Money Habit Hacks & Mortgage Market Predictions for 2023
Happy New Year to you all! I do love a new year and a fresh start. We’re going to make some predictions in this episode as to the mortgage market this year and how you can be best prepared. We’re also going to be talking about smaller ways to become more in control of your finances in 2023 and beyond.
The mortgage market in 2023
There’s lots of predictions going on, so I want to translate the news and frame it a little better.
The good news
Since the autumn budget, the market now feels relatively calm and more settled.
The hard news
The mortgage market was quiet in November and December, but we always expect it to get a bit quieter around Christmas. Fewer people are sorting their mortgage out, but often there’s just too much else to be doing. But in 2022 that quiet period came a lot earlier, as soon as October.
Just to remind you, the wonderful mini budget in September sent the market into turmoil and increased interest rates by a huge margin almost overnight.
Since the autumn budget, there hasn’t been any significant stimulation in the market. But we’re in a new year now and I am an eternal optimist when it comes to the mortgage market – I really feel that things are going to start moving and shifting now.
If you’re a broker, hopefully 2023 will feel a bit busier.
If you’re a client or future client, you might have decided to wait and see. I don’t blame you – so much has changed and you need time to get your heads around the fact that interest rates are higher than they have been. The rates we’ve experienced since Covid haven’t been normal, and we do need to adjust our mindset, and ultimately accept that higher rate bracket.
Understanding the lenders’ position
Lenders in 2022 were bombarded with business at times and had to sharply pull out of the market due to what was happening with the SWAP rates in the background. In essence, lenders exceeded their targets very early on in 2022. You might think they must be making a fortune with the amount of business that they’re putting through, but it’s more complicated than that.
Lenders only make money if the rate at which they’re borrowing money is less than the rate they’re lending at. And for a period, whether it was days or weeks, the sharp increase in ‘swap rates’ meant that was not the case. That’s why we saw lenders pulling out of the market and repricing very quickly, seemingly overnight.
Mortgages were the number one topic for a while, and it was being widely reported that thousands of products were being withdrawn from the market, which caused great panic because it looked like lenders weren’t lending. Now, looking ahead, new targets will be generated for lenders in 2023 and we should start to see some good appetite among them and some healthy competition on rates.
In general, when lenders are looking at the economy, they are nervous about two things: unemployment and house prices. People need jobs to pay their mortgage. And if house prices come down, which they possibly will do in 2023, will clients end up in negative equity?
Loan to values will be higher because properties won’t be worth as much, but the mortgage owed will still be the same. Those two things impact lenders’ appetites – and they might stop offering higher loan to value mortgages. So those 95% mortgages may well become a little bit harder to get, mainly because they’ll be seen as more risky.
As brokers we would expect that specialist cases, the cases on the edge of risk for our high street lenders, will be the ones that are affected most. But that being said, we do have a whole specialist market to approach for those people.
SWAP rates and the Bank of England Base Rate
The most reported-on rate in the news is the Bank of England base rate and that rate is very likely to keep going up in 2023. The predictions are varied and they’re changing all the time. It was expected to go up to 6%, but now the most common prediction is that it will reach 5%. Some experts predict it will be at 4.5% percent by the end of March 2023. We shall see.
But I want you to understand that whilst that does affect those of you on a tracker rate, a variable rate and a discounted variable rate, those of you who are on a fixed rate are unaffected. Fixed rates are based on a completely different area of the market, called SWAP rates.
SWAP rates are the thing to take notice of and they’re not really reported. If you’re thinking about getting a new fixed rate, please try not to worry that they are going to keep increasing. Experts are actually predicting that fixed rates are going to continue to come down.
The Bank of England Base Rate generally follows SWAP rates, at a lower level. So on a chart, you’d typically see SWAP rates going up, or dipping slightly, and the Bank of England base rate would be following that. When the Mini Budget happened, SWAP rates rose so dramatically – around 150 basis points in a day, which is highly unusual. The gap between the base rate and the SWAP rates was huge, which is why the base rate needs to keep going up, to get closer in line again. And ultimately, the Bank of England are trying to drive down inflation.
The good news is that SWAP rates have come back down since, and they’re actually back to pre-budget levels. And fixed rates are following suit. As mortgage brokers, we get emails with the wonderful news that fixed rates are decreasing – and that’s happening every single week.
What’s happening with fixed rate mortgages
In 2023, the base rate will have to go up to try and beat inflation. Inflation is currently, as I record this episode, at 11.5%. Experts predict it will be at 7.4% by the end of 2023, which is a huge positive for everybody. We’re all feeling inflation in our shopping bills and on petrol costs. That coming down will be great news for all concerned.
Now, in 2022, fixed rates ranged between 2% to 5%. But the hard truth is that rates below 3% are now not normal. We’ve got used to rates being extremely low, but that’s a thing of the past, I’m afraid. What we’re hoping to see is that mortgage rates come down for fixed rate products at around the 4% mark, maybe 4.5%. Experts are predicting a range of 4.5% to 7% in 2023, depending on the product and property value.
