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Mortgage market 'inching towards perfect storm'

Mortgage market 'inching towards perfect storm'

The government should be careful about reforming the mortgage market because it is 'inching towards a perfect storm' according to guests on the latest edition of the FTAdviser Podcast.

The government has pledged to conduct a mortgage market review to help more first-time buyers get onto the housing ladder.

This will look into how more people can be given access to high loan-to-value mortgages and what alternative ways of providing finance and managing risk there might be.

But speaking on the latest edition of the FTAdviser Podcast, Martin Stewart, director of London Money, said rising interest rates and inflation meant the government should "proceed with caution".

He said: "[Lenders] lost money before in a crash a number of times and they have very long memories, banks, when it suits them. So they are not going to be throwing money left, right and centre into the market. They will be quite cautious with their approach.

"They will understand what the cost of living is doing to people's budgets right now, and we are seeing some very specific numbers where clients are coming to us from a two-year fixed rate that they took at the start of the pandemic and their payments are going up £500 to a £1,000 a month more now, just because the cost of interest rates has risen exponentially in that time.

"So we have to be a little bit careful here. We are inching towards a perfect storm so I think we should all, as a market, proceed with caution."

David Hollingworth, associate director at L&C, said the long-term solution to getting more people onto the housing ladder was a bigger supply of affordable housing but he said looking at the mortgage market was a "more immediate and more straightforward" solution.

He said: "You do have to be mindful of where we are where we are. The whole focus of the original Mortgage Market Review was to ensure we didn't return to the excesses and the lower underwriting standards that were present in the market prior to the crash.

"Removing all of these controls would be probably pretty feckless to do right now."

He added that some lenders were looking at offering longer fixed rates with greater flexibility to avoid tieing the borrower in with large early repayment charges.

Hollingworth said: "But it is really quite hard to then balance off what kind of rate you have to charge for that. Because as a first-time buyer that will be deeply unappealing if it is flexible but you have to pay quite substantially more."

Stewart and Hollingworth also discussed whether the solution was simply to continue with Help to Buy and whether the review was likely to happen at all.

To listen to the full podcast click play on the player above. FTAdviser's podcasts are also available on Apple Podcasts, Spotify, Google Podcasts, Stitcher and Acast.

damian.fantato@ft.com