Mortgage Market Update – November 2022
Founder of Rose Capital Partners
It very much looks like we are over the hump now.
Mortgage pricing is coming down, money markets continue to settle, and lenders are offering pretty much a full range of products again. Lets hope the now infamous ‘Mini-Budget’ is reserved for Pub Quiz’s and nightmares only now!
However, the impacts will be deeply felt for some time to come, as forcing nearly a years worth of interest rate rises into a month was always going to have a fall out. So that is what I intend to focus on this month on the two core areas we look at – What that means for mortgage pricing and products, and by return, what impact that may have on the property market?
This period more than any other is the preserve of the technician. By that, I mean advisors who truly understand how to place a case and know where to look. A lot of the tech tools that we use on a daily basis simply haven’t been able to keep up with the changes, and some lenders are cute by not putting their best products on sourcing tools when they are available. So those of us who were used to placing mortgages before we had all this handy tech have a huge advantage. The best analogy I can give you is when SatNav’s first became widely used, if you recall there were stories of people driving into rivers as they were blindly following the directions and not applying common sense. That is very much how the mortgage market is now, you need to apply common sense and logic and know how to read a map! Tech does make us lazy, so it is important to apply the grey matter when looking at the present market (and quite frankly a life rule), which brings me nicely to my first point:
Are you getting the best mortgage deal?
This is the perennial question for us and by return the advice we give our clients. We have seen a seismic shift in the types of products we are recommending in the last few months as the table and chart below shows.
This is certainly the first time in our 8-year history that variable rates of one type or another, accounted for more than 50% of our new business. In fact, I have to think back to the days before the Credit Crunch when we last saw this. While the conditions then were wildly different the principle was the same – the difference between a variable rate and a fixed rate was greater than expected base rate movements. Again, in simple terms – if you are looking for a mortgage right now you will be confronted with a choice – do you go with a variable rate mortgage which is likely to be nearly 2% cheaper than the comparable fixed rate? If you feel the base rate will not go up by more than 2%, then the answer is yes. If you do not, or simply want to be able to budget if finances are tight as you do not want to take that risk, the answer is likely to be no – it really is as simple as that, and perhaps why we are now seeing a majority of clients who are choosing to ‘risk’ the variable option. It is logical as money markets are not predicting anything like a 2% rise on the base rate from here (see below for stats on that).
If you are moving, or buying for the first time, that choice isn’t so hard, but if you are refinancing after 13 years of ultra-low interest rates, this will come as a shock to the system not seeing a mortgage rate that starts with a 1! In fact, going from a low 1% rate to even 3% is a shock and if you need or want to fix, that could well be north of 5% at present. You are always going to notice a 300-500% increase in costs! So understandably, some feel the heat or indeed pulse will come out of the property market next year, so I will share some thoughts on that next:
An eternal question that people better than myself have failed to answer. Also, I think it will be a more complex question to answer than usual next year as I feel it will very much depend on your price point and area as to your experience.
Again, at the risk of over simplifying, I think there are 2 dynamics at play:
- The value you will be looking at has a huge impact. It is very likely the top end of the market will hold quite well, the reason for that is very simple as higher earners can absorb the cost-of-living crisis and higher interests much better than lower earners. So conversely, you could well see the largest house price falls in the lower end of the bracket of the area you are looking at. A specific dynamic to the market in London, which is our core area, is that most prices have only just gone above 2016 levels, so anyone waiting for a ‘house price crash’ in the big smoke could well be waiting for a while yet.
- The area is also a huge factor. As touched on above, London and the South East overall is likely to hold up quite well on pricing as it is a more affluent area that suffers with a huge lack of housing stock. However, if I were in Liverpool or Taunton (some of the areas which have seen the highest growth post-pandemic), I would not be so confident. I feel the areas that had a mini-boom following the remote working revolution could well see some correction, as over inflated prices and the squeeze for many to return to the office more frequently could see quite a correction next year.
We are seeing house price growth slow at present, which will most likely start to see some genuine falls next year, the price point and area will determine by how much and for how long. If you want to look at this in more detail, I thought the Savills report on this was a really excellent read which goes into greater depth on the themes I mention above with some very novel graphics to boot!
Now more than ever, people need high quality advice. There are many technical factors involved in finding the right mortgage product for *you*. As illustrated above, the product choice coupled with lender criteria understanding is crucial. We have massively increased the lending we are doing with smaller building societies, so we have been on Google Maps looking up quite where Monmouthshire, Furness and Tipton are (these are all real places by the way, not just a leg of a journey in Lord of the Rings), mutuals are great lenders and indeed started mortgage lending as we understand it today. However, there are some strange rules at times so you need to be really careful that a seemingly simple case is indeed that to a small entity who’s average loan size is around £100,000, and you are looking to place a case of magnitudes of that. As ever, knowledge is the key and hence why we are weathering this storm far better than some other firms and especially banks directly, which I have seen really struggle as they are not adapting to the new world. If you haven’t had a conversation on variable rates, you simply are not being advised correctly at present. Whether you take one or not will be down to your own personal risk appetite and budget, but it needs to be part of the conversation.
Money Market & Mortgage Rates
- 5 Year money down 0.712% to 3.788%
- 2 Year money down 0.478% to 4.272%
- 3 Month Sterling Libor up 0.316% to 3.656%
- UK Base Rate up 0.75% to 3.00%
Market Leading Mortgage Rates:
- 2 Year Fixed Rates from 5.00% (previously 5.49%)
- 5 Year Fixed Rates from 4.84% (previously 5.17%)
- 10 Year Fixed Rates from 4.89% (previously 5.09%)
- Variable Rates from 3.29% (previously 2.85%)
- Buy To Let Rates from 3.24% (previously 3.54%)
The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process