Mortgage Guide | Spring 2023


Well, the last quarter of 2022 was certainly not normal!

It has been a year of tumult in the property market, and Q4 was no different. Following the mini-budget, fixed rate mortgages spiked as banks priced in a 6% base rate. The mortgage industry was seeing daily rate increases and lots of concerned clients. Fortunately, we are seeing things settle.

“Following the mini-budget, fixed rate mortgages spiked as banks priced in a 6% base rate. Fortunately, we are seeing things settle.”

Looking forward to 2023, there is a lot of chatter in the media of higher mortgage rates. This is true. However, the rates of the last few years were always unsustainable, and we are now returning to a normal rate environment from the artificial highs of the year end. This particularly evident, as I have advised tracker rate mortgages to clients as being much better priced, even as base rates seem to be increasing.

Mortgage lenders are continuing to reduce their fixed rate mortgages, and the margin applied to tracker rates is getting smaller. In the early part of 2023 the tracker versus fixed debate will still be relevant, but as we move further into the year the fixed rate market will come back. Over the past few years, a 5-year fixed rate has been common, almost default. But there is still a conversation to have on shorter term fixed rates when looking at the market conditions. As inflation starts to come down, the Bank of England will look at the Base Rate. It is doubtful we will see instant impacts, but fixed rate mortgages tend to be priced with the future in mind. In the start of 2023, I think any rate in the low 4’s will be good value.

In terms of lender appetite, there is still plenty of liquidity in the system, so the banks will need to find ways to encourage clients to borrow in a higher rate market. Income multiples have been hit as rates have increased, but these will start to improve as fixed rates get better. Banks will need to review and recalibrate their “stress” tests of mortgages now that rates are higher. In London, particularly West and South West London, higher borrowing multiples are needed.

The investment side of the mortgage market also saw similar changes. Landlords have been used to lower levels of borrowing against rental as property prices outpaced rental values. As rental values surge in 2023, the borrowing capacity will also improve. In the West/South West London market, I do find a need to “top slice” (using income and rent), so I expect this to be a part of the market that will improve more. Rates on Buy-to-Let mortgages are now very similar in price to Residential/Owner Occupier mortgages. This, I think, reflects the reduced demand in the Buy-to-Let sector. I expect to see more banks come into the Ltd Company Buy-to.Let market as more new investors look at that as the better way to build a portfolio.

“Following the mini-budget, fixed rate mortgages spiked as banks priced in a 6% base rate. Fortunately, we are seeing things settle.”

The mortgage market is in a very fluid situation and will continue to be in 2023. Solid advice and good lines of communication are key as we observe changes to rate, policy and borrowing .

I think that 2023 will be better than anticipated and I look forward to advising new and existing clients as we get used to the new normal.

To see the rest of our Q2/23 Magazine, click the link below to view the articles online:

Illustration © Anna Obarzanska.