Future 'not quite so bleak' for mortgage holders but lenders 'alluding to changes'
By Katie Elliott
Newly appointed Chancellor Jeremy Hunt made an emergency announcement on Monday morning to bring forward new measures from the Tory Medium-Term Fiscal Plan in a bid to “re-stabilise” markets. It comes after three weeks of turmoil caused by the initial mini-budget, which sent the value of the pound plummeting and the fear of drastically increased interest rates spiralling.
The Bank of England has boosted its base interest rate seven times since December in a bid to stem the steadily inclining inflation rate, which currently sits close to a 40-year high of 9.9 percent.
While the BoE’s current Base Rate is 2.25 percent, analysts warned the impact of the mini-budget could have seen rates hit a staggering six percent by next year, which undoubtedly panicked mortgage holders and lenders.
Thousands of mortgage deals were pulled and many were fearing property value drops and significantly higher mortgage repayments in the months to come.
However, after the change of hands and a reversal of nearly every unfunded tax cut proposed in the mini-budget, markets saw a marginal upturn and analysts suggest stability may soon be restored, but how much and for how long is still unclear.
Christina Melling, financial expert and owner of platform Stipendium told Express.co.uk: “The U-turn will hopefully mean that [the Government] won’t be borrowing £60billion now, and this will reduce expected interest rates and relieve some of the financial burdens on homeowners.”
Another expert, Nick Chadbourne, CEO at LMS, commented: "Yesterday’s emergency statement from the new Chancellor is unlikely to change the state of play in the mortgage market too drastically for now, but it does bring some welcome stability.
“We will need to wait and see exactly how lenders react, but this should make affordability checks a little more palatable, and although interest rates are still much higher than people are used to, the outlook isn’t quite so bleak.
"If lenders feel they are able to head back into the market with stability, we can expect the selection of products to improve."
But, although Base Rate forecasts are predicted to rise at a slower rate than expected, they are still forecast to rise, which would have a knock-on effect for those with variable rate mortgages.
Andrew O’Neill, mortgage and protection adviser at Ideal Mortgage Advisors said: “The reaction from the new chancellor will influence the market, and swap rates are already showing this.
“The predicted Base Rate rises will continue but hopefully will no longer be hitting the six percent feared.”
However, Mr O’Neill continued: “This doesn’t mean rates will come down in the short term.
“There are a lot of different views on what’s happening right now but the general consensus is that the base rate will rise one percent in November and a further 0.5 percent in December. The rises are predicted to peak in April next year and then rates should start coming down.
“The reversal of the mini-budget could well slow the rate rises we have seen in the last few weeks, but I expect an upward trend to continue, so it is likely the mortgages offered over the coming months will continue to be higher and we won’t see rates truly coming down until spring 2023.
“The positive thing is we will see lenders able to plan better, with fewer rate changes, more consistency in products and a more stable market than before the mini-budget was announced.”
However, some experts say further support is required to bridge the challenges first-time buyers are currently facing during the period of high costs and uncertainty.
While Mr Hunt has kept the stamp duty relief changes from the mini-budget in place, which increased the threshold band that buyers need to hit in order to pay the tax, it may not have been the best move for some, according to one expert.
Trevor Stunden, CEO and co-founder of Kettel Homes said: “Though this relief will be welcomed by home movers, it will actually have a negative impact on the average first-time buyer through increased competition for properties within their price range.”
First-time buyers can now purchase a property valued up to £425,000 without paying the stamp duty tax.
Mr Stunden continued: “We don't anticipate the uncertainty to abate with this announcement, pushing more first-time buyers to sit on the sidelines until true clarity in the mortgage rate market is achieved.
“Long-term, first-time buyers will need further support to bridge the challenges they face in raising larger deposits and increasing their affordability multiple in the face of real wage decline."
While rising interest rates don’t appear to be subsiding entirely, there are opportunities to secure reasonable mortgage products.
Richard Campo, founder of Rose Capital Partners, said: “Despite Jeremy Hunt's sweeping changes to the mini-Budget, the mortgage market remains in flux, however, there are still some opportunities to secure reasonably priced mortgage products, particularly with the help of a mortgage expert.
“Generally, pricing is still not bad and there is value out there if you look for it, with some buyers still being able to secure a discounted mortgage rate at circa 2.5 percent.
“Ultimately, it all depends on your situation and risk appetite but, if you put that to one side, there is now value in short-term variable rates, especially Discounts rather than Trackers. Regarding fixed rates, a five-year fixed-rate product may also make sense.
“Currently, I wouldn’t recommend fixing for a term longer than this as such longer-term products may start to look expensive in two to three years times.”
Mr Campo continued: “Another point to consider is affordability. A number of larger lenders have alluded to changes in their affordability models, which will potentially lead them to lend less.
“One high street lender has made a significant reduction, going from 5.5 times income down to 4.5 for higher earners. This may not seem like a lot but if you need to borrow £500,000 and it now comes out at £460,000, that is quite a shortfall to fill.
“Other similar lenders are lending less if you have children and debts so I expect this trend to continue. Just for clarity, any application already submitted won’t be changed, this is purely for new cases submitted from last week onwards.”
Ms Melling also highlighted: "There have been questions around the growth in five percent deposits in 2023 too, another of the Government’s scheme to stimulate the housing market.
"On the face of it and along with the stamp duty cut, it’s a great thing for those who have struggled to save or who don’t have the luxury of a large deposit. However, this equates to buyers taking on a lot more debt, which will be significantly more in London.
"From what I have seen, these are far from the cheapest products on the market, however, an advantage is that lenders must offer five-year fixed mortgages as part of their range of 95 percent loan-to-value products."
Although, Ms Melling continued: "Buyers should be aware that these are not special mortgages and they’re not the cheapest, so I think prospective homeowners should be cautious and take advice."
Mr Campo said that while BoE Base Rates are expected to spike at the end of the year into next, “pause for breath from there”.
He said" “We may start to see some small reductions with the base rate going back to four percent by the start of 2024 and staying around that level for the longer term.
“This long-term view of rising rates was always there before the word ‘Trussonomics’ ever entered the world, but what the events of recent weeks have done is cause a spike rather than a gradual rise and hence the turmoil in our market and others.”
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