Autumn 2022 Mortgage & Property Market Update

Autumn 2022 Mortgage & Property Market Update

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Bank Of England raises rates again

Let’s dive right in at the deep end of our mortgage & property market update. In late September the Bank of England met and raised the interest rate again by 0.5% to 2.25%. This is now the seventh consecutive increase in the base rate since inflation started to become a real issue in 2021. These rates are now the highest since the credit crunch back in 2008. To put it frankly, this rate rise sent the mortgage markets into a slight meltdown. The likes of which we haven’t seen since banks pulled out of the market during the original COVID lockdown in early 2020.

Typically what happens when the base rate increases is lenders go away and reprice their offerings to clients. Typically this takes anywhere from a few days after the announcement to a few weeks. Each lender is different and all of them usually take products off and put them back on the market simultaneously. This time round that wasn’t the case. Due to the frenzy that this rate rise cause, lenders withdrew products and did not immediately bring back repriced products. Not to panic though, they have since come back to the market although with more tentativeness than they’ve had previously. This can be shown in the higher rates offered typically by most lenders at the moment. With rates hovering around the 5%-6% level. Not something we’ve seen for a long, long time.

What does this mean for the property market?

With mortgage lending now more than twice as expensive as it was a year ago, not everyone can afford to move anymore. Despite the new Conservative budget giving property purchasers a discount in stamp duty the property market will inevitably have to come down. It is simple supply and demand economics. If the amount of eligble purchasers of property has been slashed by the increase in rates, then the demand for property decreases. With this demand for property being slashed by the rising rates, property becomes less valuable. Less demand on the existing supply means abundant supply and with more supply, prices come down.

Taking all this into account, it is going to be a very interesting 6 – 12 months in the property market where we may well see a steady decline in prices due to mortgages becoming more expensive. In light of this, it will also be interesting to see how the Bank of England reacts to this market decrease. But this is something they are trying to do. Overall the main goal of the rate rises is they want people to save instead of spend by offering more attractive savings rates via a rate rise. With people spending less overall, demand for products goes down and inflation cools. Obviously this is a longer term process and can’t be fixed overnight but that is the intention.

Market update in conclusion

There’s no doubt that the interest rate rises have caused instability in the markets. You can see that clearly with the interest rate pricing from lenders being so high. In times of uncertainty, lenders tend to err on the side of caution and protect themselves with a nice healthy cushion of interest from the rate that they actually borrow the money. Which is what they are doing now. And with these high rates, come increased borrowing costs. Which in turn makes the property market not as frothy as it has been. But we are only just seeing the start of this all. It’ll be very interesting to see what a mortgage & property market update looks like in six months time.

The key takeaways here are no, lenders are just not stopping lending. They are just taking a bit of time to make sure their prices are right. No, the financial world is not collapsing and caving in, we are just experiencing a bit of turbulence. And no, that news article you read on the BBC about all a lady only being able to find a rate at 10.4% after having her mortgage pulled is not true. Either she was very mixed up or just plain misquoting her scenario to incite panic. The modern media machine at play there folks.

We know better than most that these times can cause panic and worry among our clients. That’s why we, real humans, are readily available to speak to and go through any questions or fears you may be having. Simply pick up the phone or drop us an email. Whichever ever way suits you to contact us we are more than happy to speak to you and advise you as necessary.

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Ashley Hollom
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