Latest forecast on what may happen to the mortgage market in 2022

Mortgage expert Andrew Milnes predicts what will happen to interest rates and mortgages in 2022

After a turbulent 18-months, the mortgage industry is in good shape, with lenders regaining confidence, particularly for high loan to value lending. Although some lenders have narrowed the number of products on offer, eligibility criteria for borrowers is generally much the same as it was pre-pandemic.

But what’s in store for the market over the next 12 months? Andrew Milnes, Business Principal and Mortgage Adviser at Mortgage Advice Bureau Bingley, looks to the future, offering a lender’s perspective on key market considerations from interest rates to availability of funding and employment implications. Here is what he has to say:

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Over the past few months, with many lenders competing in the race to the bottom on price, we have seen significant competition, which has benefitted borrowers. Previously anticipated for November this year, the Bank of England voted in favour of holding any interest rate rises, which was, in part, to protect the economy However, the Bank of England has just raised rates for the first time in three years, from 0.1 per cent to 0.25 per cent. This is an effort to control surging rises in the price of goods and services, which are going up at the fastest rate for 10 years.

Mortgage market forecast for 2022

The rate rise is likely to prompt lenders to pull their most competitive products and to increase rates, albeit by relatively modest amounts. And while it is always very hard to forecast what lies ahead, it is likely that the mortgage industry will see at least two, if not three, such increases over the next 12 months. I believe that in the final quarter of 2022, it will not be surprising if the market is looking at bank base rates of three quarters of a per cent, up 0.65 from where it was in early December 2021.

Looking forwards, the long-term cost of funds is unlikely to be affected, particularly as we see regular movement in that area. In December 2021, for example, lenders might have offered a fixed rate mortgage at 1.5 per cent but any increase over the next 12-months will be marginal. All things considered, this is actually a very positive message for customers as there will still be plenty of options and products for borrowers to choose from.

This is due in part to the majority of lenders reporting very healthy profit margins thanks to the unprecedented boom in home buying and selling last year. The fact remains that banks and lenders have got money to lend and their balance sheets are strong.

Ultimately, they make money by lending money and credit is certainly available if a) you have a healthy credit score and b) affordability is right. Now that the government’s furlough scheme has come to an end, it is likely that we will see a short period where lenders consider the consequences of that change.

They will be looking at how it will impact the broader market and possible changes to policy and criteria for those customers who have been subject to support

measures. But with more than one million jobs currently vacant in the UK employment market, those looking for employment are likely to find it in sectors that are currently under resourced.

Therefore, many of those that have experienced employment turbulence during the pandemic can be considered once more, subject to probationary periods, for mortgage eligibility. Things are also looking up for the self-employed, most of who, industry depending, have a full 12-months work under their belt since the first lockdown hit in March 2020.

This now puts them in a much stronger position when it comes for applying for a mortgage and evidencing their financial stability. That being said, it is still vitally important that all prospective buyers have full job security or that they are comfortable with their financial situation before entering into any large financial commitment. such as a mortgage.

A lot of businesses across the country are still feeling the impact of Covid-19, and there are more costs to come as we progress into 2022, from increases in National Insurance to additional pension scheme contributions and the lifting of VAT suspension. For all these reasons and more, some employers are still struggling to meet their monthly wage bills, so prospective buyers should consider their financial security from all possible angles.

The best way to do that is to seek expert advice, to ensure that any mortgage agreement they enter into is suitable for their individual circumstances. Would-be borrowers also need to be aware of eligibility and the information that is required before a lender will consider them for a mortgage. Savings, along with income and spending habits of first-time buyers with low deposits are particularly well scrutinised to ensure they are able to make repayments.

Andrew Milnes is business principal at Mortgage Advice Bureau, Bingley. Tel: 01274 568832.

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