Mortgage Market Predictions for 2022

Written on 9 December 2021 by Nicholas Mendes

Mortgage Market Predictions for 2022

It’s getting to that time of the year when the evenings are getting darker, the temperatures are dropping, and our mind starts wondering to plans of a summer vacation - which only means one thing, predictions time!  

2021 has felt like a mammoth year! Brokers, households, solicitors, and estate agents will be looking forward to taking some time to recuperate after the stamp duty holiday deadlines in June and September, which led to a surge in mortgage completions (17 year high forecasted at 1.5m).

The rising property prices across the UK, typically increasing in line with southern counterparts, are driven by the need for space, work life balance, and value for money.

At the time of writing, the Monetary Policy Committee (MPC) decided to hold the base rate to 0.1%. The rising inflation is exceeding targets and is forecasted to continue rising into spring 2022, which is already proving to make it difficult to put thoughts together.

But what next? Here are my views and expectations for 2022, in short it’s going to be a green one.

What’s Next for the Housing Market After the End of the Stamp Duty Holiday?

Property prices will continue to increase at a steadier pace in the new year, following the surge in property prices during the stamp duty holiday. According to a recent survey, 22% of households plan to move home over the next 18 months, as a result of the pandemic.

This pent-up demand can also be attributed to those who since the pandemic, are now feeling more confident about the new normal of working from home and flexible working hours. Those who may have commuted to work but now work from home, are finding they need more space and are taking the next step to find a home that more suits their needs moving forward.

We also see those that were tied into a fixed rate, coming to the end of their deal or nearing the final year, looking to take advantage of current low rates and potentially paying the ERCs to move, as the costs to exit is cheaper.  

This will reflect in the levelling up between the north and south as households hold more focus on how they want to live, with a greater sense on personal wellbeing, mental health, and space.

We’ll also see more focus around green sustainable housing. Both from a perspective of build, but also the small things household and landlords will be doing to do improve their EPC rating and combat the high energy costs.

What Level of Activity Do We Expect?

Following the end of furlough, one thing is for certain, the job market is strong, and this will bring a sense of confidence for both lenders and households as we move in to 2022.

The biggest threat to the property market is inflation and potential base rate increases. Those on a fixed rate will be immune for the time being. But we’re seeing the increasing living costs pushing up food and energy bills and eating away at disposable income, which could restrict how households approach the beginning of the year, as this is forecasted to increase until spring. Will households’ weigh up the costs of waiting against potential base rate rises, let’s wait and see!

Growing concerns about an imminent interest rate hike, and likely further increases in 2022, will directly impact mortgage costs. Other costs that we know will increase is the 1.25% increase in National Insurance contributions, which kicks in from April 2022. As well as the anticipated increases in council tax, adding to rising living costs and dwindling disposable income.

Next year is expected to be difficult one for first-time buyers. As a result, we’ll likely see a slowdown in the property market compared to this year, with both the numbers of transactions and increases in prices easing off, with property prices forecasted to increase by 3% this time next year. With that being said, there’s still a surplus of property stock and demand.

How Will Interest Rates Shift Over the Next 12 Months?

The headline rates of 0.79% achieved what they needed to, to get people talking and reviewing their mortgage. Many households on standard variable rates or coming to an end of the fixed deal within 6 months, were able to take advantage for putting a new fixed rate in place. The last few months have been historic lows, and no one would expect this to be the norm.

Lenders with savings from the pandemic or those with clients making overpayments, were able to provide historic rates but I wouldn’t expect to see rates at this level in the future.
With continued speculated base rate increase, it’s likely to affect the landscape next year and we’ll expect to see rates increase – at the lower LTV (60%) to 1.9%, at the higher 85% LTV would expect to rate in a 5-year closer to 2.5%.

What Do Advisers Need to Know and What Will 2022 Look Like for the Mortgage Market?

I predict there will be sweeping changes in the mortgage market, as we move into 2022.  I expect it to really pick up pace as new initiatives and lenders come into the market, with opportunity for households to get on the property ladder.

If we start with the deposit unlock scheme at 5% deposit, more lenders will be joining the likes of Nationwide and Newcastle BS, in helping homeowners get on the ladder, with help to buy ending in 2023.

Advisers will need to do more to understand lenders’ green products, how to qualify, the benefits and how to provide the right advice.

Green products will take over the best buys on both residential and BTL, we could even see new affordability and products being introduced on the back of this.

Finally, the introduction of longer-term fixed rates of 30-40 years. With the costs of living increasing, and the demand of fixed rate, we could join our European counterparts in offering lifetime fixes giving the borrower an increased level of borrowing and an attracted fixed rate.

At John Charcol, we have access to over 100 lenders and we’re here to help you secure the best rates for you no matter your circumstances. Get in contact on0330 433 2927or enquire online today.

Category:Nicholas Mendes