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Mortgage mayhem

Mortgage mayhem

0:00

Last month’s mini-budget has thrown the property market into crisis. Where does that leave first-time buyers?

“I am one of those Boomerang children. I move in and out of my parents over and over again. I’ve been renting for, well, since I was 18, really.”

Fran speaking to Tortoise

Fran is 35, she’s a marketing manager based in Hampshire, and until recently she was in the process of trying to buy her first home.

“But I’ve managed to get together a modest deposit for buying a place. And I started looking about a year ago.”

Fran speaking to Tortoise

Fran has been saving for a house since her early twenties. But getting on the property ladder – particularly as a solo buyer – has been tough.

“I mean, everybody’s been through the Covid pandemic, but, um, I’ve been through,  failed relationships and all of that sort of stuff and, and, and really struggle to kind of find my own feet and to have somewhere that I could call my own, that was a safe, secure place meant absolutely everything to me.”

Fran speaking to Tortoise

Like most people, she needs a mortgage – a type of loan from a bank that’s secured against a property. And if you fail to make your monthly payments, the bank can take your house.

In September, Fran found her dream home. A one-bed with outdoor space, well within her budget.

But then…

Lindsay Hoyle, Speaker of the House: “I now call the Chancellor of the Exchequer to make a statement [cheers].”

Kwasi Kwarteng: “Thank you, thank you. Thank you Mr Speaker. Mr Speaker let me start directly…”

Lindsay Hoyle and Kwasi Kwarteng speaking in the House of Commons

On the 23rd of September Kwasi Kwarteng set out his mini-budget – and the UK economy collapsed, throwing the property market into crisis.

“I went and spoke to the mortgage advisor and I realised that this was gonna impact me beyond my means. It was going to affect, affect me. Much more than I was imagining. […] Um, and I suddenly realised that it was gonna be flipped on its head and I would be paying more, more in a mortgage than I would in rent. And I couldn’t justify that.”

Fran speaking to Tortoise

So, what’s going on?

***

Earlier this month MoneyFacts, the independent financial information company, released data revealing just how sharply interest rates on mortgages have risen since the mini-budget…

“… that’s because the average two-year fixed rate has gone up now to over 6 per cent. It’s actually the first time in 14 years that the 6 per cent mark has been breached. It makes mortgage rates the highest they’ve been since the financial crash in 2008. For context less than a year ago you’d be looking at a two-year fixed rate at just over 2 per cent…”

BBC News

A fixed rate means your interest rate – the amount of money you’re paying back each month on top of the cost of the loan itself – can’t increase for a set number of years. 

And it’s that rise in rates that suddenly made buying unaffordable for Fran.

“So originally I was quoted 2.4%. […] They’re now talking about 6%. So it’s quite a jump.” 

Fran speaking to Tortoise

Rates are rising four times faster than they did during the financial crash. 

That’s in part because the basic rate of interest, which is set by the Bank of England, is also increasing and looks like it’ll keep rising, so lenders want to protect themselves.

Nobody wants to offer the lowest, and most attractive deal, which is also why the number of mortgage products on the market went down. 

According to data shared with Tortoise by MoneyFacts, lenders pulled a record number of mortgages from the market following the mini-budget – including the sharpest one-day decline since they began collating the data in 2011.

So what do Liz Truss and Kwasi Kwarteng say they’re doing to help first-time buyers?

Liz Truss and Kwasi Kwarteng are adamant that their mini-budget will help first-time buyers…

“That, my friends, is why we are cutting taxes. We have already cut Stamp Duty, helping people on the housing ladder – especially first-time buyers. We are reversing the increase in National Insurance from next month…”

Liz Truss speaking at the Conservative Party Conference

Stamp duty is the tax you pay when buying a property. It’s based on its value and first time buyers now pay no stamp duty on the first £425,000. 

But analysis shows that, over just a few months, the impact of higher mortgage repayments could cancel out the benefit of stamp duty cuts.  

And it’s not just first-time buyers who will be affected by rate increases. 

They’ll impact anyone re-mortgaging… including a lot of people who took advantage of the last stamp duty changes in 2020. Many will have taken out fixed two-year mortgages which will be up for renewal, now at a much higher price.  

So what’s going to happen?

***

It’s hard to predict where interest rates are going to peak. But the Bank of England is almost certainly going to increase the basic rate in November.

It’s warned that if mortgage rates stay this high then the number of households struggling to make their repayments will reach the same levels as the financial crash. 

Fran has decided that the best thing for her is to sit things out and wait until next year. After a decade of saving – it’s been a tough decision. 

“I wanted that home. I wanted that place that I could call my own. And to have that taken away from me has really, really kind of devastated me. I don’t know where I’m going now. I don’t know how long this is gonna take, you know, I could be in my forties before anything settles properly.”

Fran speaking to Tortoise

She’s not alone. Mortgage brokers say that, already, they’re seeing fewer first-time buyers. There’s a risk that might not improve any time soon.

This episode was written and mixed by Claudia Williams.



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