Following the Bank of England Credit Conditions data for Q4, mortgage brokers and business finance experts have commented:
Lee Johnson, director at Worthing-based broker, Willow Private Finance: “During the fourth quarter of 2022, we saw a dramatic decline in mortgage applications, most notably in the first-time buyer and purchase market. It’s therefore no surprise that this report shows a drop in demand. The fallout from September’s mini-Budget, and fear surrounding the drop in the value of the pound, created an immediate pause in both borrower demand and lender appetite. However after the initial sharp uptick in mortgage rates, and as the dust from the mini-Budget settled, we began to see steady reductions in the cost of borrowing, particularly in the closing stages of the year. This did little to persuade the market as the appetite to borrow was still very low. January 2023 is very different, though, with far stronger demand for all forms of residential borrowing. This, combined with an abundance of ever more competitive products as lenders compete for market share, is creating a much more optimistic and upbeat market.”
Kylie-Ann Gatecliffe, director at Selby-based broker, KAG Financial: “Amid the sheer destruction and chaos the mini-Budget left in its path, a large amount of mortgage products were withdrawn from the market almost overnight, explaining the reduced supply. But when the dust settled and lenders repriced products on the higher swap rates and base rate, products started to return. We saw a slight drop in the amount of clients looking to purchase a property in the fourth quarter of last year, but the number of people looking for remortgage advice was still high. However this year we have seen an uplift in buyers returning to the market with more confidence than we saw in the closing stages of 2022. Pricing is looking much more positive and we have seen vast reductions across the market. Defaults have become more common since the pandemic and I believe we will see more this year as people feel the squeeze from a winter of rising energy costs. One point of concern is that lenders expect the availability of mortgages to decrease in the next quarter.”
Mike Staton, director of Mansfield-based mortgage broker, Staton Mortgages: “The fourth quarter was a veritable rollercoaster. Not only did we see immense repercussions in the mortgage market from the car crash that was the mini-Budget, with lenders hiking rates sharply and borrowers sitting tight, we also had the World Cup and Christmas, a traditionally slow time of the year. Mortgage pricing became frankly ridiculous in the run-up to Christmas. It was as if Ebenezer Scrooge was setting the prices. We are already seeing a rise in the number of borrowers who have missed their latest mortgage payments. The past three years have been painfully hard on people’s finances anyway and soaring inflation and rising rates following the mini-Budget were the straw that broke the camel’s back. As a result it’s no surprise lenders expect the number of people defaulting on both secured and unsecured loans to rise in the months ahead.”
Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages: “Demand was initially strong in the early Autumn as a number of borrowers moved to secure decent deals before the mini-Budget. Then, given how quickly mortgage rates increased, most borrowers were either panicking or biding their time. Rates shooting up after the mini-Budget saw many would-be borrowers sit on their hands. Things seem to have improved in the new year, as rates have settled and fixed rates continue to slide downwards. Now we need to wait and see if this continues. Fixed-rate pricing eased as money markets became more secure and confidence returned in part. 2023 has seen further easing, but lenders won’t want to go below 4% alone in the market for fear of onerous activity levels, but a cartel-style approach by lenders may help ease the pressure.”
On SME lending
Mark Grant of Gloucester-based business finance broker, The Business Finance Branch: “SME credit conditions in 2022 started with a dramatic improvement after the Covid period, but the green light quickly switched to red alert after the disaster that was the mini-Budget. The reduced supply of corporate loans, especially to SMEs, was led by the larger lenders, which soon fed down to smaller lenders. As appetite for risk reduced, loan rates and margins increased, and we start 2023 in much the same place. SME loans are still available but the less security available to the lender, the higher cost of funding to the corporate. In short, the cost of business finance is going up. Demand from SMEs is increasing currently for cash flow funding. We suggest clients leverage tangible assets where viable as loan security to reduce lenders’ risk and therefore their funding costs. Examples are property, invoices or vehicles and machinery.”
Thomas Bolan, Head of Business Finance at Finanze Business: “In our experience, SME demand for business loans increased during Q4 and the demand seems to have increased further at the beginning of 2023. However, many businesses are putting themselves in a difficult position as they are taking out very expensive short-term loans to help with their cash flow issues. This can erupt into bigger problems if their cash flow issues persist, as they’re still required to pay off their expensive loans.”
Ian Hepworth, director of Croydon-based Funding Solutions UK: “The availability of business loans reduced dramatically following the mini-Budget, as credit conditions tightened and lenders took stock. Equally, many business loan providers cannibalised their own future market when providing Government-backed loans during the pandemic. Businesses seeking funding are now having to look beyond traditional loans and overdrafts. By using more specialist products such as invoice finance, trade finance and asset finance, many are still raise the funding they so desperately need.”
