MORTGAGE MATTERS – AUGUST

Inflation is finally showing signs of easing, having dropped to 7.9% in June, its lowest level in over a year, a good initial indication that we are on the road back to normality. With further rate rises already priced into mortgages and falling swap rates, the hope is that the mortgage market will steadily improve through the second half of 2023.

Latest projections are that interest rates are likely to peak before the end of the year, with inflation continuing to remain well ahead of target (2%), and wage growth and employment remaining strong (Dataloft, Average of independent forecasts made in the last 3 months, August 2023). The 5-year swap rate has dipped back to below 5% over the past few weeks, after peaking at 5.5% in May over concerns about core inflation. Mortgage lending showed an uptick in June to £20.0bn, with net approvals, an indicator of future borrowing, rising to 54,700, its highest level since October 2022 (Bank of England).

In the light of July’s better than expected inflation reading, lenders are reducing the cost of mortgage deals, starting with big high street lenders such as HSBC, Barclays and NatWest. The average two-year fixed deal is at 6.80% and the five-year at 6.28%, slightly down from 6.85% and 6.37% respectively at the start of the month. The last time the average two-year fixed rate was this much higher than the typical five-year rate was back in 2008 (Moneyfacts). The number of mortgage deals are also increasing, with 5,165 residential mortgage products available on the market, up from 5,111 the previous day (Moneyfacts, as of 11 August).

Although sentiment is improving, with mortgage rates headed in the right direction, downward pressure on house prices and transaction volumes persists and affordability concerns will prevail. There are an estimated 2.4 million fixed rate deals ending between summer 2023 and the end of 2024 (UK Finance), who will likely see their mortgage costs rise. Although some customers are holding off waiting for rates to come down, most lenders will allow switching to a new rate before their mortgage application completes without any issues.

With the ending of the government’s Help to Buy scheme in March, having helped more than 350,000 people buy their own home since its launch in 2013 and first-time buyers accounting for 83% of total purchases (Gov.uk), there is a clear gap for those looking for a low deposit solution. Shared ownership creates the option of buying a share (between 25% and 75%) in a home and paying rent on the remaining share, often working out cheaper than renting. The deposit needed (typically between 5% and 10% of the share bought) is significantly lower than the average deposit of 24% paid by a first-time buyer in the UK (UK Finance), making shared ownership a more affordable route into homeownership.

Government figures show that 19,386 new shared ownership properties were delivered in 2021-22, an increase of 14% on the previous year and the highest number since records began in 2014-15. Currently, there are over 150,000 households in England living in shared ownership homes – around 1% of all households (Money Saving Expert). The clear demand for low deposit alternatives has expanded into 2023 and can be available to a wide spectrum of potential buyers.

Disclaimer: The above is for information only. Independent regulated financial advice should always be sought when considering mortgage matters.