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article dwell leeds

What will happen to the mortgage market in 2023?

Published: 18/01/2023

There was a nasty sting in the tail for homeowners in 2022. September’s Truss/Kwarteng mini budget sent the markets into a frenzy following the announcement of unfunded tax cuts. Sterling plummeted and mortgage lenders began hauling their products down from the shelves only to replace them with offers at much higher interest rates.

At the time, Mr Kwarteng described the market reaction as ‘a little turbulence’ but if left borrowers recalculating the affordability of their homes and worrying about renewals of fixed deals.
 
For first time buyers it was a catastrophe – that home that was just out of reach, was suddenly now out of sight.

What happened next is still fresh in the memory. The crisis precipitated a swift change in Prime Minister and a total rejection of what had become to be known as Trussonomics.

Steady in the water

At their peak, fixed mortgage deals reached rates of 6.5% in October. But the storm has eased since the Autumn and with Rishi Sunak and Jeremy Hunt at the helm, the ship is more steady in the water.

However, with the base rate now at 3.5% and 5-year fixed rate deals can be as low as 4.65%.

But the Bank Of England’s Monetary Policy Committee meets again next month and there is a possibility that the base will rise again. Indeed, some forecasters are predicting that the base rate could go as high as 4.5% in 2023 – although this would be much less than the 6% predicted by some at the height of the crisis.

Whether this happens depends on how quickly the rate of inflation comes down. Some experts believe it may have already peaked and many expect it to begin to drop over the next few months. But how far and how fast will it drop in 2023? Probably not enough to reach the Government target of 2%.

Shopping around

So, what does this mean for borrowers?

Broker David Hollingworth, a director at London and Country told Forbes :”As we return to a higher rate environment, borrowers will increasingly face the dilemma of whether to fix or track and for how long. No-one knows what will happen to interest rates, so advice will help to spell out the various options for borrowers.”

He also advised that when borrowers were shopping around, they should look at the total fee of a product and not just the interest rate.

Against this financial backdrop, of course, many commentators are predicting a fall in house prices – opinions vary wildly when it comes to the extent of the drop. But many in the industry regard this as a price correction following the post-pandemic price boom, rather than a dramatic fall. Most believe the market for 2023 will be slow and steady, with many potential buyers and sellers staying put for the moment just to see what happens.

But even so, many people will still need to move. Whether that be for a job or through divorce or a desire to downsize – let alone those who’ve long wanted to own their own home.

A cooling market may help first-time buyers because it should be much quieter and calmer. And the Government, which recently extended the Mortgage Guarantee Scheme, is urging banks to be more competitive to support homebuying. There are certainly deals out there for first-timers who have amassed a large deposit of, say 25% - 40%.

And it shouldn’t be forgotten that, according to Zoopla, half of all sales are bought in cash or by small mortgages of less than 50% of the property value.

Finally, anyone buying in 2023 – even if it costs them a little bit more – should remember that house prices in the UK are forecast to begin to rise again in 2025, according to the Office of Budget Responsibility. So now could be a good time to find a bargain – especially if you’re not expecting to move again in the four or five years.

Here at Dwell Leeds, we are an award-winning agency based in Leeds who aim to make the selling process simple by providing the highest levels of customer care in our industry.

For more information on our extensive services for sellers, ranging from basic to a ‘hands off’ fully managed approach, please contact us today.

We also offer an instant valuation tool to give you an estimate of how much you could sell your home for.