What Next After A Year Of Mortgage Mayhem?

It’s now one year since former Prime Minister Liz Truss and Chancellor Kwasi Kwarteng’s ill-fated mini-budget, which acted as a catalyst for 12 months of mortgage mayhem.

At the time Moneyfacts reported that lenders withdrew more than 40 per cent of mortgage products from their shelves, before hiking 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.

The fall out has been stark - £510 increase in the average monthly cost of a £250,000 mortgage, a 23 per cent fall in monthly mortgage approvals, and a £16.9 billion increase mortgage balances with arrears.

Now Karen Noye, mortgage expert at Quilter, discusses what we can expect moving forward.

“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” she says.

“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 2.0 per cent 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.”

Noye continues: “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.”