Up next in 10
The war in Iran is pushing up UK mortgage rates.
The growing view is that the Bank of England will hold interest rates at its next meeting - despite predictions only a few weeks ago that we could be in for another cut.
That has resulted in an increase in mortgage rates and even caused a large number of mortgage products to be withdrawn from the market entirely.
Joining City AM's Simon Hunt is Adam French, Head of Consumer Finance at Moneyfacts
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0:00
The war in Iran continues to have
0:01
wide-reaching consequences for the UK
0:03
economy. Chief among them a growing view
0:05
that the Bank of England will hold
0:07
interest rates at its next meeting,
0:09
despite predictions only a few weeks ago
0:10
that we could be in for another cut.
0:13
That has resulted in an increase in
0:14
mortgage rates and even caused a large
0:16
number of mortgage products to be
0:17
withdrawn from the market entirely.
0:20
Joining me now is Adam French, uh head
0:22
of consumer finance at Moneyfacts.
0:25
>> Good day.
0:25
>> So, Adam, it's uh it's not unusual for
0:28
mortgage providers to withdraw products
0:30
or to change to introduce new ones. I
0:32
mean, that happens on a daily basis, but
0:34
how uncommon is the the rate at which
0:36
they're being withdrawn now relative to
0:38
a normal week?
0:38
>> Uh given the last few years, um this is
0:41
pretty exceptional, to be honest. So,
0:43
last week alone we saw just over 660
0:46
products withdrawn from the mortgage
0:48
market, around 2/3 of active lenders
0:50
making either hikes or withdrawals. Now,
0:54
that sounds like a lot and it is a lot
0:56
in most normal weeks. However, if we
0:58
look back at other crisis points, so the
1:01
mini budget being the most recent in the
1:03
mortgage market, we actually saw more
1:05
substantial changes around then. So,
1:06
around 930 or so products disappeared in
1:10
a single day at one point then, and that
1:12
was around 25% of the market at that
1:15
point in time. So, in comparative terms,
1:17
it is bad,
1:19
maybe isn't quite as bad as we've seen
1:22
previously. And in Blue Peter presenter
1:24
style, I brought some graphs with me as
1:25
well to show you exactly what we mean.
1:27
Um So, you can see actually this big dip
1:30
down here,
1:31
that's uh post-Liz Truss mini budget, uh
1:34
and that's when we saw a considerable
1:36
number of products leave the market. Um
1:39
but since then, we've seen a really
1:40
steady increase in number of available
1:42
products. We've seen each month quite
1:45
consistently record numbers appearing.
1:48
And then we get this dip now following
1:50
uh the US-Israeli led uh attack on Iran,
1:54
and the concerns around inflation, the
1:57
likelihood of that base rate being held,
1:59
we're seeing rates rocketing,
2:01
and so many lenders struggling to
2:03
actually keep pace with
2:06
that increase at the moment, and that
2:08
leads to product withdrawals. What they
2:10
just take them off the market for a few
2:11
days, see where rates settle out, and
2:13
then put them back on again at a higher
2:15
rate, and we've started to see a few
2:17
lenders doing that in recent days as
2:19
well. So, that will be the theme that
2:20
plays out over the next few weeks, and
2:22
that's why we're seeing rates begin to
2:23
uptick again.
2:24
>> So, I guess the message is, at least by
2:26
the standards of other big geopolitical
2:28
events, this isn't quite a crisis point
2:30
yet as far as that the mortgage
2:32
>> What about to say?
2:33
>> That well, but that being said, I mean,
2:34
of course, we're still in the early days
2:36
of this. Uh, you know, it's only been a
2:38
couple of weeks since this um a war in
2:40
Iran began. Uh, Donald Trump has said
2:43
it's over. The Then again, he has said
2:45
that three times in the last 2 weeks,
2:46
and it doesn't appear to be over yet.
2:48
So, we could still see more products
2:50
being withdrawn in the coming days.
2:51
>> Yeah, I I think it's likely. