Mortgage transactions dip as interest rate hikes put strangle hold on borrowing

We don’t like being the bearer of bad news, but a market analysis carried out by mortgage broker, Henry Dannell, reveals that mortgage activity is forecast to fall by -6% in 2022 as the market feels the brunt of interest rate hikes.

You’ve probably noticed that as the interest rates rise, this has made borrowing more expensive and in order to comprehend the impact this will likely have on the mortgage market, Henry Dannell analysed mortgage data from the past decade as well as that from the first six months off this year.

What goes up must come down

In 2021, when the market was the busiest, it has been in a decade, and research reveals that this is when the mortgage market peaked. Largely driven by Monetary Financial Institutions (MFIs) which are, broadly speaking, the traditional high street lenders such as banks and building societies. MFIs processed 1.486 million mortgage transactions back in 2021, which accounted for 89% of the total mortgage market – marking an annual increase of 17%.

Alongside MFIs, specialist lenders, firms who focus specifically on providing alternative home loan solutions to borrowers who are unable to meet the lending criteria set by the usual mortgage lenders, also saw a significant interest in mortgage activity, rising by 19% since 2020 to process 151,000 transactions. However, this is just 9% of total mortgage lending activity that year.

Director of Henry Dannell, Geoff Garrett, commented: “The mortgage activity boom of 2021 marked a high point for the market. The government’s pandemic intervention on the housing market, such as the stamp duty holiday, led to a surge in buyer demand that enabled lenders to grant more mortgages than ever before.”

“But, as we enter the second half of 2022, confronted with a cost-of-living crisis and aggressive interest rate hikes, we can safely expect a significant decline in activity for both MFIs and specialist lenders.”

“However, people often turn to specialist lenders in times of economic turmoil as they are more willing to take a chance on them. As we move further into this current cost of living crisis with families struggling to pay bills and meet loan repayments, we could well see a stronger performance where the level of mortgages coming via specialist lenders is concerned.”

Forecast for 2022

Although there was a small market share recorded, 2021 does still mark a high point for specialist lenders as they processed the most annual mortgage transactions on record, which was likely due to the economic impact of the pandemic forcing borrowers to look for new ways of securing loans.

Despite this 2021 boom, rising interest rates are probable to dampen the mortgage market in 2022, with Henry Dannell forecasting MFI activity plummeting by -6% and a -16.5% drop in specialist lending.