Sometimes you really don’t know quite where to start; usually when the experience that you, or others, have been through sort of defies logic. Like, for example, when someone is so hell bent on doing something that they are willing to take down a whole economy with them.
When I was studying economics at A-Level, I was rather naughty and was in the remedial class —made up of just me and my mate, Dave. Amazingly, we both have economics honours degrees now.
But back then, if I had wanted to test out an economic theory I happened to like at the time, and I had had the whole of the UK as my test environment, even naughty Monty and Dave would have thought things through a little better than the Truss and Kwarteng clowns.
No, you don’t get it, and no, people do not believe you are listening
Without a care in the world, or a mind for anyone’s welfare or the workings of markets, or bothering to find out if it could be paid for, they climbed on stage and smugly delivered a raft of ideological changes that set off a charge of explosions — and then exited, stage left (unfortunately, not pursued by a bear). I mean — wow!
Massive gamble
If anyone was in any doubt around the direction of the new government, this showed that ideological politics was back with a vengeance. The wide-ranging set of incentives and tax cuts, mainly in favour of higher earners and business, could be seen as a massive gamble that “trickle-down economics” was the big idea that would work to get the UK out of its current malaise.
Admittedly, first, we had the good news of a massive energy-capping package, which is much needed. We also got the repeal of IR35 rules, the scrapping of the bankers’ bonus cap, the delay of National Insurance tax rises and the 1p cut in income tax, as well as a stamp duty change to try to help first-time buyers further.
To all of you brokers who’ve never experienced a market such as this: stay calm. Don’t worry about things we can’t control
Mercifully, the latter was a permanent change, rather than an unwanted holiday period. But, as ever, while it will help many first-time buyers, we need to be careful that, as usually happens, house prices don’t simply rise further to eat up any potential savings and push homes out of reach for many more, especially at a time of higher interest rates.
Then came the 45% tax cut; maybe on its own not a big deal financially, but the straw that broke the camel’s back, both morally and financially.
As this was all to be paid for by borrowing money, rather than with windfall taxes or other tax rises, investors in the UK suddenly saw a disconnect between policies from the Bank of England to curb inflation and government policies that could exacerbate inflation.
That disconnect, plus the ‘How to pay for it?’ question, combined with the other factors to spook investors, leading to government bonds (gilts) crashing and the interest rates on these rising to eye-watering levels, as well as the value of the pound falling.
It’s fantastic that there have been so many voices all over the media, representing the mortgage market
With swap rates spiking, and lenders unable to price and withdrawing products, all this ultimately led to the Bank of England taking action to protect pension funds and the economy at large. Yes, it was that hairy.
This really was Big Bang politics and, while the rewards for success may be bountiful, the cost of failure will be catastrophic for the Conservatives, as well as for the country.
Finally sensing they had nowhere to turn apart from a U-turn, the 45% tax cut was abandoned and the Conservative Party Conference descended into infighting and schoolyard politics. Sir Keir did not need to do anything but watch in astonishment.
Kwarteng in his conference speech mentioned that the “mini-Budget” had caused “a little turbulence”, trying to laugh it all off. Calling the market reaction ‘a little turbulent’ is like saying the Mount Vesuvius eruption was a small bonfire. It is naive at best, crass, and shows a belligerent, uncaring attitude towards the thousands of people staring down the barrel of much higher mortgage payments.
Most lenders are coming back to the market already, albeit at much higher rates
No, you don’t get it, and no, people do not believe you are listening. This was a wholly avoidable situation.
As a broker on the ground, we have had one of the hardest weeks ever, trying to deal with worried clients, from those panicking that their application or offer will not be honoured, or those at the start of their journey, hurriedly redoing sums; to those coming to the end of their product and panicking that their payments will go up by hundreds of pounds a month.
Many lenders announced rate rises of around 1.5% on products, meaning brokers were hard at work on a Sunday afternoon and late into many evenings, trying to secure these products for clients before they vanished.
In the money markets, three-month Sonia has rocketed up 0.81% at 3.33%, and swap rates have settled back a little from their stratospheric recent journey.
Since the previous column:
2-year money is up 1.46% at 5.28%
3-year money is up 1.59% at 5.25%
5-year money is up 1.63% at 4.97%
10-year money is up 1.45% at 4.41%
The Bank of England has a delicate balancing act now to ensure it does not go too far but allows people time to rebalance their budgets and expectations.
As ever, many of the reports and social media posts have been scaremongering. Brokers are working to keep everyone calm and look at all options, easing worries and working with lenders to understand their issues.
But it’s fantastic that there have been so many voices all over the media, representing the mortgage market. It showcases what an amazing industry this is. Thank you all for your calm voices.
If anyone was in any doubt around the direction of the new government, this showed that ideological politics was back with a vengeance
As for lenders, most are coming back to the market already, albeit at much higher rates. We have also seen some lenders announce new stress tests. TSB will increase its residential affordability stress test to 8%, citing expectations of rising interest rates, while the stress rate for first-time buyers will be 7%.
Buckinghamshire Building Society has helpfully opened its holiday-let products to expats, up to 75% LTV. The property must qualify as a furnished holiday let and be available to let for 140 or more days a year.
In buy-to-let (BTL), change is also afoot, mainly where the stress tests are concerned. The Mortgage Works is applying a minimum stress rate of 8.49% on all new applications. This change is an interim measure.
NatWest BTL stress rates increased for two-year products from 5.5% to 7.83%, while for five-year and like-for-like remortgages they rose from 5.1% to 7.44%.
They exited, stage left (sadly, not pursued by a bear)
Elsewhere, MPowered Mortgages has launched its inaugural House Pace Index to shed light on buying behaviour. Among other things the study has found almost half (48%) of properties receive an offer on the same day as a viewing, up from 26% in 2018, but half (50%) of offers don’t lead to a sale. Meanwhile, 31% of properties receive an offer in an hour, compared to 7% in 2018, while one in eight (12%) has received an offer without a viewing this year, up from 7% in 2018.
Finally, to all of you brokers who’ve never experienced a market such as this: stay calm. Don’t worry about things we can’t control, do your best for clients and remember, you matter too. You are all doing an amazing job and this industry and your clients thank you.
Be proud of what you do — it really, really matters.
Hero to Zero
The calm broker voices in the press, and all of you doing your best for clients
Lenders returning quickly to the market
IR35 changes – this does seem to be a sensible change
The worry of serious payment shock for those remortgaging
The lender that reneges on deals at the last minute, after offer and the day before completion
Truss and Kwarteng – a new double act of despair. Get your house in order – fast
What Really Grinds My Gears?
There is a lot that worries me at the moment, especially around the relentlessness of the market, rate pulls and the effect on brokers’ mental health. I know this applies to lenders, BDMs, conveyancers and others, but I want to focus on advisers.
The current situation is extraordinary, but even before this there has been a worrying trend around the timing of some of these pulls, especially late at night or at weekends, leaving brokers with no choice but to work all hours. It is now a given that we have to contend with this: systems that crash and a host of other things that make it so hard to reserve a product.
As one broker put it: “If lenders are going to make rate and criteria changes outside normal working hours, surely they should be staffed and resourced to answer questions at those times too.”
We need to have a proper discussion to find a way together to end this issue. The health of everyone is incredibly important.
Andrew Montlake is managing director of Coreco
