LiveMore executive weighs in on the current factors at play
The latest Bank of England figures show a strong start to the year with net mortgage lending higher than pre-pandemic levels.
“Lending in the first quarter of this year averaged £5.8 billion per month compared to the 12-month pre-pandemic figure of £4.3 billion,” according to Leon Diamond, executive director of LiveMore.
Diamond added that this current rise in lending is being fuelled by remortgaging with people withdrawing more equity.
This is likely to continue as inflation and the cost of living increase, as well as people needing access to more money.
UK inflation has reached its highest level in 40 years after government statistics showed the Consumer Prices Index (CPI) rose by 9% in the 12 months to April 2022, up from 7% in March.
Read more: Inflation jumps to highest level in four decades
Diamond went on to say that people are also likely to turn to equity release as many are making home improvements and extending their homes as house prices soar, coupled with a lack of suitable houses for sale.
During the first two years of the pandemic, many homeowners chose to extend their properties, or to add outdoor offices in order to make themselves more comfortable during the change to working from home, or hybrid working.
Another theme increasingly seen during the height of the pandemic from homeowners and perspective buyers across the UK was to move away from city centre locations and look towards larger properties on the outskirts of main UK cities.
“In the past year, a third of LiveMore’s mortgages were used to fund lifestyle projects or home improvements,” Diamond said.
Looking ahead, along with strong demand for house buying, Diamond is expecting the mortgage market to remain hot for the rest of 2022 and going into 2023.
“Remortgaging will continue to play a key part with longer-term fixed rates becoming ever more popular,” he added.
The Bank of England increased the base rate for the fourth consecutive time at the start of May, when it upped interest rates to 1%.
This has resulted in many borrowers looking to the end of their terms and evaluating their next mortgage product, with the hope of locking into a rate before further increases occur.
Read more: Bank of England hikes rate to highest level in 13 years
“There are large numbers of five-year fixed rate mortgages maturing this year and next. This is because from 2016, five-year fixes started to rise in popularity with the base rate at an unprecedented historical low of 0.25%,” said Diamond.
In addition, the margin between two- and five-year fixes was getting closer, making the five-year option very attractive.
Diamond added that in 2018, 600,000 people remortgaged ahead of an expected base rate rise, meaning that many five-year fixed deals will be up for renewal next year.
“For older borrowers, which is the market we work in, given the large gains in house prices, many have built up equity in their homes,” he said.
However, despite this, Diamond emphasized that many borrowers in the current market cannot get a mortgage even though they can afford one.
“In fact, over 30% of our new borrowers came to the end of their mortgage term and struggled to find mortgage finance until they found LiveMore,” he said.
LiveMore advocate longer-term fixes, greater than five years, which Diamond said will benefit borrowers given the current inflation market and the trend of the Bank of England.
“Three of the nine members of the Bank’s Monetary Policy Committee (MPC) voted to increase base rate by 0.5% instead of 0.25%, which shows the sentiment towards higher rates going forward,” he said.
Diamond explained that historically, the MPC has been late to act, and given that current inflation is more than three times the 2% target, with an expectation of 10% later in the year, he believes the base rate will inevitably rise further.
As a result, Diamond said locking into a long-term fixed rate mortgage or even a fix for life makes sense for most people and especially borrowers aged 50-90+.
“This market will increasingly add to the Bank of England’s figures. We expect lending to older borrowers over the age of 50 to rise by 5% in 2022 up from 183,030 cases in 2021,” Diamond said. “Much of this lending will be focused on interest only mortgages, retirement interest only mortgages and equity release.”
