mortgages has fallen from 2,748 deals to 2,343 (Moneyfacts). Lenders are continuously reviewing how they profile and stress test the sector, aware of the fact that the market needs invigorating. However, in an ever-evolving rental sector, landlords are being increasingly drawn to buy-to-lets with stronger rental yields, such as holiday lets, multi-unit blocks and houses of multiple occupancy. Such markets are performing very well, with more lenders considering them.

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Mark Dickety
Mark is an experienced Mortgage and Protection Adviser who has been providing mortgage advice since 2010. He thrives on finding the right solution for each of his clients' requirements ensuring they have the best experience possible.
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