Even the most gifted of psychics could not have foreseen what 2022 had in store for the mortgage market.
Back in January, with the average two-year fixed rate a mere 2.38% and inflation at 5.4%, most were predicting a calmer 12 months for the homebuying market, having just recovered from the busiest year since 2006.
Those who were hoping for a slower-paced market were in for a shock. A fast-approaching cost-of-living crisis did nothing to dampen buyer appetite and by the spring the housing market was in a frenzy, with Hamptons reporting 39.7% of homes for sale being subject to a bidding war.
When assessing 2022, one thing that stands out for me is collaboration
The anticipated slowdown did not materialise until the end of the year, following the now-infamous mini-Budget disaster.
As brokers and lenders take a well-earned rest over the festive period and ponder what surprises the next 12 months have in store, we look back at some of the highs and lows of 2022.
Open all hours
During the past year the lender/broker relationship has been tested to the max.
One of the greatest frustrations, for brokers and clients, has been the speed at which products were pulled. By March, the property market had, to put it bluntly, gone crazy.
As the Bank of England’s (BoE) base rate started to creep up, so did demand for property — and mortgages. With some lenders still suffering staff shortages due to Covid and remote working, many buckled under the pressure, resulting in 11th-hour product withdrawals. This forced brokers to work into the night to secure the best rate for their clients.
The past year has brought difficult financial news for many clients but it has also instilled a new appreciation for the role of advisers
The constant repricing meant double the workload for brokers in some instances.
“The most impactful change for brokers and their clients in 2022 was the significant extension in mortgage completion times,” says Just Mortgages national operations director John Phillips.
“Whereas 12 weeks could be seen historically as a benchmark time, this was stretched to 22 weeks and that raised a number of notable challenges.
“With the base rate rising and a cost-of-living crisis looming, mortgage offers started running out, rates were being pulled and repriced and, in many cases, brokers had to re-broker the same client, meaning in effect they had done the job twice but would get paid only once.”
A second charge has suddenly become of interest to those brokers who had previously shunned it
Phillips adds: “This had a knock-on effect to businesses, not least as the regularity of commission payments previously taking three months and now taking five. Brokers had to restructure their business and cashflow expectations and for many this was a struggle.”
Outdated systems
The market chaos also left brokers again questioning why some lenders’ systems were not up to speed.
Although the introduction of digital signatures, digital identification and automated systems continued in 2022, the market rush highlighted the flaws in some lenders’ outdated and manual processes. The situation, however, was to become much worse later in the year, following former chancellor Kwasi Kwarteng’s incendiary mini-Budget.
While not immune to the tougher economic climate, the bridging sector has proved resilient
The pound plummeted and the cost of borrowing rocketed in the wake of his proposals, resulting in more than 900 mortgage products being wiped from the market almost instantly.
For some brokers the constant withdrawals weakened the broker/lender bond; for others they strengthened it.
“When assessing 2022, one thing that stands out for me is collaboration,” says LDN Finance chief operating officer Greg Cunnington.
“When the property market was buoyant for the first two-thirds of the year, we saw service standards remain high thanks to lenders ensuring systems and processes were, in the main, in a good place, while working with intermediaries on packaging requirements and tips to ensure a smooth application process.
We have seen some landlords cancel plans to expand portfolios and others reduce their residential exposure
“Then, post mini-Budget, the closeness of the relationships and collaborations helped to ensure our advisers had knowledge to pass on to their clients. Criteria tweaks to move forward product transfer windows also helped massively in getting a new product reserved for very nervous and stressed clients.”
Buy-to-let woes
The buy-to-let (BTL) market has been one of the biggest casualties of the past 12 months, although the year started off well. Renters were returning to city living following a move to the countryside during Covid.
The average BTL two-year fix was just 2.94% in January and rents were ever increasing. Rightmove reported the fastest annual growth rate in rents between April and June for 16 years.
Green mortgages also started to move up BTL lenders’ agenda.
With rental calculations being stretched, bridging has become more of an option for landlords
“BTL lenders began launching green mortgages in 2021 and these have been picking up traction in 2022,” says Landbay managing director of intermediaries Paul Brett.
“More landlords are becoming aware of the need to have all tenanted rental properties at an energy performance certificate [EPC] rating of C as we get closer to the 2025 deadline.”
Those who were hoping for more clarification in 2022 on what the EPC rules would entail for landlords were left disappointed, however, with the final legislation still not passed as Mortgage Strategy went to press.
Professionalisation
The increasing regulation and costs associated with BTL meant the professionalisation of the sector also continued, with 50,445 new limited companies set up to hold BTL property in the 12 months to September, according to Hamptons.
“2022 has been a challenging year for residential property investors,” says Hampshire Trust Bank managing director of specialist mortgages Chris Daly.
“Over the past 12 months we have seen a continuation in the trend of the market moving to a more professional type of landlord with multiple properties, at the expense of the smaller, amateur landlord.
