New Chief Executive of AMI announced today

The Association of Mortgage Intermediaries has today announced that Stephanie Charman has been appointed as the new Chief Executive of AMI...

Your November 2024 mortgage & regulatory update

AMI's monthly mortgage & regulatory update, including FCA consultations, surveys and policy statements, and a new green mortgage advice webinar...

What can our market expect under a new government?

As AMI Chief Executive Robert Sinclair prepares to step down, he writes for Moneyfacts on what the market can expect under a new governement...

The Later Life Lending Summit is less than a week away – why should you attend?

There is still time to register for the Later Life Lending Summit in Sheffield on 19th November, brought to you by AMI and the Equity Release Council...

AMI’s new Protection Viewpoint Report: Making Protection Personal

This year's AMI Protection Viewpoint report calls for more personalised protection: Four-point action plan unveiled to help advisers engage better...
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The future for housing and mortgages towards 2025

Article by AMI Chief Executive Robert Sinclair, published in Moneyfacts Magazine.

As we move towards 2025, the landscape of mortgages in the UK is most likely to continue to be characterised by shifts influenced by political, economic, regulatory, and technological changes. The UK housing market remains a cornerstone of the economy, and mortgages are a critical component enabling property ownership of a variety of different tenures. It remains surprising that such a crucial bedrock is left to a series of unconnected influencers to manage.

Political

The arrival of a Labour government has seen a new legislative agenda bristling with promise of changes in planning, clear housing targets and funding support. In the coming months we will see an Autumn statement that will fill in some of the gaps together with the Ministry of Housing, Communities and Local Government sure to jump to the centre stage as they colour in the plans they have for the future.

There is speculation that we could see a return of:

  • A form of Help to Buy;
  • The establishment of a New Town on the HS2 railway line;
  • Significant revisions to planning laws and the green belt with the slaughter of NIMBY’s;
  • Pressure on developers to build more social housing and affordable homes;
  • Local authorities being encouraged to get back into the building game.

We will also see more rent reform that is bound to influence investment decisions in the private rented sector. Whilst a ban on no fault evictions seems inevitable, a rent growth cap of say 3% might be better than a total freeze on rents.

Finally, there was a manifesto commitment to double the size of the mutual sector. Over the last decade the Building Society sector has worked hard to embrace the intermediary advice community and so this must bode well for both consumers and advisers. A significant part of the mutual sector are our Building Societies, so this should work well to enhance the on-going partnership.

Economy

The UK economy has returned to relative stability following the disruptions caused by Brexit, the COVID-19 pandemic, the Ukraine crisis and the now not to be criticised mini-Budget. Economic stagnation has somehow delivered stable employment rates and rising wages, which have maintained a reasonable degree of consumer confidence. This has meant that on average, UK house prices have continued to rise over these stress periods despite there being some regional variations. However, inflation has been a significant challenge, influencing the Bank of England’s interest and monetary policy and consequently mortgage interest rates.

With Bank of England Base Rate unlikely to fall from its current 5.25% to below 3% at any point in the foreseeable future, interest rates are going to remain relatively higher than the historic lows experienced through the 2010s and the early 2020s. We will all have to get used to this. Higher interest rates have made mortgages more expensive, impacting the affordability of home loans. In keeping with this, recommendations have been mixed between tracker rates for those who want to have flexibility and defer decisions and those who prefer the stability of fixed rate mortgages that are determined by the Sonia and SWAPS markets. These already have two base rate reduction this year priced in and therefore the downward drift in fixed rates will be slower than many commentators might expect.

With higher interest rates and no fall in house prices, borrowers have needed to look at longer terms for their loans, with some looking at 40 year mortgages to clear the affordability hurdle. These borrowers will need advice throughout the term of their loan to ensure it is repaid before they reach the end of their working lives.

Regulatory Environment

The regulatory framework governing mortgages continues to evolve to address the challenges and risks in the housing market. The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) continue to play pivotal roles in ensuring market stability and consumer protection.

