Mr Speaker,
In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future.
So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy.
Our priorities are stability, growth, and public services.
The Rt Hon Jeremy Hunt, Chancellor of the Exchequer, November, 2022
Strange to think that just eight months ago, the UK’s economy was in turmoil, interest rates were shooting through the roof and thousands of mortgage products were removed from the shelves as international lenders turned their backs on a mini-Budget that attempted to boost growth through unfunded tax cuts.
The chaos that was sparked by the Truss/Kwarteng proposals prompted forecasters to predicts that the entire UK economy would enter a long, drawn-out recession and that the housing market would, at best, falter and, at worst, crash.
Then along came new Chancellor of the Exchequer Jeremy Hunt and his rather boring Autumn Statement.
‘Steady as she goes’, was his mantra.
Then along came his Spring Budget.
‘Steady as she goes,’ was his mantra.
Tax cuts were scrapped. There were no fiscal giveaways. This was no time for economic popularity contests. The UK is ‘ill.’ Here is the medicine – take it.
In this context, it is interesting to look back on the first Quarter of 2023 to see what Hunt’s policy of ‘stability’ has done for the housing market and, in particular, mortgages.
Keeping busy
There’s a growing optimism about the outlook for the mortgage market, according to the latest Mortgage Market Tracker report from the Independent Mortgage Lenders Association (IMLA). The findings show that intermediaries are keeping busy, with the average adviser placing 99 cases over the previous 12 months. The figure is a small rise on Q1 2022 (an average of 97 cases) and only four cases off the peak of 103 in Q4 2021.
Despite recent suggestions that the buy-to-let sector is struggling, the data also shows that this market held steady, with 28% of all cases handled in the buy-to-let space, up from 26% in the previous quarter.
So, what happened to all the forecasts of doom and gloom?
The truth is that it never happened.
Yes, the market re-adjusted, and, yes, the number of transactions was down on the previous 12 months but the reality is that underlying demand for homes remains as strong as ever, mortgage rates have eased steadily since last Autumn and the market is becoming used to what has become known as the ‘new normal.’
So what is it – this ‘new normal’?
It’s first time buyers generally needing larger deposits; it’s sellers pricing realistically and not expecting the large bumps in offers enjoyed when the market was booming; it’s being prepared to wait for the right offer to come along – some buyers may insist on multiple viewings before deciding to proceed. Why wouldn’t they? The market had a shock last Autumn and nobody likes a shock.
Stubborn inflation
Which brings us back to the point. The fact that the market was plunged into chaos was extremely bad for home-buyers and home-owners. But equally, the fact that stability was restored relatively quickly has meant that buyers can have a degree of confidence that history will not repeat itself (at least, not in the foreseeable future).
What buyers need to know is that they can be confident enough that they will be able to meet those increased mortgage payments; that they won’t suddenly balloon overnight because the Government’s had a change of mind; that when they come to renew their fixed mortgage, the rates will be lower and not higher.
This month. The Monetary Policy Committee of the Bank of England voted to increase the Base Rate (the rate at which the BoE lends money to other banks) to 4.5% - an increase of 0.25%. This was the 12th consecutive increase in an effort to bring down the stubborn inflation rate which sat at 10.1% at the end of April but which is predicted to fall sharply in the next few months.
The Chancellor has pledged to halve inflation by the end of the year and restore it to its target 2% by the end of 2024.
By that time, interest rates will have eased and the pressure on mortgage rates considerably reduced which should see more first-time buyers return to the housing market.
Sources:
https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising
https://www.thetimes.co.uk/money-mentor/article/will-mortgage-rates-go-down/
https://www.gov.uk/government/speeches/the-autumn-statement-2022-speech
https://www.thetimes.co.uk/money-mentor/article/jeremy-hunt-budget-2023-uk-childcare-pension/