BTL lenders began launching green mortgages in 2021 and these have been picking up traction in 2022
“Houses in multiple occupation and short-term lets have been the leading growth areas for the specialist residential investment market in 2022.”
Although BTL rates have been rising all year, the mini-Budget has left the sector in disarray.
“Affordability has become more stretched due to the rise in the cost of bank debt, driven by both the BoE’s base rate increases and the wider swap market volatility since September, coupled with the cost-of-living crisis driving higher rental arrears,” says Daly.
“We have seen some landlords cancel plans to expand portfolios and others reduce their residential exposure as a consequence.
“Of course, those landlords who are less encumbered or have pools of available liquidity are best placed to seize buying opportunities at attractive prices.”
Criteria tweaks to move forward product transfer windows helped massively for very nervous clients
The fallout from the mini-Budget sent shockwaves through the BTL market. By the start of October, just 1,057 BTL products were available, compared to 2,075 at the start of September.
Even more worrying were the stress tests imposed by lenders, with The Mortgage Works applying a minimum stress rate of 8.49% on all new BTL applications.
Although BTL rates have come down since the autumn, the sector ends the year in a precarious position.
Lenders are assessing how they will best assist landlords in 2023.
Rise of the specialist sector
As conditions in the BTL sector deteriorated throughout the year, the bridging market helped pick up the pieces.
Brokers had to restructure their business and cashflow expectations
Despite bridging completions falling by 15.8% in the first quarter of the year, completions were up by 36.2% in the third quarter, compared to the same period in 2021.
“While not immune to the tougher economic climate that the residential mortgage market has been so affected by this year, the bridging sector has proved more resilient,” says Hampshire Trust Bank director of bridging Jamie Jolly.
“With rental calculations being stretched, bridging has become more of an option for landlords and many have used bridging to seize the opportunity to buy additional properties and/or release equity from low-leveraged properties.”
Another knock-on effect of the rising interest-rate environment has been a wider awareness of second charge mortgages.
The anticipated slowdown did not materialise until the end of the year, following the now-infamous mini-Budget disaster
“2022 was a watershed moment for second charges,” says Central Trust director of commercial operations Maeve Ward.
“A bank rate of 0.1% in November 2021 but 3.0% a year later means for thousands of people looking to raise capital a remortgage is not an attractive option. They face losing a preferential rate, which could cost them many hundreds of pounds a month.
“A second charge has suddenly become of interest to those brokers who had previously shunned it.”
Silver lining
The mortgage market is ending 2022 in a very different position from when it started. A rise in the base rate was inevitable this year but the speed with which it has happened has transformed the market within 12 months.
The average two-year fix had risen from just over 2% at the start of the year to just over 6% by the end of November. Nevertheless, we end 2022 with house prices up by more than 7% annually, and approach an uncertain 2023 having experienced an exceptionally strong market over the past few years.
Brokers often had to re-broker the same client, meaning they had done the job twice
One constant during the year, and perhaps one of the few silver linings, was the emphasis placed on the need for advice. Throughout the market confusion, many borrowers’ first instinct was to pick up the phone and speak to their broker, in search of reassurance and advice.
The past year has brought difficult financial news for many clients but it has also instilled a new appreciation for the role of advisers, which should carry through to 2023 — whatever it may bring.
2022 timeline
January – UK Finance predicts a calmer year, following the ‘Wild West’ market of 2021.
February – The Bank of England raises the base rate by 0.25% to 0.5% in a bid to curb inflation of 6.2%. In the same month, Russia invades Ukraine.
March – Nationwide reports a 14.3% annual increase in house prices — the biggest such increase since 2004.
April – 53% of properties are selling at or over the asking price, according to Rightmove, with prices increasing by £19,082 in three months — the largest three-month increase ever recorded.
May –The average two-year fixed rate rises to 3.03% — the first time it has breached 3% in more than seven years.
June –The BoE raises interest rates for the fifth month in a row, from 1% to 1.25%.
July – The Financial Conduct Authority reveals its final Consumer Duty rules, giving firms until July 2023 to implement changes. Boris Johnson is forced to resign as prime minister over the Partygate scandal.
August – The BoE scraps its mortgage affordability stress test. Ofgem announces an 80% rise in the price cap on energy bills, from £1,971 to £3,549.
September – Chancellor Kwasi Kwarteng delivers his ill-fated mini-Budget. The pound drops and gilt yields rise. Mortgage lenders withdraw 935 products in one day — the highest daily fall recorded by Moneyfacts.
October – Jeremy Hunt is appointed as the new chancellor; within days he reverses almost all the tax cuts announced in the mini-Budget. In the same month, the Help to Buy equity loan scheme closes to new applicants, having helped over 225,000 buyers since its launch in 2013.
November – The BoE raises interest rates by 0.75% to 3% — the biggest hike since 1989. The average two-year fix rises to 6.23% and inflation hits 11.1% — the highest rate in 41 years.
This article featured in the December 2022/January 2023 edition of MS.
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