The UK mortgage industry in 2024, what does the future hold?
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International sanctions following Russia’s invasion of Ukraine forced up global gas prices, which had already risen following increased demand as the coronavirus pandemic lockdowns ended.
Soaring energy costs pushed inflation to levels not seen in the UK since the early 1980s, with the Bank of England responding by raising interest rates, which had remained at historically low levels following the central bank’s response to the 2008-9 global financial crisis.
With the cost of borrowing on the rise, homeowners were hit by a double blow of higher mortgage rates and less money in their pockets as inflation outstripped any increase in their wages.
At the turn of the year, UK Finance – the trade body that represents banks and other financial services firms – warned that the outlook for the mortgage market would be framed by “continuing challenges” before beginning “to look up in 2025”.
The organisation forecasted that gross lending would fall by a further 5 per cent during 2024 to £215 billion, with lending for house purchases dropping by a further 8 per cent to £120bn, external remortgaging activity decreasing by 8 per cent to £60bn, and internal product transfers also dipping by 8 per cent to £202bn.
Subdued market
John Baguley, mortgage policy principal at UK Finance, told FinTech-Tables: “The continuing affordability challenges facing borrowers, as a result of the higher interest rate environment coupled with the increased cost of living, are likely to mean that activity in the mortgage market will remain subdued throughout this year.”
In Scotland, lenders see the housing market as being more stable than other parts of the UK, especially London, where house prices fell last year [2023] at their fastest pace since 2009.
Stephen Brown, head of intermediaries at Scottish Building Society, said: “When we entered the year, there was a degree of nervousness around the fact that interest rates are at their highest level for more than 15 years and that could lead to a ‘payment shock’ for homeowners, which would make them more reticent to either move or borrow additional capital for home improvements.
“But, as the rubber meets the road, we’ve had a really positive start to the year.
“Looking at data from Twenty7tec, there are signs at this early point in the year that there’s strong consumer demand – the remortgage market is performing well, first-time buyer searches are up around 9 per cent on last year, and so are home-mover searches.
“We’re also seeing the highest level of product availability in recent mortgage history.”
Looking further ahead, Mr Brown pointed to the Sterling Over Night Indexed Average (Sonia) swaps, which replaced the London Interbank Offered Rate (Libor) in 2021 as a key interest rate benchmark.
“Looking at Sonia swaps, in a year’s time the base rate could be somewhere between 4.5 per cent and 4.75 per cent,” he said.
“In five years’ time, there’s an expectation that the base rate will be hovering somewhere under 4 per cent, so there won’t be a return to those historically-low, near-zero interest rates.”
Experience of mortgage market
While mortgage rates are a major factor, some financial services experts point to considerations surrounding borrowers’ experiences of the process for taking out mortgages.
Dean Butler, managing director of retail direct at Standard Life, recently remortgaged and believes the customer experience needs to be improved.
“As it stands, the entire process from start to end puts the customer on the back foot,” he explained.
“Financially and emotionally, remortgaging takes its toll on people.
“If you’re moving house at the same time then you’re compounding that fear and worry as well.”
Mr Butler added: “It’s not a transparent process. I’ve not seen anyone take this issue by the scruff of the neck and say, ‘Let’s change this’.
“The mortgage companies all compete on their rates – they don’t seem to compete on how you can get a customer and keep them – how can they make this customer a customer for life?”
Two of the ways that lenders can improve the experience for borrowers and navigate challenging market conditions are to harness the power of financial technology (fintech) and use data to drive innovation.
Where fintech can help
Fintech could help mortgage companies to digitise some of the procedures still carried out using paper and give borrowers a clearer idea of how long the application process will take.
Behind the scenes, fintech and data-driven innovation could also help lenders to react more quickly to demand for popular products or to changes in interest rates.
Read more about what is being done to Transform the UK Mortgage Market in our dedicated Mortgages Hub – HERE
Download Mambu’s recently published report ‘Revolutionise mortgage lending with cloud-based tools: a guide to efficient loan management’ and discover how moving core lending technology into the cloud can open the doors to a resource-lite way to develop, launch and run exciting new mortgage solutions.