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Evening Standard - London mortgage comments needed

ended 22. November 2022

A journalist at the Evening Standard is writing a piece for tomorrow’s paper along the lines of the ‘Bank of England grinch that stole Christmas from borrowers’ ahead of next month’s MPC meeting on 15th December. 

  • What will be the impact of the rate rise on borrowers and the London property market as a whole? 
  • Should people stick with cheaper variable or discounted tracker rates as they will still be in the money - or lock in? 
  • What will be the impact of the expected rate rise on house prices in the capital? More downward pressure? If so by how much could prices fall? 
  • What are you advising borrowers in London to do ahead of the anticipated 50 basis point rise? 

9 responses from the Newspage community

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Ross Boyd
CEO at Dashly.com
If the Bank of England raises rates just 10 days before Christmas, and markets believe it will due to sky-high inflation, it will be a hammer blow for millions of borrowers, especially those on standard variable rates. A rate rise is the Christmas present that no borrower wants but it looks like everyone's going to get. There's no doubt that 2023 is going to be a challenging year for house prices in the capital, as people who took out large mortgages at exceptionally low fixed rates come off them and face a repayment reckoning. Prices in the capital, like most other areas of the country, will come under real pressure, especially if inflation remains stubbornly high. The London property market will always bounce back but prepare for a bumpy 12-18 months ahead.
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Zaid Patel
Director at Highcastle Estates
Over the past couple of months, we have already seen the impact of rising interest rates on buyer demand in London. We are seeing buyers revise their offers by 10%-15% due to their mortgage rate and payments being far higher than expected. We are also seeing property investors offer 10%-15% lower than what we would have expected just six months ago. With experts predicting the base rate to move close to 5%, lenders will be stress testing around 8%, meaning higher mortgage costs. Lenders are also factoring in rising energy prices and inflation so fewer buyers will be able to obtain their desired mortgage, putting further downward pressure on house prices in the capital. Now more than ever, London's estate agents will have to educate their sellers and value properties at the real value rather than overpricing for marketing purposes. This, in turn, will manage buyer demand and relieve some pressure on the housing market.
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Michael Bennison
Partner at Bennison Brown
The rate rises we've seen over the past few months are putting borrowers in the capital under ever-growing pressure. Because mortgage rates are so much higher now, the amount people are able and willing to borrow has reduced. If people can't borrow as much then they can't pay as much for property and that means prices head south. It's no surprise that prices in London have stalled over the past couple of months and it is widely expected that they will fall next year due to the new rate era we're now in. Every borrower's circumstances are different, so what kind of mortgage they should opt for depends on multiple factors, from their disposable income to their attitude to risk. For some borrowers, a cheaper variable or discounted rate makes sense but it is not the right solution for everybody. The expectation is that increased rates and mortgage payments will see property prices in the capital fall, and it's hard to see any other outcome. Depending on what you read, this could be anywhere between 5%-15%, but my personal thoughts are it is more likely to be closer to 5% than 15%. As always, I would recommend anyone with a mortgage that is not currently on a fixed rate to review this with a good whole of market mortgage broker to get some personalised advice about what it right for their circumstances.
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Craig Fish
Director at Lodestone Mortgages
The thing we need to remember, is that most people with mortgage are benefittting from a fixed rate at present, and so the Bank of England base rate increase isn't really going to have much impact on mortgages. We are seeing most lenders reducing their fixed rates, and expect this to continue, but nevertheless, we are still recommending clients opt for the cheaper options, such as tracker or variable discounted rates that have no early redemption charge. This allows them to monitor market conditions going into the new year when we expect to see fixed rates drop below 4%. I wouldn't suggest that anyone opts for a fixed rate right now. House prices are expected to drop of course, but I don't believe we'll see much more than a 10% drop in prices in the capital. This drop obviously benefits those who are purchasing without selling, but for those who are selling as well, it's all relative, as any drop in their sale price, will be reflected in the onward purchase price. Whilst we are seeing a slowdown in property purchases, current market conditions can be managed well by good estate agents who price properties realistically, and not over the top just to secure the business. For those people who have been actively looking at purchasing and have all their ducks in a row — deposit saved and mortgage affordability checked — the current market conditions won't stop them. After all, we have a severe lack of property supply and over the long term, prices will always recover.
