It’s not all doom and gloom

Reading the mainstream media, you would be forgiven for thinking that the UK’s mortgage market, housing sector and wider economy are all heading for disaster. Reports of a housing market crash and a painful and lingering recession are rife, as are further predictions of a global recession that is only going to add more fuel to the fire.

While there is no denying the fact that the last few years have been extremely tough on both consumers and business, there are also many reasons for optimism, particularly now that the dust has begun to settle, inflation is starting to fall and activity in the mortgage market is starting to pick up.

There have been an unprecedented number of major events in the last three years that have contributed to the financial volatility and ensuing uncertainty felt in the financial markets. Both the Covid pandemic and Russia’s invasion of Ukraine have impacted severely on worldwide supply chains and global energy prices, driving up costs and exacerbating the financial pressures felt by many consumers.

Yet as we enter the second quarter of 2023, I believe there is actually quite a lot to be optimistic about. Politically, the UK is in a less volatile place than it was six months ago, with Prime Minister Rishi Sunak bringing some much-needed stability to the country’s domestic affairs.

The issue surrounding the Northern Ireland protocol has also been addressed after years of failed negotiations and the Prime Minister’s serious attitude to public finances has helped to calm investors and stabilise the economy following the panicked selling of UK bonds after the mini budget in September last year.

While there has been a lot of press regarding the sharp fall in mortgage applications in the last three months of 2022, and suggestions that lenders have scaled back, or even stopped lending due to concerns about heightened risk, the market is actually showing signs of recovery.

Yes, mortgage applications took a nosedive in Q4 2022, but this was due to the sharp and sudden increase in the swap rate following the mini budget which caused some lenders to withdraw products from the market because they were simply unable to react quickly enough when it came to repricing. The knock-on effect was higher mortgage rates when they did return to the market, prompting a purchasing slowdown as borrowers adopted a wait and see approach.

But over the course of the last few months, mortgage rates on fixed rate products have started to improve. According to Moneyfacts, Nationwide had the best two-year fix on the market with a rate of 4.39% at the time of writing, a significant improvement on the highs of 6% offered by some lenders in October 2022.

This downward trend is likely to continue, with the Bank of England unlikely to raise rates much further in the short-term, leading to a gradual fall in both the swap rate and inflationary pressure. And while we may never return to the historically low interest rates seen over the last 14 years, a more stable interest rate environment is certainly coming, which can only be a good thing.

With the OBR also forecasting stronger real wage growth alongside a fall in inflation and interest rates by the end of the year, business confidence has also reached its highest level in 10 months, increasing by 11 points to 32% in March, according to the Lloyds Bank Business Barometer. These are all good signs and demonstrate growing confidence in the UK economy.

Given the scale of the challenges we have faced over the last few years, both domestically and globally, it is obviously going to take time for the market to settle down and confidence to return. Change cannot happen overnight, but it is certainly coming. It’s important we don’t lose sight of that.