It’s our job, I believe, to manage your expectations around this. If your mortgage deal is ending, it’s going to be difficult. If you’re coming off a 1.5% or 2% rate and hitting 4.5%, it’s hard for you to see that as good news.
The best thing you can do if your interest rate is coming up for renewal is look at it seven or eight months ahead. You can fix your rate for up to six months with some lenders, and a lot of them will let you change your deal if the rates continue to come down.
Not all lenders will do that, though, so it’s really important that you ask your broker the question before you secure it. If interest rates continue to come down, you’re going to kick yourself if you can’t change it. If we fix your rate here at The Mortgage Mum, firstly, we make sure we can change it if we need to. Secondly, we do a regular review of that rate until the day you complete on your remortgage, to make sure we can’t get you something better.
Even if your rate isn’t due to expire till the end of next year, you can ask us now what that looks like, to give you an idea. You might want to start getting used to putting extra money away so that it’s not such a shock to you when the remortgage happens.
House prices in 2023
They say that house prices are going to start to fall in 2023 by between 5% and 10%, and then again in 2024 by 2% to 3%. It sounds bad, but if you look at house prices towards the end of 2021, that’s probably what we’ll end up at. So it’s not as bad as the media will make it seem.
Unfortunately, the press has given a lot of attention to rates going up, but not as much to rates settling and coming back down. If people are fearful, that just escalates and accelerates.
We’re trying to spread a more positive message, so make sure you let your friends know the good news. The CEO of a valuation service has said that properties in some areas will still go up or hold their value. Interestingly, he said that house prices have been overinflated in many locations and people have been paying more than what the property was actually worth. So those prices needed to come down and we should start to see that. That will make lenders a bit more apprehensive, but overall, it is good to settle the market.
Now, if you are thinking about moving and want to time it perfectly, the truth is it’s a gamble. You’re never going to know when a price drop is going to happen, but lots of people are waiting for that before they move, which is understandable. Some people may be more open to lower offers now, but it really depends on the household and their situation.
Planning ahead for 2023
All in all, 2023 is looking pretty good. I think the remortgage market will be far bigger than the purchase market, because not everybody is going to want to move. A lot of landlords won’t want to invest in property because the Buy to Let market is extremely difficult at the moment.
It’s actually come down by 70% since September, while the residential market is down 40%.
If your remortgage is coming up next year, be nice and organised. Brokers should get in contact with you seven or eight months before – and if not, be on top of it yourself.
Tracking your money in 2023
In terms of smaller things that you can do to be organised, my question to you is, do you track your money on a monthly basis?
The number of clients that don’t is really surprising.
It’s really good to have a spreadsheet of all of your outgoings to see how they’re changing.
So start a spreadsheet – I’m more than happy to share mine with you!
First, record your income in one section – what you receive after tax.
And then in another section, write down every single fixed bill that comes out. Your mortgage, your council tax, everything on your bank statement.
It will feel so satisfying when you see it (albeit eye opening!).
You can then put a little star next to things that are potentially changeable amounts. Could you change your Sky package? Could you get a better insurance deal? Can you change your energy provider? There’s lots of little things you can do. Look at your subscriptions, are you using them?
If you had to cut back 10% of your spending now, what would go first?
Lots of you worryingly choose your life insurance and critical illness cover – but that’s the wrong place to go. Make sure you’re cancelling the least important things first. You need protection insurance, you need cover in case you can’t work, because that is going to be a far bigger problem than you potentially going without Sky for a little while.
How much do you spend?
It really helps to estimate your spending.
What do I spend over the course of the year?
How much did I spend on Christmas 2022, and how much do I need for Christmas 2023?
If you’ve got children, how much did their birthday parties cost you in 2022?
How much would you need to put away for 2023?
At the start of the year, I work out how much we spent last year and decide how much to put aside this year. Divide that by 12 and add it to your monthly outgoings. That’s your future pot.
Then see what you have left over each month for food, petrol, kids clubs. That really helps to balance out your money over the year.
It’s good to estimate your monthly spend – even if it’s just for January to get you started.
Then at the beginning of February, write down your actual spending. It’s super interesting to see. Anything leftover can go into your savings – and the great news is that includes saving for your Christmas/ birthday/ holiday pot.
You’ve got control and I guarantee you’ll be addicted enough to do it again in February. This single task will help you change your money habits.
It’s really important to acknowledge where you’re truly at financially. Even if January goes horribly wrong and you’ve gone over on everything, and you can’t put anything into the Christmas/holiday fund, at least you know. In February you can try to do something different.
This is the only thing that helped me change my relationship with money. I was an overspender. It’s taken me years to address it, to understand that I do it, to ask myself why and change it.
It’s the sense of control that really helps when it comes to money.
That would be my advice. If you commit to doing it this month it will feel so liberating. It’s actually not boring once you get to it. I stick a film on, light a candle, get under a blanket, and do it every fortnight on the sofa… and I genuinely really enjoy it.
If you want to ask me any questions on that, or you want a template, then just contact me. And let’s see what 2023 brings.
Set yourself a money goal, even if it is just to spend less, or get more in control of your finances. It will make a big difference in how you feel about money and your financial future.
Thank you so much for listening as always and I look forward to seeing you next month.
