Outlook for the UK Housing and Lending Markets in the New Year as Recession Looms

Outlook for the UK Housing and Lending Markets in the New Year as Recession Looms

The forecast for the UK housing market is for a cooling off due to higher interest rates, continued impacts from inflation, higher energy costs, and consumer caution. There had been concern that homeowners would not only be facing higher repayments but also a loss of property value as the market declined. However, experts are more optimistic about the housing market and widespread loss of home values are less of a concern. 

The market will still cool off from the hot buying frenzy that occurred due to historic low interest rates and the race for space due to pandemic lifestyles. The result will be less than the gloom and doom scenario once forecasted. For despite there being a shift from the pandemic induced cottage lifestyle and country living as buyers return to the city, there could be buyers waiting in the wings to purchase. 

There could also be assertive sellers ready for buyers and willing to drop their asking price to make buying more affordable despite higher interest rates. Mortgage lenders could become more competitive as fewer require lending. Interest rates might not decline, but more creative products could come onto the lending market. There are also opportunities for first time buyers to enter the market with government schemes.

There is certainly a chance the UK housing market could remain resilient. It has before when experts doubted and could this time as well. It would be good for the economy, as well as homeowners in danger of falling into negative equity levels should their home values fall.

The forecasts for declines in the average UK house price have called for 2.0% or as much as 8.0%. There is the chance that newer house owners could fall into negative equity, but not at the levels once expected. Some regions could be impacted by declining house prices more than others. While homeowners in negative equity are out of reach of a remortgage, there could be new lending rules to help homeowners afford repayments and reach recovery levels to put a remortgage back into reach.

The impact of higher interest rates could be less than expected on homeowners’ budgets as it is reported that eight out of ten mortgages are fixed rates. The loans are therefore locked in at the chosen interest rate and shielded from further rate hikes.

However, that leaves two out of every ten that could be subject to higher repayments. A remortgage could be helpful in securing a fixed rate deal as well as save money should the borrower be on a risky and often higher and more costly standard variable rate (SVR). There are many homeowners, that while currently on a fixed rate deal, are going to be coming to the end of their term, and a remortgage could be the best strategy for those homeowners as well.

A fixed rate deal would lock in the chosen rate and help the homeowner avoid paying more should interest rates increase. The Bank of England’s Monetary Policy Committee (MPC) has increased the standard base interest rate at the last nine consecutive meetings. The next meeting in February is expected to result in another rate hike. The current base rate is 3.5% and could reach the expected peak rate of 4.0% in the first quarter of the year.

The base rate had been thought to rise much higher to control inflation, and 4.0% would be more desirable than the double digits level once expected.

The lower forecasted interest rate for 2023 could help keep hopeful home buyers in the market. First time buyers are going to find it harder to save for a deposit and affordability will be an issue for many due to the higher interest rates. House prices, though on a slow decline, will be coming down from repeated record high levels and could make starter homes difficult to buy. The Mortgage Guarantee could help some first-time buyers, as it helps with the homeowner providing only a 5.0% deposit.

There is also the savings for first time buyers available by avoiding the stamp duty. First time home buyers are exempt from the tax on the first £425,000 on a home up to £600,000.

There is a recession forecasted. Energy costs are expected to rise in the spring. Inflation will continue to have an impact and interest rates are due to rise further and as soon as February at the next MPC meeting. However, it appears the financial woes forecasted are not as dire as had been previously forecasted. 

Though not as bad as had been expected, 2023 will bring financial challenges. Homeowners are encouraged to prepare for the hardships ahead by shopping for a remortgage online to determine if one would be helpful. It could offer savings for homeowners that have been moved to their lender’s standard variable rate (SVR), a fixed rate deal would offer shielding and savings from further rate hikes, and for those interested in turning built up equity into cash even further benefits await with an equity cash release remortgage.

It is easy to get a quote online by visiting the website of a remortgage lender. Visiting a remortgage broker could offer numerous quotes from a variety of lenders to review and compare. Also, brokers could offer exclusive deals from lenders not offered directly to borrowers. In a matter of minutes, a homeowner could discover what opportunities to save are possible and for some it will also offer peace of mind as 2023 begins.

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