To anyone working within the mortgage market at the moment, it would seem to take a huge leap of ‘imagination’ to look at the problems currently confronting our sector and decide what was absolutely needed right now was a cut to stamp duty land tax.
But that’s exactly what we appear to be getting, and if that doesn’t leave you scratching your head in abject bemusement then we’re not sure what will.
As a start, let’s look at some of those issues. A huge supply/demand imbalance with the number of new properties being built way short of previous Government targets, and the one scheme which has been deemed to have worked best in bringing new homes and new buyers together – namely Help to Buy –effectively closing at the end of October.
Then we have the massive disconnect between the cost of funds for the large mainstream lenders and the pricing of mortgage products. There is a huge disparity here and it ultimately means mortgage borrowers coming to the end of their deals, or looking for new finance, either have the option of paying much, much more for their mortgage each month, or…well there is no current alternative to that.
Remember this is at the same time as inflation is running at just below 10% and even with the energy price cap being frozen, all households are going to be paying way more for their energy and significantly more for other necessities.
It’s why, according to the Anthony Ward Attitudes to Moving survey, a quarter of borrowers are unlikely or very unlikely to be able to afford their mortgage payments if rates hit 5%. We write this on the eve of the MPC announcement which is likely to move Bank Base Rate to 2.25/2.5% but will actually mean many rates on offer potentially going through the 5% barrier.
Accompany this issue, and you might say directly responsible for this, is the service and processing issues which have blighted our market for most of this year. Instead of looking at the ways and means by which this can be tackled, and with a few notable exceptions, taking a temporary leave of access from the market to actually sort these out, most of the large mainstream lenders have decided to raise rates in order to stem the flow of business.
The problem of course being that this part of the mortgage market is sheep-like in its conformity and dedication to following each other. What has happened repeatedly is that one major lender increases rates in order to stop new applications and deal with what it already has, then all others follow suit, so that – normally within 14 days – we end up in exactly the same position, with the one difference being that borrowers end up paying considerably more.
And what is the Government answer to this? Well currently it is to cut stamp duty rates. This is somewhat ironic in the extreme because at every point, in perhaps the last decade, the property industry has been asking for this prior to every single Budget or Autumn Statement or fiscal event, except not right now. Why? Because it’s really the last thing we need.
The actual Government intervention we need is not to boost massive demand even further, it’s to actually look and understand why rates are so high, and why they are so high above Base Rate, to understand why this has happened within such a short space of time, to understand that this can’t continue, and to do something about it.
Consumers are effectively being penalised here for lenders’ inability to service their business during busy periods, but the solution lenders have pursued is not to stop taking on new business, but instead to raises rates which actually boosts profitability and simply bringing in more business which merely adds to the service/capacity issues at hand. It is, without doubt, a bonkers way to go about things and one that merely hits borrowers even harder in the pocket.
Interestingly, French mortgage advisers are currently protesting and striking because they want an interest rate cap removed, so that more loans can be completed. At the moment, it’s ‘usury rate threshold’ is being regularly breached by the loan rates on offer which means 30% of mortgage rates requests are being refused.
As a sector, we conversely should be demanding right now that a rate cap is put in place, beyond which residential mortgage lenders cannot price above. This would ensure the ‘payment shock’ for remortgaging borrowers was not beyond the pale – as it is right now – and it would also allow first-timers to still get on the ladder rather than seeing their ability to afford a mortgage march ever further over the horizon. It should also allow lenders to service the business they have.
The Government should also extend Help to Buy – especially as it is only available to first-timers – and it should certainly reconsider whether a stamp duty cut for all is really required. Far better perhaps to target it to those seeking to downsize rather than a catch-all approach which, as we know, tends to benefit those who already own, those who buy second homes, those who buy rental properties, the most.
Overall, Government action is required but not this and certainly not at this time. Instead focus on stopping lenders from overpricing, helping borrowers keep mortgage payments down and ensuring first-time buyers who need to meet affordability measures can continue to get on the ladder. A stamp duty cut does none of this.
Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services, the mortgage and protection network
