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Impact of top rate tax U-turn on mortgages

Journalist: Rachel Mortimer, The Times

ended 03. October 2022

Markets are now pricing in 122bps of Bank Rate hikes by the November MPC, down from 200bps before the Government U-turned on its plans to abolish the higher rate of tax. 

What is the likely impact of this on mortgage rates? Are borrowers still in for a rough ride, it just won't be as bad as was forecast last week? Are you still seeing lenders increasing their rates quite significantly? 

Thanks very much! 

10 responses from the Newspage community

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Riz Malik
Independent Financial Adviser at R3 Wealth
It's likely to be a number of weeks before any positive impact from Monday's U-turn gets priced back into the mortgage market and rates. However, that will most likely coincide with the next Bank of England MPC meeting on 3rd November. Lenders also tend to price in rises ahead of the meeting, so I think it will make little difference to where we are at present. If the Bank of England raise rates by under 1% in November, that will be the only saving grace. Before last week, we were expecting lenders to start competing to build up their Q1 2023 pipeline but I think that ship has sailed. There is a huge amount of uncertainty at the moment among lenders and borrowers alike.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Lenders will be looking at gilt rates to price their products more than the Bank's official rate, and there hasn't been much of a reprieve on government borrowing. The market will consider not just the policy the government announces but how competent they feel they are to deliver any plan. The perception of competence in the Government is in in short supply at the moment.
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Imran Hussain
Director at Harmony Financial Services
Mortgage borrowers are still in for a bumpy ride as any positives will take weeks, possibly months, to filter through. If swap rates don't drop, you won't see mortgages rates drop either so it's going to be one heck of a rollercoaster ride up to Christmas and beyond.
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Mike Staton
Director at Staton Mortgages
There is still an air of deep uncertainty at the moment in the mortgage market. I have sat down with several business development managers who anticipate a lot of lenders returning to the market next week but with much increased rates, around the 5% and 6% mark. I feel we may even see the death of the 95% mortgage while this uncertainty continues, which would be a huge hammer blow to the aspirations of any potential first-time buyer.
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Craig Fish
Director at Lodestone Mortgages
Despite the governments U-turn on the top rate of tax this morning, sadly I don't believe this will have much of an impact on what we see lenders offering. We have heard that the MPC may not raise the BOE base rate by quote as much as previously expected, but it will still increase. Lenders look to SWAP rates to set their rates not the base rate, and unfortunately the rates we are still seeing there indicate that we will be in for further rises in the coming months. The worry isn't so much for people currently looking to buy, as their affordability will be taking into consideration when looking for their mortgage. The worry surrounds those who already have a mortgage and have been used to rates sub 1.5%. Thye are in for a real 'rate shock'. best advice for those people is speak to a reputable broker, who will be able to fully assess your personal circumstances and advise you accordingly.
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Jamie Lennox
Director at Dimora Mortgages
We'd love to think lenders would look to row back accordingly. However, I feel they may take a cautious approach and wait for the next MPC meeting before making a decision. There is a real risk, though, that lenders are going to be swamped with applications due to the negative economic outlook, which may result in lenders even having to increase rates to try and curb the demand they are receiving to manage service levels. Even if rates don't go up as fast as forecast, many homeowners are in for a rocky road as they will be coming off record low deals that many haven't priced into their household budgets. Tough times lie ahead.
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Graham Cox
Director at Bridging Hub
Typical mortgage rates for those lenders still in the market, are already around 5 per cent. It's looking very likely they'll hit 6%+ by November. It's very hard to see anything other than steep house price falls over the coming months. People simply won't be able to afford to buy at current prices. We've replaced an energy crisis with a mortgage crisis.
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Graham Taylor
Managing Director at Hudson Rose
The key thing here will be whether there is any drop in the swap rates lenders use to price their mortgage products. The last week has seen a raft of price increases across the board and we would expect the current tranches of funding to be used before new mortgage rates are offered. Lenders will want to remain competitive, and if they are able to access funds at a lower cost we would hope this will be passed onto consumers as they try to steal a lead on rivals. However, confidence in the government has already been damaged and this is not likely to be won back with ease so rates could remain high for some time.
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Amit Patel
Adviser at Trinity Finance
Stability and the correct decision first time round is what we need right now from this Government. Whichever way you look at it, it's borrowers who will bear the brunt of the havoc that was unleashed last week in the financial markets. Will lenders reduce their rates? Yes of course they will, but they need assurances from the Government that they have a credible plan on the public finances. And right now that is sorely lacking.
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Robert Payne
Director at Langley House Mortgages
The U-turn is good news for mortgages as it means further significant action may not be needed if the value of the pound recovers. That said, the currency value was added pressure to an already difficult situation and the existing problems of inflation, the war and the energy cost crisis still pose the same threat as they did before, meaning further rate rises are still likely.