The mortgage market is changing – we need to prioritise education
It’s becoming increasingly expensive to own a home. Costs just keep on rising. Be it the result of the cost-of-living crisis, or the response to it. The Bank of England has slowly been pushing the base rate upwards, with it now sitting at 1.25%.
This has been felt by homeowners across the UK and worryingly, more hikes could be on the way. Many commentators think the BoE has not raised rates fast or high enough to counteract inflation, which could hit 11% by the Autumn.
Following five consecutive rate hikes, average three-year fixed rate mortgage rates have risen by 21.5%. Additionally, people are spending more and more of their income on repayments. Collectively, nearly 28% of household earnings is being used to cover our mortgages.
My biggest worry is that some clients are not fully aware of how this will really impact them, or of what could be on the horizon. The BoE recently got rid of the need to conduct affordability tests for mortgage borrowers for example, and if things take a turn for the worst, a lot of people could be at risk of no longer being able to afford their bills.
Can anyone truly understand what’s coming?
The BoE assured other mortgage rules based on income would keep homeowners safe, but its predictive efforts have left a lot to be desired recently. The Monetary Policy Committee (along with other central bank leaders) repeatedly called inflation transitionary. Even Huw Pill, the BoE’s top economist, recently admitted it misled the markets with its use of language.
Despite these issues, and while central bank declarations may be taken with a grain of salt, they’re at least somewhat tangible. ?A lot of hard-to-predict changes could be just around the corner. We’ve managed to boil the PM race to two final contenders; Rishi Sunak and Liz Truss. In recent weeks, they’ve debated everything from tax cuts to the NHS, but have said relatively little on the property market. Homeowners and investors may have no idea of where they’ll stand right up until a winner is declared.
We’ll soon have a new leader but, in the meantime, we’ve had two influential roles already refilled. Nadhim Zahawi is our new Chancellor of the Exchequer, while Greg Clark is the latest housing secretary.
The new Chancellor has vowed to get on top of inflation and Mr Clark is committed to resolving the cladding scandal but, while I’m sure both will do what they can to protect the economy, there’s no getting around the fact they’re facing a huge challenge in balancing the nation’s books. Whose to say homeowners won’t be targeted for filling the state’s coffers in the new shake up?
How should we respond?
Truth be told, there’s too many variables at play for any one person or entity to fully understand. Our best bet in keeping clients as prepared as possible is education. As an industry, lenders included, we need to help our customers not only understand why costs are rising now, but what could push bills even higher over the years to come.
For those planning to enter the mortgage market, utilising brokers in my opinion, is a must. Having an understanding of what options are available is the first step in at least trying to take ownership of costs.
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