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Justin Moy
Managing Director at EHF Mortgages
I think any increase in Base Rate will be small, probably 0.25%, but with the majority of mortgages still on fixed deals, the immediate impact is going to be minimal. Those Discounted and tracker rates are still priced some distance below their Fixed Rate cousins, so there is mileage in this approach, especially with fixed rates expected to continue the slow path to around early-4%. base rate will just catch up, and the gap between typical fixed and base rate will just narrow. House prices will level off, with a combination of exuberant pricing now corrected, along with the slowdown of sales which will set us back a little, to the equivalent values of 2021. There will always be pockets of greater reductions in any area, London included, so essential homework and budget setting is key. The relative shortage of properties in London and the South East will not deter people from buying - they will just spend more time looking and making sure they pick the right property. It's for agents and their clients to ensure prices are realistic, and for those removing up the ladder, they should see the gap between the sale and purchase prices to remain stable - and that is an important assesmsent.
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Riz Malik
Independent Financial Adviser at R3 Wealth
I was discussing a deal for an investment property in WC1 with a client on Tuesday afternoon, the price of which had already been reduced several times. After highlighting the current financing options, as tempted as he was, he decided to hold off thinking the market will cool even more next year. Super prime and to a lesser extent prime London properties will always be desirable regardless of the market. However, London is just as susceptible to the correction coming to the property market as the rest of the UK. The capital is not bullet-proof.
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Edward Checkley
Managing Director at Advias
The real issue facing London property is that of the buy-to-let sector. London rental yields are weak compared with the rest of the country. Lenders are still reeling from the soaring interest rates created by the mini-Budget fiasco and are therefore stress testing lending with unsurpassable hurdles. Landlords will struggle to refinance if they owe over 40% LTV as mortgage stress tests are approx 6%+ compared with rental yields of circa 3%. This is where many may reduce prices to offload a loss-making property. Of course, first-time buyers and homemovers may be quick to snap up these opportunities given the lack of quality stock available. While the prospect of a rising base rate may be unattractive, tracker mortgages at circa 3.5% would seem to be a sensible calculated bet. The alternative, namely fixed rates of over 5%, will allow for some base rate increases in 2024 and the potential of decreasing rates thereafter. We also like the flexibility offered by tracker and variable rates, which can sometimes offer the ability to switch to a fixed rate or carry no early repayment charges.
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Ashley Thomas
Director at Magni Finance
With the current level of rates, I would seriously consider a tracker mortgage as they are priced much lower than a fixed rate. House prices tend to reduce as mortgage costs rise. However, as always, long term the London property market will increase. London is still regarded as a good investment for property, especially for international buyers where they can potentially benefit from the weakness of Sterling and exchange rates. As a high net worth mortgage broker, we have seen a noticeable increase from international clients considering purchasing in London, so the prime and super prime areas of the capital may hold up.
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Amit Patel
Adviser at Trinity Finance
If the Bank of England vote to increase the base rate, then this will impact borrowers who are on a tracker rate as the interest rate will rise or fall in line with the base rate. Fixed rate mortgages pricing is determined by the Sonia swap rate. This is the rate a mortgage lender must pay in order to mitigate the interest rate risk in a fixed rate mortgage. As swaps increase, fixed rate mortgages usually rise in price and impact affordability negatively. On the other hand, if swaps fall, fixed rate mortgages tend to decrease and the affordability and borrowing potential is more favourable. Each borrower is unique and best advice can only be given after conducting a full fact find and going through a borrower's situation now and in the future. Some borrowers would be better off on a tracker rate and for some a fixed rate would be more suitable. I don't think house prices in the capital will fall by double digits. I'd say around 5% to 8% in the London is a more realistic scenario.