2022 was an eventful year for the mortgage market, with interest rates rising at pace after many years of sitting at historically low levels. Looking ahead to 2023, the combination of these rate rises, the ongoing cost-of-living crisis, and the anticipated recession are all expected to put downward pressure on house prices and mortgage volumes.
However, where there is a challenge, there is an opportunity. Specialist lending will have an even bigger role to play in 2023 and those brokers who engage with the sector will be better placed to secure their customers the most appropriate solution for their circumstances. The importance of good customer outcomes will have even greater prominence with the introduction of new Consumer Duty regulations and those brokers who are focused on implementing the changes required to support these regulations now will give their businesses a solid foundation for growth
There are some tempered positives, such as inflation – according to Forbes – will start to come down in 2023. To what extent is unclear, and we are not predicted to hit the government’s 2% target until 2025 at least. In addition, mortgage rates are projected to falter in their upward trajectory before reaching the heights predicted earlier in 2022. Nevertheless, even if they do correct, it will not mean a return to the lows seen during the pandemic, instead settling into a steadier, but higher rate environment.
Taking a dip
Mortgage volumes are predicted to dip in 2023 as a result of the slowing housing market. There is also a risk that customers will increasingly turn to product transfers, sticking with the same lender if they fear they may not be able to meet affordability requirements for a remortgage at higher rates.
So, brokers need to take a proactive approach to contacting their customers, as well as understanding all the available options.
While there is no doubt that 2023 will continue to see more caution among borrowers, there are also plenty of opportunities in store, particularly for the specialist market.
At its simplest, raised rates, tightening living costs, and tightening criteria among the mainstream banks mean that more borrowers will be looking for lenders that take a case-by-case, common-sense approach to affordability. By looking at each application on an individual basis, specialist lenders are perfectly placed to understand the reality of an individual’s ability to make payments long-term.
In addition, there are a growing number of people for whom specialist lending is not just a choice, but a necessity. Brokers and lenders must continue to work hard to help these people understand the options available to them.
At Pepper Money, our Adverse Credit and Self-Employment Study 2022-2023 outlines this issue in detail. For example, increasing energy and food costs mean 20% more UK adults could be considered to have adverse credit this year. 71% are concerned about their financial situation as a direct result of the crisis, while 76% say £100 more a month on bills – all but a guaranteed reality, at this point – would have a significant impact on their finances.
The vast majority (81%) are aware that the current economy will make it more difficult for them to obtain a mortgage.
Over the past year, 1.6 million more people in the UK have gained adverse credit, bringing the total number to 7.91 million. Meanwhile, 33% of those with adverse credit say their unsecured debt has increased during that time.
It is not just adverse credit that could make for an increase in the need for specialist mortgages in 2023. As of October 2022, there were approximately 4.2 million self-employed people in the UK, according to Statista, while our research shows that 77% felt this would make it more difficult to be approved for a mortgage. Meanwhile, 25% of all workers earn a variable income.
Whether it is adverse credit, a complex income, or a combination of factors, brokers should see 2023 as an opportunity to help more customers understand the role of specialist lenders in catering to the increasing number of people in the UK who do not fit within the tight parameters of the mainstream mortgage market. Helping those customers who believe they have limited options is a good way of building customer loyalty and long-term relationships.
Duty of care
From July 2023, the Financial Conduct Authority (FCA) confirmed that new Consumer Duty regulations will be in place for ‘new and existing services that are open to sale or renewal’. These regulations aim to set higher standards of consumer protection, put customer needs first, and deliver good outcomes.
Of course, all of these are things we would hope anyone in this market already adheres to, but the reality is that the FCA has set out some very clear parameters that need to be taken note of, even by those who already believe they provide a good level of customer care.
Most notably, it has codified an expectation that customers should be provided with comprehensive and holistic advice, with clear information and signposting to solutions that fit their specific needs, regardless of whether the firm, broker, or adviser in question has expertise in that area. This is particularly relevant to the specialist market, as it means brokers with limited experience with these mortgages should still help their customers explore these options or refer them to someone who can.
This is only going to become more important as all the factors already discussed start to push even more borrowers into the specialist category, who might previously never have considered it. It is time, then, to start brushing up on your specialist knowledge.
Lenders like Pepper Money should be a first port of call for anyone looking to tap into the longstanding experience of the specialist market, as well as an understanding of how the changes on the horizon for the coming year might affect your customers, and how you can help them achieve the best consumer outcomes. Make use of the resources available, speak to your BDMs, and prepare to recognize the opportunity within the challenge, and 2023 could be the year to deliver good outcomes in difficult times.
Paul Adams,
Sales Director
at Pepper Money