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Housing is at the heart of the UK’s growth strategy and that’s good news for the mortgage market, says Jon Cooper, head of mortgage distribution at Aldermore.
2024 was a year dominated by political and economic shifts, but the mortgage market stood firm as always.
And while it might not have felt like the end of the cost-of-living crisis for families up and down the UK, this year did mark a welcome return to the Bank of England's 2% inflation target, which was hit in May.
Despite ticking up slightly at the end of the year, this remains significant after the painful double-digit highs, peaking at 11.1% in October 2022.
But on the ground, brokers know that mortgage borrowers, renters and aspiring buyers are still feeling the pressure of rising living costs.
After 14 consecutive hikes by the Monetary Policy Committee, 2024 was the year that gave us not one, but two long-awaited rate cuts.
In August, the Bank of England reduced its base rate from 5.25% to 5% in August and again in November to 4.75%.
The impact on mortgage rates has been mixed, with rates initially falling in response to the cuts before rising towards the end of the year, as swap rates increased.
The average five-year fixed rate was 5.28% in December, up from 5.09% in November, said Moneyfacts.
This is almost double the 2.74% that borrowers would have typically fixed for five years ago in 2019, but lower than the 5.65% recorded last December.
The Labour landslide in the general election means housing is now front and centre of the UK’s growth strategy, reiterated in the December six-point Plan for Change.
This is positive, despite the target of 1.5 million new homes in five years being widely considered ambitious, perhaps even unachievable.
But the political will to tackle the supply-side issues in the housing market, including the much-needed planning reform, is good to see, especially if combined with efforts to support first-time buyers.
No one has a crystal ball, but most housing market commentators are forecasting a positive 2025.
Savills has predicted house price rises of 4%, supported by a falling base rate and improved affordability, while Knight Frank is ‘a little more bearish’ with its 2.5% prediction.
UK Finance expects increased mortgage market activity, with gross lending rising 11% to £260bn next year, including house purchase lending up 10% to £148bn and remortgaging up a staggering 30% to £76bn – plenty to keep lenders and brokers busy.
At Aldermore, we spent 2024 supporting brokers to help those clients who sometimes get overlooked by mainstream lenders.
We look at the potential of borrowers, whether they’re self-employed, first-time buyers, landlords or have experienced a credit blip.
And we’ve responded to affordability challenges with high LTV and high LTI lending, our multi-property buy to let mortgage, our level 3 lending tier for those with credit problems and changes to criteria for contractors that enables them to maximise borrowing.
Our products, criteria and service will continue to evolve next year, as we keep talking to brokers and learn how to better meet your clients’ needs. We’ll be continuing our ‘Get More with Aldermore’ webinar sessions in the new year to bring you the latest updates and knowledge relevant to you.
We expect 2025 to start strong, especially as first-time buyers race to beat the stamp duty deadline, but it’s the remortgage market that will be the key driver of business, with huge numbers of deals maturing in 2025.
Many of your clients will still find their affordability stretched as they come to refinance, while some could see lower rates. Those coming off five-year deals, for example, will still face higher costs, while someone who took out the average two-year fixed rate in 2023 of 5.48% might actually be looking at a lower remortgage rate of typically 5.19%, according to analysis from Rightmove.
Having the support of an expert broker, who knows which lenders offer more flexibility if they fall just outside of criteria, will be key for many borrowers. Nothing beats the value of experience, and we want to continue championing the knowledge of brokers to the market.
The buy to let market will also be dominated by remortgage business in 2025, as the second home surcharge increase inevitably dampens purchases.
While larger professional landlords might view the tax hike as another business expense to factor in, it may prevent many from expanding their portfolios and others from entering the sector altogether and UK Finance expects buy to let purchase lending to fall 7% in 2025 to £9bn.
Existing landlords need trusted advice and help like never before, especially with the Renter’s Rights Bill and new EPC targets likely to increase administration costs at the very least.
There may be challenges ahead, but the mortgage market always faces them head-on.
There’s a clear political drive to make lasting change in the housing market, and those reforms directly affect the mortgage market.
Combined with possible rate cuts and continuing strong buyer demand, we expect to see growth in lending into the new year and beyond.
As always, we stand ready to help those underserved by the mainstream lenders; ready to say yes to those of your clients with non-standard needs but big life goals; and ready to listen to their story if things haven’t gone quite to plan.