The more rigorous affordability assessments brought in during 2014 ensured borrowers can manage repayments even in these higher interest rates environments. The stress testing against higher rates, has provided a great buffer. We have however seen one of the macro-prudential controls removed – requiring stressing at 3% over the revert to rate. With interest rates hopefully near their peak a more balanced 1% over the revert to rate seems more sensible. However, the cap of no more than 15% of a lender’s funds being advanced at more than 4.5 x income is a control to try to limit house price growth – which seems a sensible control to continue to be applied.

The introduction by the FCA of new principles encapsulated within “Consumer Duty” raises the bar and we will see continued action by the FCA linked to this in the coming years. This increases the emphasis in products delivering fair value, that they should meet the customers wider financial objectives and they need to understand what they have bought and why the product is relevant to them. Linked to this we are seeing increased emphasis on discussions to ensure that the mortgage is still repayable even if life events get in the way. Life cover, critical illness protection and income protection policies are all more at the forefront of discussions to ensure that in the event of bad events people still have a home to live in.

The private rented sector remains a key source of flexible housing for many who struggle to save a deposit or meet the tight affordability tests on mortgages. However, local authority licensing, new building and fire safety controls combined with major changes to tax treatment have combined to challenge this sector. It is a vital component of the tenures available and government need to ensure it is protected to keep a flexible workforce able to move to where they are required.

Technological Advancements

Whilst technology has yet to profoundly impact the mortgage market, streamlining processes and enhancing customer experiences is undoubtedly on the agenda as we move forwards. We are now beginning to see Virtual Property Tours using virtual and augmented reality technologies to enable prospective buyers to tour properties remotely.

Work is now accelerating to digitise the conveyancing process with Land Registry and Local Authority and Search data all capable of being accessed remotely and prepared at point of marketing. This has the potential to bring the five month conveyancing process down to five weeks. A game changer for all in the industry.

The mortgage application process is also becoming more digital. Online platforms allow borrowers to apply for mortgages, submit documents, and receive approvals faster than traditional methods. The adoption of machine learning will allow review from source documents without manual intervention.

However, caution should be exercised where a lender is encouraging an existing customer onto a new fixed rate using a “three click product transfer” process. With more complex income, more products available and 40 year mortgages, personalised mortgage advice based on individual financial situations and preferences should be adopted on every occasion. With smart technology augmented by people this has to be our future.

Related Issues

The push for sustainable housing is both a challenge and an opportunity. Lenders offering green mortgages can capitalise on this trend, while borrowers benefit from energy-efficient homes and potential cost savings. But, we currently only have two types of product. One which rewards those buying an energy efficient property – EPC A or B, where they get a lower interest rate or can borrow more due to the perceived lower running costs of the property. The second is the funding of retrofit activity to help enhance the overall UK housing portfolio. We will see significant development in the funding of green initiatives in the next two years. This will be driven as the new government provides clearer pathways on the green journey and works to create a consumer demand for action.

There is also likely to be action to address the issues facing certain coastal communities where there has been an explosion in holiday homes, Airbnb and HMOs. This can price locals out of the property market and damage the local economy as they cannot find people to work in local businesses.

Conclusion

The UK mortgage market remains a dynamic and evolving sector subject to multiple influences.  House prices are likely to remain stable as the growth in supply will still not match the increases in demand for at least two years.  The 1.5 million houses target is back-end loaded with 400,000 units likely to be needed in 2028.

Technology will work to improve the end to end buying and selling process, but the human touch in the advice process will remain a core offering.  The new government will ask more of the industry and it will be up to lenders and advisers to help deliver a better tomorrow.

© 2024 Association of Mortgage Intermediaries Limited.

AMI is the trading name of The Association of Mortgage Intermediaries Limited which is a company limited by guarantee, registered in England and Wales under the Companies Acts with number 7982341. Our registered address is Celixir House, Stratford Business & Technology Park, Innovation Way, Banbury Road, Stratford-upon-Avon, Warwickshire, CV37 7GZ.

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