Flagstone Managing Director John Lineham takes a look back at the mortgage market in 2023 and shares his views on what to expect from 2024.

As one of the largest independent mortgage brokers in the UK we have access to the whole market. This means that throughout 2023 we have been in touch with both the major high street banks, and also the smaller, more bespoke lenders. It is fair to say that it has been a challenging year for lenders to get the balance right.

Mortgage rates experienced a notable upswing throughout 2022 and the initial half of 2023, mirroring the Bank of England’s decision to elevate the base interest rate from 0.1% to 5.25%, a move aimed to combat the surging inflationary pressures. Fortunately, the landscape is evolving. The UK has witnessed a decline in inflation, which has in turn instilled greater confidence in banks and building societies to extend loans to borrowers at more affordable rates.

Lenders have understandably been cautious in their responses to potential base rate adjustments by the Bank of England, recalibrating the pricing of their mortgage products accordingly. However, the Bank’s decision to maintain the base interest rate at 5.25% for the third consecutive time this December 2023 has been welcomed, not just by us here at Flagstone, but by the whole market, and we have subsequently seen more competitive offers become available. Additionally, lenders are now potentially in a position take advantage of cheaper funding, as average swap rates have fallen for five months in a row.

As I alluded to earlier, balance has been key for lenders throughout 2023. Consecutive interest rate rises meant that they had to protect themselves – they simply did not know where, and when the ceiling would be hit. However, while protecting themselves, there has also been an acknowledgement that the cost-of-living crisis and other external factors in conjunction with elevated rates have been a factor in deterring potential borrowers.

House prices have experienced a gentle decline through 2023, however it is important to note that the average home value remains significantly higher than pre-pandemic levels. For example, according to the Office of National Statistics, the average home in the UK in 2023 is £290,000. That is £39,000 higher than average prices in 2019 which were £251,000.

Since August, we have witnessed a consistent decline. In 2023 rates peaked at around 6.54% for a typical 2-year fix and 5.99% for a standard 5-year fix. The easing of inflation to 4.6% over the past few months has played a role in rates reducing from their peak, and this month we have similar deals at 4.70% and 4.28% respectively.

If the Bank of England’s base rate continues to stabilise then it is realistic to expect that standard sub-4% mortgage deals may become commonplace by the end of 2024 or beyond. Therefore if you’ve been delaying your first home purchase or refinancing in anticipation of such rates, consider acting sooner rather than later.

Indeed prospective homebuyers may find the current period a perfect time to move and take advantage of the slightly reduced demand which was in part driven by higher rates earlier in 2023. While monthly repayments might be elevated, or property choices constrained by higher rates, the likelihood of being priced out by other buyers is diminished.

If high rates posed challenges to entering the market in 2023, the upcoming year may present more favourable conditions. As we look ahead to 2024, we are gearing up for an exceptionally busy January. The mortgage landscape is dynamic, and we anticipate heightened activity as individuals and families seek to capitalise on favourable rates and market conditions.

This surge in demand may lead to increased competition among lenders. Borrowers can benefit from this competition as lenders vie for their business, potentially resulting in even more attractive mortgage deals and terms.

For homeowners seeking to remortgage, exploring available rates now is prudent. If your current deal is 3-6 months from expiration, locking in a rate now offers the flexibility to reapply for a better deal if rates decrease, while protecting yourself from any increases.

In response to market dynamics, we anticipate a relaxing of affordability measures, easing off risk-led affordability assessments to provide borrowers with greater flexibility. This shift aims to accommodate a wider range of individuals and families in their homeownership journey.
A notable development in 2024 is the expected return of face-to-face appointments. This shift from virtual interactions to in-person meetings serves a dual purpose. First, it allows us to build stronger relationships with our clients, understanding their unique needs and providing tailored advice. Second, face-to-face appointments offer clients the opportunity to gain a deeper understanding of their mortgage options, fostering a more personalized and transparent experience. This includes a customer facing screen to show clients the choice of rates and lenders, and a guide to the process of buying a home including all the associated costs.

Stability with the Bank of England (BOE) Base is a key factor in our outlook for 2024. The expected reduction in the BOE Base rate in the latter half of the year is anticipated to contribute to the continued decline in mortgage rates. This stability creates an environment conducive to homebuying and refinancing, fostering confidence among borrowers.

2024 is poised to be a dynamic year in the mortgage market. With a busy January on the horizon, increased lender competition, stability with the BOE Base, relaxed affordability measures, and the return of face-to-face appointments, we are expecting an increase in enquiries, and we are committed to providing the best possible advice to partner with our clients on their journey.