'More borrowers are opting for the security of fixed-rate products'

However, they still hold a strong presence. While it is true that higher interest rates are squeezing borrowing power – due to the higher stress tests required on a rate of more than 5 per cent – it is certainly not stopping all first-time buyers.

In the latter part of 2022, more borrowers were expecting the Bank base rate to peak around the 3.5 to 4 per cent level.

Faced with the prospect of higher rent or the same amount going towards their own property, many are choosing the latter. 

Of course, the higher rates and lack of borrowing power that comes with it does mean some might have to wait slightly longer for their dream home.

For those who have a deposit – be it one they’ve saved themselves, or through the ever-generous bank of mum and dad – there is still opportunity to buy.

Indeed, as the market cools, those looking to buy can take advantage of lower house prices, either through negotiation or a bargain offer.

We can already see evidence of this – with Zoopla reporting 42 per cent of sellers agreeing to discounts of 5 per cent or more on asking price – the highest level for five years. 

Market drivers

Outside of the highly motivated first-time buyer market, there will always be a mix of different types of movers: those who want to move, and those who need to move.

During Covid-19, and up until recently, it has mostly been the former driving the market, whereas now it is the latter. 

The pandemic years brought much heat to the market (especially with a stamp duty cut), with many actively wanting to move from big cities to rural locations, or to properties larger than they might otherwise go for to accommodate their growing family.

We initially saw importance being placed on outside space and home offices. However, with many now being called back to their city offices, we are increasingly seeing the market being driven by the "need to move" type of buyers. 

One of the other areas that will drive this side of the market is the divorce rate in the UK.

Divorces often mean one of the parties moving out, or in the end, selling a property to fund two separate properties (be that rented or owned).

This creates motivated sellers who might be more amenable to a lower offer, and motivated buyers, who will compromise on the cost of borrowing if they must move.

It is that desire and the need to move that explains why we are unlikely to see a wholesale crash in prices.

In fact, we might even see increases in some parts of the UK, as demand rises for those properties that people might have left in the cities during the pandemic – such as flats.

With all of this in mind, it is likely that transactions will be somewhere near 2016-18 levels of 1mn a year. 

What does this mean for the mortgage market?

Essentially, we are seeing slightly less choice of products available. With around 14,000 products available, compared with 16,000 several months ago, lenders have eased back, largely due to volatile swap rates – and the need for lenders to rapidly pull and or reprice products for fear of being inundated.

The rise and rise of the base rate

With inflation proving to be sticky and possibly entrenched, expectations are that the Bank of England base rate will need to rise further, and this is also reflected in the swap markets, which lenders use to set their fixed-term rates. 

In the latter part of 2022, more borrowers were expecting the Bank base rate to peak around the 3.5 to 4 per cent level.

This led to increased numbers opting for tracker or discounted variable rates, with the expectation that rates would start to reduce sooner.

With inflation not yet under control, and the Bank base rate already at 5 per cent and likely to rise further, we have once again seen more borrowers opt for the security of fixed-rate products.

This is despite the fact that rates are at their highest level in almost 15 years, with both average two and five-year fixed deals being currently above 6 per cent.    

Brian Murphy is head of lending at Mortgage Advice Bureau