So there we have it. The UK has another Prime Minister – Rishi Sunak. A man who six weeks ago lost an election to become the Prime Minister. As Nick Berry would put it, ‘Every loser wins’.
Which leads us to the big question of, what happens next? Certainly, the ‘markets’ appear to have been becalmed firstly by the news that Boris Johnson wouldn’t be walking into 10 Downing Street again, and secondly by the news that Sunak would be.
Gilt yields dropped fairly sharply when Johnson pulled out – no jokes please – and continued to fall when Sunak ‘won’ the battle to be the new leader of the Conservatives/PM. A victory without a vote of course, but the British public should be used to that by now.
Certainly, for the mortgage market, the fact that swap rates have been falling is clearly good news, because just a couple of weeks ago there looked a real and present danger that average mortgage rates could be reaching double-digit numbers if things had carried on in the same way.
That, at least for now, appears to have been averted and it is to be hoped that rates continue to track down, albeit with the caveat that it looks nailed-on that the Bank of England will increase Base Rate next week. Hopefully, it will now not be by as much as we were all fearing and indeed, the longer-term outlook for rates continues to be far lower than was on the agenda under a Liz Truss Premiership.
All that being said, there is a reason why the markets are giving Sunak the benefit of the doubt at the moment, and that is in expectation of either an increase in taxes, big cuts to public spending, or both. The Chancellor – whoever that might be – will stand up to the Dispatch Box on Halloween and, in all likelihood, have to announce some terrifying measures, forecasts and strategy that many are already deeming ‘Austerity 2.0’.
Times are likely to be much tougher for mortgage borrowers in the short term, even if rates do stabilise, and 2023 as a whole is looking like a very difficult year for many. The impact of further austerity on many borrowers could be profound and this is likely to mean an increase in mortgage arrears, and indeed, difficult times for tenants and the landlords who house them.
Where house prices go next is up for debate, but all sensible predictions seem to centre on (at best) very low inflation and (at worst) a sizeable drop in values. Prices have been pushed on by the lack of supply, and that doesn’t look like it will change a lot, however demand is also likely to fall back, and we could see an increase in distressed sellers having to put property on the market.
At the same time, we have a mortgage market where products have fallen by a considerable number, and those that remain are at rates far in excess of what was available just a few months ago, let alone in 2021. It is to be hoped the shift in swap rates will draw more lenders back into product spaces which they have previously vacated, and that the rates will not continue to be of the nose-bleed variety. However, we shall have to wait and see on that.
Certainly, advisers will play a crucial role here. They would have been dealing with a large number of confused, distraught and perhaps even scared clients over recent weeks, as they watched products disappear and rates rise. Perhaps they can now be the bearer of much better news in coming weeks, particularly for those many thousands of borrowers coming to the end of special rates, and who would have been worrying that the payment shock would be catastrophic.
While they are working through these remortgage clients, it is important not to forget their other financial needs, or indeed the support they require for conveyancing and legal matters. Many will be looking to save as much money as possible in these areas, especially if they are going to need to find more money to pay for the mortgage, as seems likely.
Hopefully, we can have a more pre-Truss mortgage market in the months ahead, and indeed – given the changing of the guard – the Bank of England doesn’t feel the need to go as ‘far and as fast’ as she and Kwasi Kwarteng did with their Mini Budget. Of course, inflation – currently at over 10% – has to be brought down – I’m just not sure that upping many borrowers’ monthly mortgage payments by a significant margin is the best way to do it.
Mark Snape is chief executive officer of Broker Conveyancing
