We’ve had several months of political mayhem with extremely damaging knock-on effects for the economy.
However, if the UK government thought Rishi Sunak’s appointment as the new Prime Minister would bring some stability to the current economic crisis, well, they were in for a shock.
Although the bond markets have settled somewhat in response to the reversal of Liz Truss’s disastrous mini-Budget, the cost-of-living crisis remains a huge concern for the population.
If people didn’t have enough to worry about with food inflation and the long running energy price crisis, the mini-Budget, almost in one fell swoop, threw higher mortgage rates into the mix.
In recent weeks, we have seen lenders forced to withdraw thousands of deals from the market, creating real and unnecessary worry for borrowers across the country.
The budget and government changes caused the markets to react but there have been some confusing messages as to why mortgages rates changed in the way they did.
What’s been happening to mortgages these last few weeks?
Broadly speaking, the turmoil in government caused a substantial increase in swap rates that lenders use when hedging funds. The reason swaps are so high is because markets believe the Bank of England base rate could increase to over 5.5% by next Spring.
This means that two- to five-year mortgage rates will rise. Longer term, there is an inverted yield curve when looking at swap rates suggesting rates will come down.
Unsurprisingly, consumer confidence has taken a massive hit with so many mixed messages in the market with borrowers and potential borrowers understandably worried about what happens next.
The results of the government’s mistakes are not just about complex market movements – they are having real life implications.
In recent days we’ve had one client, a doctor and senior manager expecting a child, who had an offer accepted a week after the mini-Budget, originally looking at a deal of 3.5% in the summer.
The payments were around £1,200 to £1,300 per month. This has subsequently risen to 6.1% and payments of £1650. They have now had to reassess and find a smaller property.
Regrettably, this type of situation has not been unusual.
The good news for borrowers – ‘you do have options’
It would be easy for mortgage borrowers to think that there was no light at the end of the tunnel -however this is not the case!
Firstly, lenders are returning to the market with two-, three- and five-year fixed rate mortgage deals.
Furthermore, Barclays has just introduced a seven-year fixed rate deal and both Santander and HSBC have recently reduced rates.
Lenders need to do business and they very much still want your business.
Yes, circumstances have changed somewhat and whilst we may not see any swift return to the ultra-low rates of recent years, good deals are still available.
And if the government can get its act together and make the right economic decisions for the country then potentially, rates may fall further.
The biggest difficulty for most borrowers is trying to maintain a close eye on everything that is happening in the mortgage market.
The situation is definitely fluid, with announcements from lenders coming out on a regular basis; we also have to consider the possibility that future government policy changes could create further uncertainty.
Whilst the headlines might suggest otherwise, when it comes to your mortgage, you do have options.
There remains a great deal of competition among lenders for your business and your first step should be to seek advice from an independent mortgage broker who can help find the right deal for you, at the right time.
Darren Polson is head of mortgage operations at Aberdein Considine
