What will happen in 2023? UK Mortgage (Part 2)

Introduction

Pradeesh: I know there’s a lot of anticipation for 2023 and many questions on your mind — will mortgage interest rates go up again? Will the Bank of England base rate rise again?

Without further ado, let’s dive into the video.

Vidara: Hi, I’m Vidara.

Suneth: Hi, this is Suneth.

Q1: What is a recession, and how does it affect mortgages?

Pradeesh: So, what is the reason for a recession, and what happens in that scenario?

Suneth: A recession is basically a prolonged period of economic downturn. Technically, if we have two quarters of negative GDP growth, that constitutes a recession.

Vidara: Historically, a recession leads to high unemployment, slow manufacturing, and retail markets stagnating. Consumers stop spending, which forces central banks to lower interest rates to boost the economy.

Suneth: Yes, but currently, with high inflation, the Bank of England’s priority is to cool down inflation. Instead of lowering rates, they are increasing interest rates.

Vidara: This impacts the mortgage market — house prices may fall. For buyers with strong deposits and emergency funds, this could be a good opportunity to purchase a property at a discount, even if they pay higher interest rates initially.

Q2: Could the Bank of England base rate rise further?

Pradeesh: There’s a rumor that the Bank of England base rate could go up to 4%. Can it actually happen, and what would that mean?

Suneth: There are even rumors it could rise to 7%, but those are just rumors.

The Bank of England is focused on inflation, which is currently around 10%. They use interest rates as a tool to control inflation.

The Governor and Monetary Policy Committee make the final decisions. It might rise to 4%, but there’s uncertainty.

Vidara: Personally, I’m optimistic. Interest rates of 4–5% are high for individual borrowers, and I hope rates come down somewhat.

Q3: Will lenders continue to reduce interest rates in 2023?

Pradeesh: On top of that, lenders seem to be reducing their mortgage rates. Will this trend continue?

Suneth: Fingers crossed! It’s good news for borrowers.

Vidara: Interest rates rose due to the money market and inflation, but money markets are slightly easing now.

Suneth: Bank of England focuses on curbing inflation, while money markets consider other factors like demand, supply, energy prices, and the weak pound.

Vidara: Some government policies also triggered high interest rates in the UK. Although rates may ease, we cannot predict exactly when.

Suneth: Optimistically, 2023 could see some reversals, but uncertainty remains.

Q4: What about Buy-to-Let (BTL) investors in 2023?

Pradeesh: 2022 was particularly tough for Buy-to-Let investors, especially with higher stress test rates. Will this continue in 2023?

Vidara: Yes, the latter part of 2022 was difficult. High interest rates and stress tests made affordability very challenging.

Suneth: Even if someone borrows at 5–6%, banks stress test at 7–8.5%, which reduces the number of people who can afford a mortgage.

Vidara: With money markets easing and interest rates slowly coming down, we hope BTL mortgages become more affordable in 2023.

Suneth: Otherwise, new landlords might struggle to buy property, and existing landlords may face difficulties refinancing.

Q5: How does the Russia–Ukraine war affect mortgages and wealth in 2023?

Pradeesh: Russia’s actions have affected economies globally. What does that mean for mortgages and wealth in 2023?

Vidara: It’s difficult to predict as the war’s outcome is uncertain. Geopolitics will play a major role — any deal depends on Russia, Ukraine, and the West.

Suneth: If Ukraine and Russia reach a favorable deal, the global economy may stabilize.

Vidara: For the UK, we are still dependent on Russian energy in some capacity. Energy prices may remain high, though they may stabilize somewhat.

Suneth: Interest rates may gradually come down as inflation decreases, but we won’t see rates as low as pre-2022. Likely, they could settle around 3%.

Vidara: So, the UK mortgage market in 2023 may be optimistic, but still with higher-than-before rates.

Q6: Overall outlook for 2023

Pradeesh: What’s the overall outlook for borrowers and investors in 2023?

Vidara: We are optimistic. Hopefully:

• The war ends, easing global uncertainty.
• Cost of living and inflation decrease.
• Interest rates gradually reduce.

Suneth: All of these factors together would make the market easier for borrowers and investors.

Conclusion

Pradeesh: That’s it for today!

We hope you enjoyed this video from WIS Mortgages, Accountancy & Insurance.

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