The Financial Conduct Authority could find itself intervening in the mortgage lending market for years to come following this week’s rapidly changing interest rate environment, brokers have said.
The regulator has already entered into talks with lenders this week amid fears the daily repricing of mortgage interest rates has stretched many borrowers too far.
Some mortgage advisers argued that this intervention could go on for years.
They told FTAdviser there are still plenty of “good deals” out there, but that many borrowers will have “panicked based on the ‘secure the best rate today’ narrative”.
The industry is also worried about those homeowners who secured 1 per cent deals last year, who are due for renewal sometime over the next two years.
According to brokers, these borrowers will be facing an environment that many lenders’ stress tests simply won't have taken into account, which for some means their mortgage repayments will become unaffordable.
“In a few years time, there could be a ‘massive intervention’ into the mortgage lending market by the FCA to prevent banks applying for repossession orders,” said managing director of PFEP Wealth Management, Richard Bishop.
“With little thought on future cash flows to cover mortgage payments, there is a good percentage of borrowers who have simply kicked the can down the road this week.”
Bishop said he is seeing clients panicking and grabbing “any deal they can find”, particularly if they are switching a mortgage deal with their existing lender.
“They seem to think securing a rate is the only metric. No thought is being given to affordability in the future…The mortgage market is in panic mode this week.”
Since chancellor Kwasi Kwarteng’s mini-Budget last week (September 23), 1,688 products have been pulled by lenders according to Moneyfacts data.
The government’s sweep of tax cut announcements - which were unfunded - led to a jump in gilts. This also pushed up swap rates, a leading indicator for mortgage interest rates.
Major lender Nationwide has repriced its fixed rate mortgage products twice in just three days, with hikes of up to 1.5 per cent.
One broker told FTAdviser he spoke to an employee at a lender who said their analysts are struggling to model the economic outlook, and that they are gearing up for “big increases” in repossessions, defaults and arrears.
Some banks have already been building up their reserves for this. Earlier this year, Santander said in its results it had set aside £20mn for expected credit losses through mortgage defaults, after reserving no funds for them in 2021 or 2020.
FTAdviser approached the FCA for comment
‘Borrowers pushed to maximum affordability’
Director at Blackdown Financial, Simon Cutler, echoed Bishop’s concerns that there is a real risk of ‘panic buying’ in the fixed rate market.