The UK’s mortgage market is showing signs of life, thanks to a significant boost from homeowners choosing to remortgage. This surge is bringing a much-needed optimism to a sector that’s been craving a comeback, according to the latest findings from Octane Capital.
Between October and December 2023, the mortgage market witnessed an encouraging increase in activity, with overall mortgage approvals climbing by an average rate of 7.7% each month. This rebound, however, is primarily powered by homeowners looking to renegotiate their mortgage deals, a segment that saw a remarkable monthly surge of 14.7%. In contrast, the rate of approvals for new home purchases trailed significantly, with a modest increase of just 4.6%.
Despite these positive signs, it’s crucial to remember that the market is still on its path to recovery. The tail end of 2023 did not fully erase the memory of a steep 19.6% fall in approvals witnessed in August, followed by a further 8.2% dip in September. Moreover, when compared to the early months of 2022 — a period that regularly saw over 130,000 monthly approvals — September 2023’s figures of just over 70,000 approvals highlight that there’s still a long road ahead.
Economic Optimism Meets Reality
The mood among market watchers brightened when inflation rates dropped to 3.9% in November, a figure more aligned with the Bank of England’s target of 2% and below the anticipated rates. This improvement sparked discussions among economists about the potential for the Bank of England to lower its base rate in 2024, rather than raising it. Subsequently, swap rates fell, allowing lenders to access cheaper funding and reduce their mortgage rates, fostering a more favorable borrowing environment.
However, the fleeting hope was challenged when inflation rates nudged back up to 4.0% in December. This slight increase casts a shadow of doubt over the future direction of mortgage rates and whether the market can sustain its recovery momentum.
Concerns and Predictions for the Future
Jonathan Samuels, CEO of Octane Capital, underscores the mixed signals in the market. Despite the recent rise, he cautions that the market is “by no means back to full strength.” The surge in remortgaging activity, driven by existing homeowners eager to secure better rates, contrasts with the slower pace of new home purchase loans.
Samuels further elaborates on the potential challenges ahead. The uncertain inflation trajectory may delay any decision by the Bank of England to cut the base rate, possibly stagnating market activity for months. Additionally, there’s apprehension that the buoyancy in remortgage approvals towards the end of 2023 might give way to a period of weaker performance, especially if mortgage rates cease their downward trend.
Homeowners, in turn, might adopt a wait-and-see approach, holding off on remortgaging until their current deals expire, in anticipation of more favorable rates.