Is Mortgage Borrowing Set To Slump?
With 2022 here, financial lenders have been doing analysis of the past year and forecasts for the coming one. The results have some surprising highlights that may be of interest to anyone involved in the property market.
2021: A Bumper Year
Despite a lot of doom and gloom about the economy, the housing market has been buoyant this year. It looks like the total number of house purchases for the year will be around 1.5 million. This number is up by 47% on 2020 and is the highest it’s been since 2017.
This amounts to around £200 billion borrowed for new purchases. Of this borrowing for new purchases, around £18 billion is in the buy-to-let market. This is a massive increase of 83% on the numbers from 2020. On the other hand, borrowing for remortgages has been much lower at around £62 billion. Is mortgage borrowing set to slump.
These numbers are pretty impressive and not a complete surprise. The stamp duty reprieve was enough to motivate buyers to get moving on their purchases. Combined with the pent up need from the freeze in 2020, it was always going to be a bumper year.
Outlook For 2022
Given how much boom there was in 2021, it’s pretty clear that 2022 is going to be comparatively much slower. There are likely to be fewer home purchases. Without the stamp duty incentive, people are likely to take more time choosing a new home.
However, there has still been a healthy demand for new homes since the end of the scheme. So, while a slump is likely, it may not be as bad as experts were forecasting three months ago.
Financial experts are predicting that there will be a shift towards more borrowing on remortgages. This will be especially true towards the back end of the year, as people who have locked in their mortgages start looking around for new deals.
The biggest factor that is likely to put a halt to borrowing is a further interest rate increase. If one is announced, it’s a pretty safe bet that this will swiftly put the brakes on borrowing. In that event, then the slump may become significantly more pronounced. Current projections suggest that the interest rate will begin to rise slowly in early 2022 and could be as high as 11.4% by the end of the year.
Projections Into 2023
The big surprise in the forecasts is around what finance experts are predicting for 2023. The prevailing wisdom is that things will pick up again pretty quickly after the dip of 2022.
This prediction is largely based on the fact that a lot of fixed-term mortgages that have been taken out in the last year or so will be maturing. When that happens, people will go hunting for deals. There are unlikely to get the same deal they did before as it is probable that interest rates will have risen by this point. In fact, the change in interest rates could actually add hundreds of pounds to annual mortgage costs for those caught in this situation.
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