Is the Mortgage Market due to Calm Down in 2022?

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We are seeing many mortgage lendersexpecting a return to normal of the housing market in 2022. This comes after arather chaotic experience in 2021 brought on by the pandemic.

There have been instances of fiercecompetition, gazumping, outbidding, and mass movement of people. Manyindividuals have decided to move into properties with more outdoor space orspace with an extra bedroom they can use as an office. Others have flockedoutside of the city where they no longer have to be involved in a commute. Thelast year has certainly been a bit of madness in the property and mortgagemarket. However, sanity will resume for those who may be looking to buy or selltheir property, and 2022 will be calmer.

Mortgage lending saw a huge rise in2021. It was the highest lending rate since before the 2008 financial crisis.This was primarily driven by the ‘stamp duty holiday which saw many people taketheir opportunity to move property during the pandemic. This will likely see areduction in the number of people becoming homeowners, moving homeowners, andtherefore a reduction in new mortgages.

Despite this, people are still lookingfor properties with more space. From the beginning of the pandemic until theend of last year, there were more than 2 million property transactions in theUK. However, movers looking for more space may struggle more than they wouldhave last year. With no more stamp duty holiday, we’re going to see fewerpeople put their property on the market, and therefore there will be less stockof houses to enable people to move. Overall mortgage lending, as a result, willsignificantly fall in 2022.

Pandemic Uncertaintyin the Mortgage Market

There is an element of uncertainty withCOVID still, and therefore an inherent uncertainty in the property market(which comes with risks). This has knock-on impacts on the mortgage market aswell. The mist is yet to settle around the ending of the furlough scheme, andtherefore we don’t know what real employment rates will be like as 2022matures. Furthermore, with rising inflation, we will see a significant squeeze inhouseholds’ financials. While it seems we are heading back to normality, as weknow from experience, nothing is certain because of the COVID pandemic. We’reyet unsure what the aftermath of the pandemic will be on mortgage affordabilityand therefore demand in the property market.

The Bank of England recently announcedan increase in interest rates, which could have an impact on people’slikelihood to seek new mortgages. This is expected to significantly risethroughout 2022, and with each increase, it could be argued we will see furtherreductions in demand for property purchases.

The Bank of England also announcedtheir intention to potentially amend their affordability test requirements.However, any amendments to this are unlikely to impact buyers in 2022. However,this could be a sign that towards 2023 there could be changes that makepurchasing property for younger buyers far more accessible. Therefore, while wemay see a lull in mortgages in 2022 for the most part, there is potential for arise towards the end of the year going into 2023 depending on the outcome ofthese discussions.

The reality is that 2021 was anextraordinarily high year for mortgage activity. Therefore, as a comparison to2021, any subsequent years are going to look as though they’re falling.However, the fall isn’t expected to be gargantuan, and activity will remainhigher than pre-covid levels. Keeping all this in mind though, one thing wehave learned from the pandemic overall is that there is a significant lack ofcertainty in our lives currently. Things could potentially change and couldsway the other way. However, based on the time of writing, we would expect themortgage market to reduce compared to last year, but not plummet. Then we maysee a resurgence going into 2023 if the Bank of England does implement someaffordability benefits for those looking to get onto the property ladder.

Looking Ahead in 2022

There are other trends that we expectto see in the property market in 2022. Throughout the pandemic, we saw acombination of forces, with rising inflation combined with historically low-interestrates. This meant anyone who wished to be a first-time buyer was forced intosaving more for higher deposits as property prices shot through the roof.

The benefit for first-time buyers in2022 is that we have seen the return of the 95% mortgage. This should help withthe rising house prices which are becoming a significant problem for many. Two-thirdsof the public believe that the UK housing market isn’t helping people getaccess to affordable and quality homes in their area (Lloyds Bank). Bothrenters and owners both agree that housing prices are the biggest issue withinour markets right now.

Mortgage MarketStatistics

UK Finance stated that 2021 was thestrongest year for mortgage lending since 2007. They estimate that £316bn ofmortgages were taken out. This was the highest figure since £357bn worth ofmortgages were recorded fourteen years ago.

James Tatch, who is the head ofresearch and data at UK finance stated that “We’re seeing a return to a stablepath for new lending” from 2022 onwards.

UK house prices rose by an average ofnearly £24,000 in 2021, which led to a record-high average of £254,822.

Tatch believes that the trends we sawof people looking to move out of the city as a result of flexible working couldcontinue. He believes that “it seems like it hasn’t run out of steam yet”.

Furthermore, in the next two years, wewill see a large number of five-year fixed-rate mortgages come to the end oftheir terms and require renewal. Tatch states that these “will provide a boostto remortgage numbers” which will therefore continue to float the mortgagemarket.