2022 mortgage market will calm down after last year's "wild west?

Mortgage lenders are expecting the housing market to return to pre-Covid-19 patterns this year after the chaos of 2021.

The housing market has felt a little like the wild west over the last year with tales of fierce competition, outbidding and gazumping as people flocked to the countryside in the second year of the pandemic. For those hoping to buy and sell this year and next, it seems things will be calmer than the feeding frenzy of 2021.

2021 was a bumper year for mortgage lending - the highest since before the financial crisis. This year however, we?re expecting to see fewer homemovers and a return to a more stable and balanced picture. The fact that there is no longer any stamp duty holiday means the demand to move home will be slightly softer in the year ahead.

With ongoing Covid-19 restrictions for the time being, and working from home a part of regular life, people are still eager for more space. Since the beginning of the pandemic in March 2020 until Q3 2021, there were around 2 million property transactions. Given the number of recent movers, with many purchases brought forward to take advantage of the stamp duty holiday, both the stock of houses for sale and the number of prospective buyers are lower than might otherwise have been the case, which will reduce the number of house sales this year. In all, we expect to see around £281 billion of mortgage lending this year, down from £316 billion in 2021.

Given continuing uncertainty around Covid-19, there are some risks to the housing market looking ahead. The full unemployment picture following the end of the furlough scheme is yet to become clear, and rising inflation will squeeze real household incomes. People working in hospitality and retail were affected once again as people were advised to be cautious about mixing in the lead up to Christmas, and the advice to work from home affects hospitality and entertainment businesses in city centres. All of these factors will have an impact on mortgage affordability and effective demand.

At the same time, the Bank of England recently announced its intention to consult on amending elements of its affordability test requirements. While any real changes are unlikely to come through before the end of 2022 at the earliest, any changes made could help more people onto the housing ladder, or staircase to a property that would have previously been out of reach.

2021 was an exceptional year for the mortgage market, so 2022 and 2023 will of course see a fall from this high. Notably, the fall is not very far, as we expect mortgage lending activity to remain slightly higher than 2019 and 2020 levels. As with the last two years, there is little certainty, and the impact of Covid-19 and other risks could sway the market one way or the other. But from where we are now, I anticipate the mortgage market to revert to broadly pre-Covid-19 trends this year, before picking up again in 2023.

Article first published in Housing Today on 20 January 2022

Read our latest Trends in the Economy And Lending (TEAL) report here.


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