16 Nov 2024

The need for specialist solutions remained strong in 2024

By Robert Oliver, Distribution Director at Dudley Building Society

As we look back over the last twelve months, the mortgage sector has enjoyed a quieter, more stable period than in recent years.

We finally saw the long-awaited drop in the Bank of England’s (BoE) base rate in August, which brought about a flurry of lender rate cuts and activity across the market. Inflation also eased, helping to boost consumer confidence.

However, the ongoing high cost of living has meant affordability remained a persistent challenge for many borrowers throughout the year. Lenders have had to dig even deeper for innovative solutions to meet the increasingly complex financial needs of some borrowers.

The building societies sector in particular, has risen to this challenge and remained at the forefront of the market. Figures from the Building Societies Association (BSA) in May showed this, with mortgage balances across the building societies sector increasing by £8.6 billion in the six months to March 2024, while balances at other lenders fell by £10 billion.

For us, 2024 has highlighted once again the need for flexible lending options for borrowers, with several emerging trends across our core mortgage areas.

Lending into retirement 

Throughout 2024, we saw an increased focus on lending into retirement.

BoE figures released in May revealed that over one million people in the past three years have taken out mortgages that they will still be paying into their retirement. These figures triggered an interesting debate in the market around the benefits and drawbacks of mortgages extending into retirement. 

The figures were interpreted in different ways and in some corners of the consumer press, we saw headlines warning of a ‘pension crisis’ with borrowers forced to ‘raid retirement funds’ to pay off mortgages.

On the flip side, this attention gave industry experts and brokers a chance to explain the benefits of lending to older borrowers and when it makes sense - such as when the borrower is still working or has a sufficient pension to cover any repayments. As a lender who lends to borrowers entering into and in retirement, it was encouraging to see this issue take centre stage, and some of the more positive messages about lending into retirement given, as it can be an area of the market that is misunderstood. 

Throughout the year we’ve also seen more emphasis on how older generations can help younger borrowers get onto the housing ladder - and vice versa. There’s been an increased focus on the Bank of Mum and Dad (BoMaD) when it comes to helping out with gifted deposits. In August, Legal & General (L&G) research showed that financial gifts from family members to help loved ones onto the housing ladder were expected to reach a record £9.2 billion in 2024 and climb to £11.3 billion by 2026.

Within our own business, we’ve seen demand from the ‘Bank of Son and Daughter’ (BoSaD) alongside the traditional BoMaD. This perhaps isn’t too surprising, given that L&G research in May showed a 13% increase in the number of 56-65-year-olds searching for their first property in Q1 2024 compared to the same period last year.

In a similar vein, Joint Borrower, Sole Proprietor mortgages have also gained traction over the past year. While I believe more awareness is still needed, there was certainly more buzz around this option in 2024. The message is gradually getting out that lenders can help both generations overcome affordability challenges and support them in stepping onto the housing ladder.

Expats on the rise

It’s rare to see a year where political events don’t influence the mortgage market in some way and 2024 was no different. In the build-up to the new Labour government being elected and since its coming to power, we have seen increased talk around expats, with reports of a growing number of High-Net-Worth (HNW) individuals in particular looking to move abroad to avoid increased taxation.

According to a report from Currencies Direct released in September, 39% of Brits are contemplating relocating abroad. Brokers also reported increased demand and inquiries for expat mortgages throughout the year. 

There was however some unwelcome news for holiday let and buy-to-let (BTL) investors in 2024 - both popular property choices among expats. At the start of the year, former Chancellor Jeremy Hunt announced in his March budget that he would be ending certain tax breaks for furnished holiday lets (FHLs). Starting in April 2025, FHL owners will no longer be able to reduce their tax bill by offsetting some of the costs associated with running their holiday let, such as mortgage interest payments. 

While new chancellor Rachel Reeves surprised the market when she  announced in her October budget that Stamp Duty (SD) on second properties would rise to 5%, up from 3%, effective immediately.

It will be interesting to see to what extent the latter dampens demand. With a second SD increase for second properties coming in April 2025, we may see market activity pick up in both segments before any further increases.

AI not replacing the personal approach

A big trend in 2024 has been the rise of Artificial Intelligence (AI) and its role in streamlining certain mortgage processes. 

While the role AI can play became even clearer over the course of year, the industry did not lose sight of the need for a personalised approach to underwriting for some borrowers. This has once again been particularly important in 2024, whether due to a borrower’s age, employment status, or income.

Despite the continued advancements in technology expected in 2025, for some borrowers, underwriting will still require a highly personalised approach due to their complex circumstances and that will not change, something we are very proud of here at The Dudley.

As borrowers continue to look for innovative solutions to meet their complex lending needs in 2025, just as in 2024, lenders will be here to help.

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