Brokers and borrowers have been hit hard by the turmoil in the mortgage market since the government unveiled its tax-cutting mini-Budget on Friday.
Chancellor Kwasi Kwarteng cut income taxes, national insurance payments and stamp duty, causing the price of UK bonds to rise sharply on international money markets, leading lenders to reprice or pull hundreds of home loans amid volatile markets.
A record 935 products were withdrawn on Tuesday alone, more than double the previous highest fall of 462 products on 1 April 2020 at the start of the pandemic lockdowns.
JLM Mortgage Services group director Sebastain Murphy says: “The market is a bit of a car crash. Lenders have been short of capacity since the pandemic and the rises in the market since Friday mean they are unsure of the cost of funding over the next couple of weeks.”
Murphy says a broker at his firm was working on a two-year £300,000 mortgage for a single woman on a flat in South East London with a high-street lender. When the offer came back he found he had mistakenly pressed five years instead of two years.
“In twenty years of working with this firm, that would not be a problem to change, says Murphy.
“But the lender said that the price had risen and we had to accept the new offer. We argued for days but had to stay with the cheaper five-year deal in the end. That means if the client wants a new mortgage in two years we will pay the £5,000 to £6,000 early redemption charge.”
He adds: “That mistake is understandable because brokers are working at four or five times their normal speed and late into the night to submit applications before products are withdrawn.”
L&C Mortgages associate director, communications David Hollingworth says that clients are desperate to accept a higher mortgage now, for fear that loans will rise higher in days or weeks.
Hollingworth says: “A couple switching to a new product transfer rate with the existing lender will see their rate lift from around 1.25% to around 3.5%, which will mean a good couple of hundred pounds on their monthly payment.
“This won’t be the biggest hike that borrowers will see of course and actually with the speed of change in the market these customers will feel like they have done well to secure the rate they have, given that we’re seeing fixes push up beyond 5% in some cases.”
Your Mortgage Decisions director Dominik Lipnicki adds: “I have just spoken with a client in Surrey, buying a shared ownership property, with building delays however, we are trying our best to get the offer extended, if we have to reapply, the new rate will be unrecognizable from the original discussion.
“We know that between 75% and 80% of all residential mortgages are currently fixed but we also know that many of these schemes will be coming to an end between now and the end of 2024 with many borrowers facing rates that they have never expected to see.”
JLM’s Murphy points out that some clients are willing to pay thousands in early redemption charges even though the end of their loan is more than a year away.
He says: “Clients have come to me prepared to pay a £10,000 charge on a £300,000 mortgage that ends in September next year. Every loan situation is different, but it can be the case that it is best to save cash away and see how the market is later next year.”
However, a number of brokers see a difficult year to 18 months ahead as many economists forecast the Bank of England base rate will hit 5.9% by September as it bids to control inflation, currently at 9.9%, way above its 2% target.
L&C’s Hollingworth says: “It’s crucial for some stability to be put back in the market. I expect that advisers and lenders will need to communicate just as they did during the initial lockdown, to make sure that customers get the information, reassurance and practical help that they are going to need in such volatile conditions.”
