The mortgage market is in turmoil due to a series of political and economic events.
After more than a decade of ultra-low interest rates, the Bank of England has raised the base rate in 2022 in an attempt to bring down newly high inflation.
It is now at 3 per cent – a 33-year high – following a 0.75 percentage rate hike earlier in November.
This means many borrowers are suddenly being faced with a steep hike in the average mortgage rates on offer, and repayments, although some lenders have started to reduce rates.
At the same time as the rise in rates, some mortgage choice is being restricted.
Many of Britain’s largest lenders withdrew almost 1,000 mortgage deals in the days following the then-chancellor Kwasi Kwarteng’s "mini" Budget on September 23.
And while most have come back to the market – albeit with reduced ranges – brokers and clients alike have been left scratching their heads.
Mortgage brokers are looking to the past for answers to the present trouble and to the future to judge if a housing price crash is imminent, and how to advise clients with so much in flux.
This feature, which qualifies for an indicative 30 minutes' CPD, will examine all of those issues.
Have we seen this kind of situation before?
The current mortgage borrowing and lending market is markedly different to that of a year ago. Putting the facts baldly:
- October 14, average rates on a two-year fix had increased to 6.47 per cent, according to Moneyfacts data, up from just 2.21 per cent the same day in 2021 – an extraordinary jump.
- In the five days following Kwarteng’s "mini" Budget, Moneyfacts found almost 1,000 mortgage deals were pulled as panic gripped the UK housing market.
- The BoE is on course to have raised its policy interest rate from just 0.25 per cent at the start of this year, to more than 5 per cent by early next year.
- More than 5mn families are set to see their annual mortgage payments rise by an average of £5,100 between now and the end of 2024.
Some £1,200 of that increase is reflecting the higher expectations of interest rate rises since that disastrous fiscal statement, according to new analysis by the Resolution Foundation.
Compared to previous mortgage market crises, Rob Gill, managing director at Altura Mortgage Finance, says the 2008 credit crunch that led to a bust after a boom in sub-prime lending, is the “closest to the current situation we’ve come recently”.
“Lenders pulling out of the market, loan to values being slashed, and large-scale government intervention required” is comparable, he notes.
The big difference between now and then, however, is the sheer speed at which events have unfolded.
Gill says: “While events seemed very dramatic 12 years ago, they unfolded over several months. The current crisis, however, started on a Friday morning and was in full swing by Monday lunchtime.”
The other big difference is the credit crisis was a global event, started by US sub-prime mortgages and spreading throughout Europe and beyond.
“Our current woes are UK focused and largely caused by politics rather than economics,” said Gill.
What is the new housing minister's policy?
Britain has had no less than four housing ministers imposed on it in 2022. The current incumbent is Lee Rowley, a former banker turned Derbyshire MP, the 13th Conservative to hold the role in the past 12 years, who only took over in September.