Sam Barrett explores what 2022 holds in store for the UK housing market
It has been a busy year for the mortgage market, with the stamp duty holiday and historically low interest rates driving demand for property. Now, with the stamp duty holiday over, property prices surging and interest rate rises on the cards, 2022 could be very different.
But while property listings may have slowed in the last few months of 2021, the market is expected to remain buoyant. “Consumer confidence is robust,” says Carlos Thibaut, board consultant at Paylink Solutions and chair of the Society of Mortgage Professionals. “The froth of the stamp duty holiday has died down but the market has settled back into business as usual.”
The pandemic is fuelling this in a number of ways. Savings on stamp duty may have been the proverbial cherry on the cake when it came to making a move, but consumer attitudes to property have changed during the past 18 months. “Being at home more during lockdown really made people focus on what they wanted from their lives and property,” says David Hollingworth, associate director, communications at L&C Mortgages. “Some were happy to move during the pandemic but I expect more people will move over the next year or so. The shift to hybrid and remote working gives them much more choice over where they live.”
Only way is up
Another shift expected in 2022 is an increase to the Bank of England base rate. As the Monetary Policy Committee (MPC) tries to put the brakes on rising inflation, a higher base rate will have repercussions for the property market.
The prospect of rate rises drives mortgage activity. “Interest rate rises are the new stamp duty holiday,” says Nick Mendes, mortgage technical manager at John Charcol. “The mortgage market has been really busy as everyone rushes to get applications for new fixed-rate deals in before the base rate increases.”
The possibility of rate rises may strike fear into anyone who can remember back to 2008 when the base rate was above 5% but few expect it to end up anywhere near that level. “Any rises will be small and gradual,” says Mr Hollingworth. “The inflationary pressures are expected to be shortlived and, if the MPC does it gently, it gives them something to use in the future.”
While a higher base rate will mean more expensive deals, it is unlikely to cause much pain to mortgage customers. Most borrowers are shielded by fixed rates and even those who get caught when a deal ends will feel only a small financial squeeze.
As an example, figures from John Charcol show that if the base rate increases from 0.1% to 0.5%, it would only add an extra £53 to the monthly repayment on a £250,000 loan, assuming a standard variable rate of 3.99% and a 20-year term.
Given the buoyant job market,Mr Thibaut does not expect people to feel much financial pain from any increases to the base rate. “The rising cost of other household expenses such as energy and groceries is much more visible,” he explains. “There will be plenty of deals around; the mortgage market is so competitive.”
This competition means there is lots of choice and flexibility in the mortgage market too. Mr Hollingworth says that, although furlough made lenders nervous during the pandemic, most are now much more comfortable. “Many put restrictions in around variable incomes but most have lifted these and will consider overtime and bonuses in their affordability calculations again,” he explains.
Similarly, more mortgage options are emerging. Mr Mendes expects to see more long-term mortgages launching in 2022 but his top prediction is for more green mortgages. “Being green is on everyone’s minds and it is no different in the mortgage market,” he explains. “These reward owners of properties that have an energy-efficient property, usually Energy Performance Certificate rating A or B. The latest propositions also focus on lending sustainability, as these properties will have lower energy bills.”
As well as greater demand for green mortgages, Mr Thibaut believes that, increasingly, consumers will weigh up a business’s ethical values alongside factors such as their service and fees before selecting them. “ESG is not just for the FTSE 100 companies,” says Mr Thibaut. “It can help a company communicate better with its community and, by embracing it, a broker can differentiate its business.”
For a mortgage broker, promoting green mortgages is one way to demonstrate these values but other actions could include switching to electric vehicles, engaging green suppliers and making a net-zero commitment. “The technology companies are always looking to disrupt markets,” Mr Thibaut adds. “Building a business that is sustainable and scalable will help mortgage brokers secure a bright future.”
With 2022 set to be another busy year, whether helping clients to beat base rate rises or advising them on how to finance a house move, having a robust plan for the future is a must.
Sam Barrett is a freelance journalist