THE FIRST CUT IS THE DEEPEST
BY CHRISTIAN COVENTRY , CONCEPT MORTGAGES
“ We are temporarily withdrawing products …”
Anybody who has been working within the mortgage industry recently will be very familiar with this landing in their inbox , from any one of a multitude of lenders .
From a borrower ’ s perspective this is pretty bad news as fixed rate mortgage costs have skyrocketed over the space of a few short weeks , meaning that anyone who has been hoping to secure a new fixed rate mortgage deal will have seen a significant increase in their monthly mortgage payments .
It ’ s probably fair to say that there hasn ’ t been this level of disruption to the lending market since the global financial meltdown of 2008 . So why has it happened ?
In short , Liz Truss & Kwasi Kwarteng happened . They were catapulted to the head of Government and brought with them their own brand of “ Kamikwasi Economics ”. Their mini-budget was supposed to be the great re-set , a fresh approach to kick-start the U . K with the vision of a high-growth , low-tax economy .
Instead , it amounted to what was reported to be an eventual £ 45 billion in tax cuts without any real evidence of how they were to be funded . The money markets panicked and swap rates started to escalate quickly . So quickly in fact , that lenders couldn ’ t accurately price fixed-rate mortgage products and for fear of selling at a loss , many lenders had to withdraw from the market completely ; leaving the lenders that still had funds available effectively “ holding the baby ”. The swap rate market dictates the cost of funds between financial institutions and is subsequently the single biggest factor in the price of a fixed rate mortgage .
Our phones were ringing , our inbox was pinging ! The few half-decent deals that were still available had borrowers clambering to secure the products before they disappeared for good .
To add some perspective . If we look back to Autumn last year , we had been able to secure clients with decent deposits five-year fixed rate mortgage products of circa 1 % - and two-year fixed rates of just under 1 %.
At this time the Bank of England base rate was sat at 0.25 % and the “ money market ” two-year fix swap rate was running slightly higher than this at 0.445 %, which is what a lender would expect to pay to buy the funds in , before lending them on .
Cut forward twelve months to September 2022 and although the Bank of England base rate was still sat a very reasonable 2.25 % the two-year fixed swap rate had jumped to just over 5.3 %. Remember , that a lender must still factor in their costs when pricing a product and of course , still needs to make a profit .
This means that the same borrower wanting to secure a fixed rate product only a year later , would most likely be looking closer to 6 %!
At the time of writing things have calmed down a touch and fixed rates have fallen back a little , but this is in no-way a big reversal . The lenders that have dropped rates back had effectively priced themselves out of the market to try and get a grip on their service , so the most recent cuts are effectively them re-entering the market .
As the saying goes however , “ the first cut is the deepest ”.
There is a long way to go before we can realistically see where the market will settle .
For anyone who needs a mortgage to buy a new home right now , these interest rates clearly make disturbing reading . It goes without saying that the recent rate rises will have an impact on the level of housing sales that will occur in the short term and it would be common sense to assume that prices will soften , a silver lining to some buyers I am sure .
As for anyone looking to purchase or refinance a buy-to-let right now , it ’ s a heartache .
Unless Landlords with mortgages have managed to obtain reasonable long term fixed products before the recent rate rises , property investment in the short term simply doesn ’ t look viable .
I would expect to see more Landlords selling up and have already had conversations with Landlords that have arrived at this decision and many more who have placed purchasing plans on hold unless rates drop .
Times they are a changin ’ – OK that was Bob Dylan , but I am sure Sir Rod covered it at some point .
Given the volatility of recent events , it goes without saying that before you make any decisions on your mortgage you should speak to a suitably qualified Adviser with a great reputation .
You can reach Concept Mortgages on 0151 342 3084 , via our website at www . conceptmortgages . co . uk or by visiting our office on Telegraph Road , Heswall .
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