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Mortgage brokers: Current turmoil in resi mortgage market

Journalist: Emma Simon, Mortgage Strategy

ended 20. October 2022

I'm writing a cover feature for the next edition of Mortgage Strategy, looking at current challenges in the residential mortgage market - eg fixed rates soaring, prices still high, new stress tests coming in etc. It has certainly been an eventful month for brokers and advisers. 

Looking for comments on any of the following points:

  1. How much is ‘Trussonomics’ and mini budget to blame to rising fixed rates? Does Bank of England shoulder some of the blame (ie should it have moves rates up earlier, and more definitively). 
  2. What is likely to be impact of mini Budget - do you expect BoE to raise interest rates further and faster now, with obv impact on fixed rate products. How will this impact the housing market - are you expecting house prices increases to slow, or perhaps fall now? 
  3. Will Jeremy Hunt's unwinding of the budget have any impact on mortgage rates? 
  4. Is it a good thing changes to stamp duty have been retained? Will this help prospective buyers, or is the benefit likely to be far outweighed by the higher cost of borrowing?
  5. How will the new stress test fit into the mix - is this likely to further exacerbate affordability issues, given the rising cost-of-living?

If there are any positive threads amid the bleaker outlook happy to hear them! Or indeed any other comments about other challenges faced by brokers in the residential market at present. Details of how brokers can help steer borrowers through the current storm, and role they play are always welcomed. 

Looking to get comments back by end of play Thursday - October 20th. 

Many thanks - Emma Simon, Freelance Journalist for Mortgage Strategy. 



 

 

