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The mortgage market will continue to be ‘dynamic’ in the New Year

2021 was frantic, especially for the UK housing market. In 2022, experts predict that the total property sales in the UK will steroids at affordable prices rise by 6.6 per cent while the average price of property will continue to increase. Some Sittingbourne letting agents believe that rental prices will also be on the rise in 2022, with rentals increasing as much as 7.1 per cent in the year. All in all, most of the leading experts in the housing market agree that 2022 will be a dynamic year not only for the property market, but for the mortgage market in the UK too.

The impact of inflation

Inflation is going to hit the UK economy, and the government is ready. To fight the rising inflation, the Bank of England increased the base interest rates to 0.25 per cent, which could further be increased as the year goes by. The base rate of the Bank of England directly impacts banks and lenders, who in turn will increase the interest rates on loans and mortgages. However, given that the base rate has been increased marginally, there is a glimmer of hope for current homeowners who are paying off their mortgage. However, as the interest rate continues to rise, it could make repayments difficult for first-time buyers and low-income buyers who might feel the pinch sooner than others.

The impact of reduced lending

Experts predict that mortgage lending in the UK will drop by a whopping £35 billion, which will certainly play a major role in changing the course of the mortgage market. As the lending reduces, banks and lenders will become stricter with their mortgage criteria. Some data suggests that the chances of potential buyers getting denied a mortgage for apartments is actually very high in 2022, as most lenders will not want to give out a mortgage on what they consider to be a ‘risky investment’. It is expected that several homeowners will apply for a remortgage in 2022, and that remortgages will be more popular than new mortgages in the current year.

The impact of longer mortgages

Earlier, in the pre-Covid era, 25-year mortgages were the norm. However, as the price of property started to increase significantly in 2021, 30-year mortgages, 35-year mortgages and even 40-year mortgages have become very common. With the rapid increase in the average price of property, buyers are being forced to take longer mortgages to repay their loans. Some experts believe that a 50-year mortgage could well be on its way. While a longer mortgage means lesser monthly payments, it also means higher interest payments over a longer period of time.

The impact of new lending rules

The Bank of England is all set to get rid of a lending rule that requires lenders and banks to ensure that potential borrowers can afford a 3 per cent rise in their mortgage rate of interest before a mortgage application is approved. However, before this rule is totally revoked, the Bank of England is having a consultation with housing experts and national lenders. If this rule is removed, more people might have the chance of getting their mortgage approved, which will further boost the mortgage market and the housing market.

The impact of the mortgage guarantee scheme

In order to boost the buyer’s confidence and allow more first-time buyers to enter the property market, the UK government announced a mortgage guarantee scheme in 2021. Under this scheme, potential buyers could take out a mortgage by paying just 5 per cent of the total value of the property as the deposit. Earlier, 5 per cent deposits and 10 per cent deposits were common, but as the uncertainty around Covid-19 took over the nation, banks and lenders increased their deposit amounts to 20 per cent.

The impact of rising mortgage rates

Almost all the experts can agree that mortgage rates are going to rise in 2021. Also, the common consensus is that mortgage applications will become stricter, hence increasing the chances of rejection. However, many banks and lenders will adopt other strategies as incentives for potential buyers, such as cashback options and a fee-free mortgage. In 2021, when the mortgage rates dropped, most lenders did away with these fee-free mortgages and cashback incentives, but as the mortgage rates continue to rise in the future, these incentives will probably find their way back into the market.

The impact of green mortgages

Green mortgages are usually cheaper than regular mortgages. A green mortgage is a mortgage that you take out on an energy-efficient property, which is usually a property with an A or B Energy Performance Certificate rating. As green energy is the way of the future, the UK government is promoting the purchase of energy-efficient houses. Property companies like RWinvest also recognise the importance of limiting energy waste, which is why many of their latest properties come with a number of state-of-the-art features for investors keen to cater to the growing population of eco-conscious renters.

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