UK analysts are anticipating a continued drop in mortgage rates early this year. Together, these changes are poised to dramatically reshape the mortgage market. As per Moneyfacts, the future looks bright as predictions are made for the market to be worth £105 billion by 2026. This momentary bliss comes on the heels of a dramatic increase in the availability of mortgage non-QM products. The choices on hand have now reached their peak level in 18 years. Among a number of sectors that stand to benefit from the changing environment are first-time buyers, who are witnessing overhauls of lending criteria.
Over 80 per cent of mortgage borrowers have fixed-rate contracts, many of which are expiring soon. These agreements mitigate interest rate risk over the life of the contract. In practice, these contracts are usually for two to five years. With wages increasing, mortgage payments relative to income are decreasing. This change places first-time homebuyers in a better economic position. Even with these strides forward, brick wall property costs remain an insuperable hurdle.
The UK housing market has transitioned from the “red-hot” seller’s market that followed Covid-19, according to housing expert Henry Pryor. He added that with interest rates going down there is still less supply on the market. Buyers are being more cautious, and there is a gap between seller expectations of the market versus buyer expectations. Sellers still think it’s 2022, buyers feel like it’s 2014.
To stay ahead of the competitive market landscape, lenders are changing their strategies to better serve more first-time buyers, said Jo Jingree. She stated, “These include allowing borrowing up to six times your income, where affordability allows.” This flexibility is intended to provide for newcomers to the housing market during a time of pervasive and persistent affordability challenges.
With total dollar volumes rising sharply, lenders clearly expect intense competition this year. This increase will be fully attributed to 1.8 million borrowers coming up on their limited term fixed-rate contracts. As a direct result, consumers should expect to see more appealing products and likely lower interest rates too. Aaron Strutt remarked, “We can expect to see some more criteria easing and hopefully even cheaper fixed rates.”
While this is a hopeful trend, global economic pressures resulting in market volatility could stifle the momentum toward any additional progress in the residential mortgage market. Nonetheless, analysts remain hopeful.
“Interest rates seem to be coming down, [housing] supply remains constrained but people have choice and are more cautious. The biggest problem remains price – sellers think that it’s 2022 while buyers think it’s 2014.” – Henry Pryor