6 responses from the Newspage community

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Mike Staton
Director at Staton Mortgages
Trussonomics has ended in complete and utter failure. Liz Truss appears to just be a puppet for the Tory government, unfortunately her strings have now been cut and she is completely motionless. How anybody want want to stay in their position after such a catastrophic display is beyond me, she is just proving that she is their for the job title and the power rather than the basic principle of leading the country, in all honesty, I wouldn’t let her lead a pub crawl, not that anyone can afford to go on one now. The BOE need to shoulder some responsibility, they were the first central bank to increase rates due to the fear of spiralling inflation but at the time inflation had already increased to 5.1%, it was a case of too little too late, the reduction of the base rate to 0.1% lasted too long, the people of the uk became accustomed to these low rates and buying and selling got out of hand, these rates should have been increased once the pandemic was over, also the BOE have been too secretive over the rates, this has caused media panic which has increased demand in the mortgage market. This is causing thousands of people to make rash, uneducated decisions with their own mortgage, I think we will be feeling the repercussions of these rash decisions in years to come. I think we will still see further increases in the base rate, I’m expecting the next increase to be 0.75% to 1% and fully expect the base rate to be at 4% for christmas, I think this will slow down the housing market dramatically as most first time buyers are now being priced out of the market. The Bank of England uses interest rates as a tool to reduce inflation, which when not combined with a rise in wages can lead to stagnation, this will be the story of 2023 Only time will tell if Mr Hunts plan will work but I feel the damage has already been done, too many mistakes have been made and the foundations have already been set for a recession and housing market crash. 2020 & 21 was Covid, 2022 was the year of the Financial crisis and the energy crisis, 2023 will be the year of the housing market crash. More needs to be done to help fist time buyers, without them the property chain will disappear, the new stamp duty budget will not help them, especially up north as it is unlikely a first time buyer would buy a house in the new increased range. It’s another gimmick that will look after the people of london whilst forgetting about the northern backbone of the country
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Imran Hussain
Director at Harmony Financial Services
How much is ‘Trussonomics’ and mini budget to blame to rising fixed rates? Does Bank of England shoulder some of the blame (ie should it have moves rates up earlier, and more definitively). The disaster that was Trussonomics which showed absolutely no economic know-how is solely to blame for rising fixed rates as the markets lost confidence in the pound, which sent swap rates doolally. What is likely to be impact of mini Budget - do you expect BoE to raise interest rates further and faster now, with obv impact on fixed rate products. How will this impact the housing market - are you expecting house prices increases to slow, or perhaps fall now? I think we will see the Bank Of England have no choice but to increase rates aggressively to battle inflation which will impact the pricing of fixed rate mortgage products with many 2 and 5 year fixed products averaging around 6% currently. Will Jeremy Hunt's unwinding of the budget have any impact on mortgage rates? It will take a long while for this to have any impact as rates are only increasing currently following his part leaders and former chancellors deluded plans. Is it a good thing changes to stamp duty have been retained? Will this help prospective buyers, or is the benefit likely to be far outweighed by the higher cost of borrowing? Stamp duty changes remaining will have very little impact right now, especially with mortgage payments for some doubling in less than six weeks. How will the new stress test fit into the mix - is this likely to further exacerbate affordability issues, given the rising cost-of-living? The new stress test is already impacting borrowers in the residential space and has pretty much killed the buy to let market off in parts of the country.
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Rob Peters
Principal at Simple Fast Mortgage
Financial markets have been sent into a tail spin due to a lack of clear committed and consistent direction by the Government and Bank of England and mortgage borrowers are paying the price through a sharp increase in the cost of borrowing. Both residential BTL borrowers are affected. Interest rates have increased significantly in a short period of time and lender stress tests are now based on much higher assumptions. What this means is is much harder to get a mortgage now compared to only a few weeks ago, and if you can get one, it will cost significantly more each month. Although some stability is returning to financial markets I would not expect this to be reflected in cheaper mortgages as most lenders are struggling with large pipelines of applications, and will be reluctant to entice more with cheaper rates. Undoubtedly, some will be stuck and unable to refinance. I expect this data to filter through in the coming months showing more property sales, particularly from BTL landlords. This in turn will push down property prices, but by how much is anyone's guess.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Truss is not responsible for rising interest rates. However, she is 100% responsible for the Truss premium many will be paying for years to come. Her disastrous economic experiment will be used as a case study for how to **** up a country's economy in under a month, a new world record. The BOE has been working overtime to clean up the mess caused by Liz & Kwasi. Had they raised rates quicker prior to the mini-budget, we would be in a worse position if that is even possible.
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Jamie Lennox
Director at Dimora Mortgages
Trussonomics was undoubtedly the catalyst of the whirlwind that followed suit. Pre the announcements a 2-year fixed rate could be secured for around 3.5% within 2 weeks of this you're lucky if you find a sub-6 % rate. Many are praying that the unwinding of the mini-budget may be the saviour to mortgage rates, but we just can't see it happening. The damage is done, lenders are now swamped with applications and even if the outlook would appear to have improved I doubt lenders will have the appetite to reduce rates while they struggle with countless applications. The real concern for us brokers is when government can't get their own policies right, its leaving many of us in a minefield trying to advice our clients of the right a actions to take.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
Consumer price inflation has been rising at an alarming rate in recent months, largely fuelled by upward pressure from energy bills, food prices and oil. With base rate at an all-time low, the Bank of England could have implemented contractionary policy, such as increasing interest rates, at an earlier stage to curb rising costs. Whist there is an argument for a more proactive response from the Bank of England, there is compelling evidence to suggest that rising fixed rates are a result of factors outside of their control. Firstly, uncertainty arising from the mini-budget and ‘Trussonomics’ has caused a ‘knee-jerk’ reaction in the mortgage market with rates increasing disproportionately to that of base rate. I do believe we will see a slight reduction in rates in the coming weeks as the market starts to ‘cool’. Secondly, the proposed reduction in taxation, leading to reduced government income, has unsteadied the market for government bonds, or gilts. Additional government debt will be required to bridge the anticipated funding gap. It is thought that a large percentage of the additional debt requirements will come through gilt issuance, leading to a rise in gilt yields. Some DB pension schemes that use Liability-Driven Investment strategies may come under pressure, particularly those with positions in illiquid assets, as they start to receive margin calls from increasing yields. The Bank of England has tried to control rising yields through the open market operation of purchasing government bonds. The BoE can control inflation by raising rates or reducing the money supply through selling government bonds. The BoE now faces a balancing act between rising inflation and reducing the risk of a pension fund crisis. Whilst the BoE is purchasing government bonds, they have limited capacity to control the money supply through quantitative easing (QE). As such, there is mounting pressure on the UK central bank to further increase the base rate leading to a further increase in mortgage prices. Hunt’s appointment, however, has shown signs of rebalance within the economy. Both the 20- and 30-year gilt yields have fallen by 40 basis points since his appointment. Should this continue, the BoE will be able to apply both its tools of QE and altering base rate in unison, which should reduce the pressure of further increases.