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Beware The Ides Of March

Publication date:

13 January 2022

Last updated:

18 January 2022

Author(s):

Lea Karasavvas, Managing Director, Prolific Mortgage Finance

2022 has started strongly in the mortgage market. Lenders are pushing the envelope on affordability with 5.5 times income more commonplace than I can remember. 

Talk of 7 times income bespoke products entering the market gives hope to first time buyers and Higher loan to value products are sourcing well, meaning lower rates from more competition. All of this, in conjunction with house price index exceeding 10% for 2021 according to HM Land registry means it’s not just green shoots we are seeing post lockdown, it’s a forestation!

However we have seen booming House Price Indexes, large income multiples and plethora of low rates before. It’s a dangerous cocktail that often exudes confidence and ambition, giving the buyer great power. But (and you know what is coming here), with great power, comes great responsibility.

Brokers and borrows need to be responsible. Just because 5.5 times income can be secured, just because we can leverage higher, and at lower rates, does not mean we should. Decembers Bank of England rate increase should act as a warning. Petrol prices remain high. Inflation in December hit 5.1% and energy prices are still soaring. Yet our economy has only just ripped off the bandaid post furlough and government backed support schemes.

As a prudent driving instructor named Tony once told me, it’s a limit… not a target. Wise words Tony, wise words, and words I often mention to my clients. Just because you can borrow 5.5 times and your bonus can be considered, doesn’t mean it should be. What if this time next year Rodney, we are not miwlionaires? What if this time in 2 years we have not received a bonus, prices have not compounded 10% per annum and rates are double where they are today?! Okay, that is a cacophony of “What ifs”, but we’ve seen it before. We’ve seen rates treble, house prices plateau, and we’ve seen £90bn wiped off the value of Britain's biggest companies in a single day.

Many say financial crisis’s occur every decade or so. 2008 lives long in our memories but let us learn from our mistakes. Some may even remember 19th October 1987, Black Monday when stocks fell almost 20% IN A DAY (and no I don’t remember that) However, we could certainly consider 2020 a financial crisis. You may recall The Bank of England forecast the greatest recession for 300 years post Covid. However 2021, was a very strong year aided by the shot in the arm of the stamp duty holiday. Without it, I am curious to see how the housing market responds. End of Q1 should gives us a good indication of how the year will pan out. The Remortgage market is expected to be busy but with furlough over, stamp duty holidays finished and rates on the up, this first quarter is a key performance indicator.

We’ve started busy as have many of my peers it seems, and lenders have started 2022 with innovation and aggression on borrowing. More importantly, demand remains high from buyers. It’s all positive… at the moment. So let’s ensure it stays that way. 5.5 times income is great, more dependency on bonus and commission, fantastic! Let us all heed Tony The Driving Instructors words of wisdom. It’s a limit, not a target.

Our jobs are to advise, and recommend. That’s a great power. But, with great power, comes great responsibility, and let us ensure… we stay responsible. Truth is, none of us know what 2022 has in store for us, but with the stabilisers of furlough, stamp duty holiday and government backed grants and loans gone, let’s see how this bike ride of 2022 goes without the stabilisers, before suggesting we all leverage to the max, whilst interest rates are low. Let’s not lose, more than we ever thought we could gain and perhaps remember, that property ownership is a marathon, not a sprint.

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This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.