22 September 2023
The 23rd September marks one year since former Prime Minister Liz Truss and Chancellor Kwasi Kwarteng’s ill-fated mini-budget, which acted as a catalyst to a year of mortgage mayhem that homeowners and prospective buyers are still battling today.
In the immediate aftermath of the announcement, Moneyfacts reported that lenders withdrew more than 40% of mortgage products from their shelves, before hiking mortgage rates to highs not seen since the financial crisis of 2008. In the months that followed, property transactions plummeted as prospective buyers and home movers were priced out, and house prices wavered as a result.
How this has impacted the housing and mortgage market*
- £510 increase in the average monthly cost of a £250k mortgage.
- £15,000 decrease in the average UK house price.
- 16% fall in monthly property transactions.
- 23% fall in monthly mortgage approvals.
- £16.9bn increase in value of mortgage balances with arrears.
Reflecting on these figures and the mortgage market over the past 12 months, Karen Noye, mortgage expert at Quilter, discusses those most impacted and what we can expect moving forward.
“The 12 months since the mini-budget have been nothing short of mayhem for the mortgage market. The Bank of England has hiked interest rates by 3% since the mini-budget was first announced, only just yesterday hitting pause for the first time since its cycle started. Persistently high rates have piled continuous pressure on those with mortgages and have even forced some to sell up. A great number of people have had their plans to take the first step onto the property ladder or to move home scuppered, and those that have pushed ahead have been forced to stomach astronomically higher costs to do so.
Remortgaging borrowers
“For those coming to the end of their mortgage deal and needing to remortgage this year, the past 12 months will have been nothing short of terrifying. The mortgage market became incredibly turbulent following the infamous mini budget, with lenders ripping products from the shelves increasing rates on both residential and buy to let mortgages rapidly, and with very little notice.
“At the start of 2023, it was estimated that over 1.4 million UK households were set to renew their fixed rate mortgages this year. Given they likely would have locked in at a time when interest rates were below 2%, they will have faced huge increases in their monthly payments when they came to renew, and their finances will therefore have been stretched considerably during a time when money was already getting much tighter thanks to high inflation.”
First time buyers
“First time buyers, who are often considered the lifeblood of a healthy housing market, are among those hit the hardest by the events of the past year. Many who were gearing up to take their first step onto the property ladder were rapidly priced out and their budgets were stretched beyond affordability.
“The spending power of many first time buyers will have been rapidly eaten into as high inflation has eroded their hard earned deposits, and persistently high mortgage rates will mean many are no longer able to achieve their goal of buying their first home due to the monthly repayments being simply too high.
“House prices have not fallen as much or as rapidly as was initially predicted, and therefore in order to afford to buy many prospective first time buyers have had to either opt for a smaller property or to put their plans on hold entirely.”
Looking ahead
“Despite the immense challenges, the market has remained remarkably resilient for the most part. While they have wavered, the dearth of supply has largely kept things ticking where house prices are concerned, and though there has been a definite slowdown in the market, where possible prospective buyers appear to have ploughed ahead with purchases – particularly as rent costs continued to soar.
“The government’s Mortgage Charter, which it was forced to implement to protect borrowers following a rapid spike in mortgage rates, brought some relief to those who were struggling. This should reduce the number of homeowners being forced to sell their properties, so we are unlikely to see a flood of properties to the market which is expected to limit the amount house prices fall.
“Going forward, a more stable interest rate environment, even if high, could bring some predictability. For aspiring homeowners, notably first-timers, this will be invaluable. A more stable mortgage rate landscape can help these buyers budget better and not have to deal with unpredictable rate spikes that can disrupt financial plans. What’s more, as commercial entities, lenders will increasingly need to compete for custom so price wars may materialise which could help push rates further down somewhat.
“Though things are beginning to look a little brighter, it remains a remarkably difficult and unpredictable time for those needing to make decisions on remortgaging, buying a first property or moving home. Anyone nearing the end of their current mortgage deal or looking to buy in the short term should therefore seek professional mortgage advice as soon as possible.”
*Figures sourced from ONS Mortgage Rates data, Rightmove ‘What are the current UK mortgage rates?’ data, MoneyHelper mortgage calculator, Halifax House Price Index (August 2022 and August 2023), UK monthly property transactions commentary (August 2023 update), BoE Money and Credit Statistics (July 2022 and 2023 data) and BoE Mortgage Lenders and Administrators Statistics - 2023 Q2.
