What’s Ahead for the Mortgage Market : An Expert Overview
We’ve reached the mid-point of 2024, so it seems a good time to look forward in the mortgage market to suggest trends that may emerge.
I’m writing this on election day; I don’t know who will be leading the UK Government for the rest of the year, but I can hazard a fair guess. Having worked in or around the mortgage market since 1987, the only constant thing has been change; I don’t expect that to be any different in the future.
I’ve structured my thoughts around a PESTLE analysis (Political, Economic, Social, Technological, Legal & Environmental). It’s a framework that enables me to organise my thoughts about what may happen.
Political
One of the striking features of the election campaign is the lack of new ideas from both main parties. The Conservative message has been to maintain the “progress” of the last few months, whilst the Labour message has been change, but with very few substantive offerings.
One area where there is a difference, and it is very relevant to the mortgage industry, is around housebuilding. The Labour party is pledging to deliver 1.5m new homes. The current Government has targeted 300,000 new homes each year so this may not be that different.
House prices are at a historic high, relative to incomes, because demand outstrips supply. Previous initiatives (Help to Buy, reducing Stamp Duty Land Tax) have been counter-productive by increasing demand and driving up prices.
However, the focus will be on Social Housing rather than leaving it to private housebuilders. An increase in Social Housing won’t directly affect home ownership levels (unless there is a significant Shared Ownership offering) but it should address the shortage of homes for rent. This will have an impact on the Buy-to-Let (BTL) market. More homes to rent will reduce rental yields and lead to less attractive returns for BTL investors.
Two other factors may also impact the BTL market, reducing demand. The Conservatives were bringing forward some rent reform laws, giving tenants more rights, which may deter some would be BTL investors. This was dropped when the election was called but could be restored shortly in the new parliament.
The other possible change is to Capital Gains Tax (CGT). The Labour Party has pledges not to increase Income Tax, VAT or Corporation Tax. It has made no such promise on CGT. An increase in rates of CGT, either generally or specifically on second homes would again reduce the potential yields for BTL investors.
Economic factors shaping the mortgage market
Neither main party is promising either sweeping tax cuts or huge increase in public spending making a repeat of the 2022 mini-budget and its aftermath unlikely. Instead, interest rates will continue to be used to pursue our inflation target.
We are making progress, achieving 2% last month. Interest rates are likely to fall during the second half of the year but not by huge amounts and certainly not to the ultra-low levels of the previous decade.
Affordability is still a real problem. Real living standards have fallen, the country has had no significant growth since the Financial Crisis of 2007/8. Every party, unsurprisingly, is promising to drive growth. A prolonged period of sustainable growth will help restore living standards and create more money for housing needs.
Social landscapes and their impact on mortgages
Not something which will have a big impact this year, but our society is ageing. The birth rate has fallen below the 2.2 children per female required to grow the population.
As we age the cost of health and social care increases, a smaller working population will struggle to fund the need through taxation. This may lead to an increased demand for Equity Release options, possibly linked to social/health care. The industry may have to increase the number of suitably qualified advisers.
Technological
Artificial Intelligence (AI) seems to be more prevalent in all areas of modern life (though not in this article).
Apple has seen a recovery in their market capitalisation on the back of improved AI capabilities, recovering some of their value relative to Microsoft and Nvidia.
The FCA is keeping an eye on developments. It is “agnostic” about AI technology, neither for nor against in principle. It will view each development on its own merits.
What won’t change is the responsibility of the adviser to provide the most suitable advice for their client, regardless of whether AI is used or not. The development of new AI driven platforms, which will surely be appearing soon, will not remove this responsibility.
Legal
Consumer Duty has had a significant impact on the Financial Services industry. Whilst a lot of the focus has been on Holistic Financial Advisers and their annual review processes, the ongoing impact will be felt in the mortgage market.
The four outcomes of Consumer Duty (Products, Price & Value, Consumer Understanding, Consumer Support) apply to mortgage providers and mortgage advisers. The focus will continue along this trajectory, especially supporting consumers struggling with mortgage payments.
Environmental
If I had to choose the biggest shift in customer demand during my career, I’d choose the increasing demand for sustainable investments, ESG is a relatively new term.
In the mortgage market we can expect to see a bigger demand for “Green” mortgage products, though it is hard to define what makes a mortgage green. The Labour manifesto includes a (watered-down) commitment to sustainability, including making homes more energy efficient. A strong showing by the Green Party today, may accelerate any plans.
This may lead to increased customer awareness, and a subsequent demand for products to finance ecological improvements. Any provider/adviser who can develop a Unique Selling Point (USP) in this area of the market could be very successful.
Reflecting on change in the Mortgage Market
When I look back over my time in the industry. I joined just after the lifting of credit controls and the removal of the dreaded “mortgage queue. We quickly had Council House Right to Buy legislation and the increase in the demand for home ownership.
The remortgage market boomed, mortgage advice became regulated (hard to believe it wasn’t), the realisation of endowment mis-selling, the credit crunch and the loss of some “less traditional” mortgage products and the introduction of the Mortgage Credit Directive. As I stated at the start, it’s a cliché, but change is the constant and it will continue to be the case.
Embracing change through Mortgage Adviser Apprenticeships
As the industry transforms with political shifts, economic challenges, technological advancements, and changing social dynamics, apprenticeships offer a structured pathway for aspiring advisers to develop expertise and resilience.
By equipping new entrants with up-to-date skills, knowledge and behaviours, these programmes ensure that advisers can navigate the complexities of the market and continue to provide excellent service to clients.
At Skills Edge Training, we are dedicated to preparing the next generation of mortgage advisers to meet these challenges head-on, ensuring they are well-prepared for a dynamic future.
By Michael Tate, Financial Services trainer at Skills Edge Training