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The darkest hour is just before dawn, as the saying goes. That could apply to the mortgage market. Much of the recent commentary on the UK housing sector has been relentlessly negative – but much of it is wrong. In fact, there are real reasons for optimism.

While the market has suffered from recent political turbulence and the rising cost of living, there are already signs that the worst is past, and we could soon see the market pick up again.

In fact, agents in the first half of this year may find they’re busier than usual, as buyers and sellers who delayed their plans in the aftermath of the ill-fated mini Budget return.

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A new era

Of course, no one is pretending that nothing has changed. Many buyers did hit the pause button in October when the new government’s financial plans saw swap rates shoot up. Mortgage rates followed, and there were predictions that the base rate could reach record levels. That was bound to knock confidence.

But, since then, policies have changed and swap rates have already come down by more than one per cent. The expectation now is for the base rate to peak at between four per cent and 4.5 per cent, and possibly fall from there. Mortgage rates, likewise, are already under five per cent, and we could see rates back below four per cent early this year.

It’s a similar story with prices. Again, it was obvious we’d see a correction following the turbulence and uncertainty late last year. But much of this has already happened, and it followed a sustained period of increases.

Average UK house prices rose 10 per cent in 2021 and another 12.6 per cent in 2022 to October – up more than a fifth in under two years. Given that 2020 was also strong, despite the onset of the pandemic, what we’ve seen is less of a correction and more the froth coming off at the top of a bull market.

Most importantly though, the indications are that demand remains strong. Activity on property search engines remains high, and recent reductions in mortgage rates should attract more buyers off the sidelines. Add that to better-than-expected GDP growth in the latest figures, and things are looking up.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Foundations for growth

Several other factors are also supporting the market. Among these is overseas demand, which has played a central role in key locations such as London. With the pound remaining relatively weak, the UK is once again an attractive market. Along with the return of commuters, that’s helped push demand in the capital back up to 2019 levels, according to one major London agent.

Domestic demand and the crucial first-time buyer market will also continue to see support.

On the one hand, the government announced in December that it would extend the Mortgage Guarantee Scheme by a further year, helping those with five per cent deposits onto the property ladder. Launched in April 2021, it’s already provided help to 24,000 households, with 85 per cent of transactions being first-time buyers. As chief secretary to the Treasury John Glen said: “Extending this scheme means thousands more have the chance to benefit, and supports the market as we navigate through these difficult times.”

On the other hand, the private sector is also innovating to help buyers with private help-to-buy initiatives. Challenges remain around such schemes, including the cost of funding, overall affordability models and total capacity. Nevertheless, we’re likely to see this market continue developing in both depth and range in 2023.

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Technology driving innovation in the market

Crucially, technology helping spur innovation is also being more generally adopted by lenders, brokers, agents and others in the mortgage market. By the end of last year, Smartr365’s end-to-end mortgage and protection platform covered more than half of the UK mortgage market by volume. That’s expected to continue to grow through 2023.

Mortgage technology is now in the “late majority” phase of the technology adoption life cycle. That’s to say, it’s finally mature – and becoming ubiquitous.

That will help the mortgage industry become more efficient, better serve existing demand, tap into new buyers, and provide better solutions for customers. It should mean that we can help more people, more quickly to get the support they need to buy and sell.

And it means that brokers and others in the market are better placed than ever to look forward with optimism – whatever 2023 may bring.

By Conor Murphy

Source: Mortgage Solutions

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