Worst week for borrowers since mini-Budget?

Last week was without doubt a curveball. Homeowners will be unaware of what is to come. Swap rates have risen significantly over the course of the past month, meaning fixed-rate mortgages will be increasing very shortly. The Bank of England base rate is also now expected to reach 5.5%. There is more pain ahead for borrowers until inflation has come down significantly. Just when you thought it was safe to come out.

For many mortgage holders, it may have felt like the outlook was improving week on week following the mini-Budget, only to have that rug ripped out from below their feet. Last week, the mortgage outlook went from benign to bleak very quickly. With the Chancellor openly stating he is comfortable with the idea of higher rates despite the risk of recession, this will be hugely worrying and uncomfortable for the everyday people of this country who already have their backs up against the wall.

Last week was undeniably a whirlwind on the mortgage front. Sudden and unexpected notices from lenders regarding their product ranges to the influx of anxious queries pouring in from buyers, our team was navigating through a range of emotions and this looks set to continue this week. Nevertheless, this kind of volatility is to be expected given the current state of the economy.

The UK has sadly become one of the most negative outlook countries in the world. We dodged a recession and it's clear Germany is in real trouble with theirs. Things are by no means perfect but the UK needs to wake up and be optimistic as it could be a lot worse than it is at the moment.

The mortgage market has, and always will, ebb and flow depending on the wider economic climate. With the news that inflation is remaining stubbornly high and that the Bank of England will likely need to increase rates further, lenders have seen the cost of money increase and have had to respond by increasing rates, sometimes at very short notice. Financial markets don't mind change, they do however react badly to surprises, which is what we saw with last year's "fiscal statement" and now again with the latest inflation data. So, as a rule of thumb, if ever the news leads with "in surprising economic news..." expect interest rates to swing quickly and by a reasonable amount, be that for better or worse.

Last week's higher than expected inflation rate figure put the cat among the pigeons. UK Gilt yields are now higher than Italy's, swap rates are rising and lenders are increasing mortgage rates again. With the Land Registry recently announcing the largest fall in house prices in March for over 20 years, it doesn't paint a pretty picture. Market analysts are now predicting the Bank of England base rate could rise to 5.5%. However, it was only a year ago the same analysts predicted base rates would end up at 3%, so take that with a healthy pinch of salt.

In the grand scheme of things, it's not that bad off the back of rates gradually creeping down since the winter. Rates go up and down depending on the market and we're just in one of those weeks where lenders are seeing each other repricing and reacting to address what's going on in the market. You also have to factor in that no lender wants to end up being too cheap so as to hoover up all the mortgage enquiries in the land and drown in an administrative pit of despair.

Last week was up there with the debacle of the Truss/Kwartang mini-Budget and was fuelled by economic uncertainty not only in the UK but in the USA. Congress will have no choice but to reluctantly reach an agreement to increase the government borrowing limit to prevent an economic disaster not only on US soil but globally. Lenders will be watching very closely to see how the events unfold across the Atlantic. Reflecting this, Aldermore has decided to withdraw all products across its entire buy-to-let and residential owner-occupied range.

While the headlines may at first seem a little scary for homeowners or prospective buyers, knee-jerk reactions to such unexpected blips in data or fiscal events will almost always result in poor outcomes. What happened in the second half of last week was undoubtedly a tremor under the already slightly wobbly foundations of the UK mortgage market. However, the lessons from the mini-Budget debacle of 2022 should be that this volatility will almost certainly be a short-lived and temporary storm that will pass. Fueled by pessimism, speculation and fear, a rush by some to secure deals months in advance after the mini-budget fallout has proven a costly mistake for many and so it's vitally important that similar rash decisions are avoided this time.