As Chancellor Reeves focuses on her ambitions to “return to economic stability” and create the right environment for investment, the mortgage market is forced to respond immediately with product repricing as well as its ongoing drive to adapt and advance business models and solutions for the changing needs of borrowers.
The Office for Budget Responsibility (OBR) forecasts growth in the UK economy – but only just, with forecasts of just over 1% this year, 2% in 2025, and then back down to around 1.5%.
The days of inflation at 11.1% in October 2021 have fortunately receded. The OBR expects inflation to continue to hover around the Bank of England (BoE) target of 2% although the days of 0.5% are likely to be gone forever.
The markets’ longer-term view of the Budget will become visible over the next few weeks. In the short term, the spike in swap rates following the budget caused many lenders to reprice.
PLATO SPINNING
On a positive, it was Plato who originally said that “necessity is the mother of invention” and the mortgage market has survived and thrived through its creativity and innovation over many years. This continues to be the case with lenders particularly, continually adapting. But across every part of our market there continues to be change driven, not only by economic events, but also by changing consumer demand – such as for instant decisions and instant access to their information.
The wait for the Budget caused something of a pause in consumer activity although 2024 is looking to be a better year than many predicted back in January. The RMBS (residential mortgage-backed securities) market has been decidedly positive with an increasing number of securitisations throughout the year from Tier 1 banks through to specialist lenders creating a more competitive and well-funded mortgage market which is good for everyone.
LATER LIFE SECTOR
The later-life market continues to find market conditions challenging, but has responded by launching new products and features looking beyond traditional equity release. This has partly been driven by high interest rates but also by regulatory change in areas such as Consumer Duty.
While this innovation is better for older generations it does mean more complexity for lenders, brokers and consumers. This leaves lenders with the challenge of both originating and servicing potentially a much wider range of loans that reach into retirement, including retirement interest-only as just one of a selection of additional options that some lenders were not originally structured to provide.
BUILDING SOCIETIES
Another sector seeing significant change is building societies. 2025 will be the 250th anniversary of the first known building society. There are now only 42 building societies left in the UK down from 55 in 2008, and 750 in its heyday in 1860 according to Building Society Association records.
Consumer drivers are challenging business models. Innovations in service delivery and automated processes have become a necessity to be fit for the future, with the growing need to cut out the bulk of manual, repetitive and costly tasks.
There is a visible change however with forward-looking building societies working to transform, integrating traditional branch-based member services with new digital channels. Many are looking at partnering with cloud-first software-as-a-service (SaaS) providers to address the modern challenges of originating and servicing mortgage and savings accounts digitally, securely and efficiently for their intermediaries and members.
While the challenges of Consumer Duty, changing borrower requirements and a Budget not quite as business-friendly as the government promised it might be, the outlook is still positive.
The market has dealt with recessions, ever-increasing regulation and of course the pandemic, and we have shown ourselves more than capable of rising to the demands made on us. It is our ability to innovate that keeps the UK mortgage market established as one of the most advanced in the world, leading to significant investment in the UK from global financial institutions. Inevitably there will be more challenges as the markets evolve, but our ability to survive and thrive makes the outlook for the foreseeable future an optimistic one.
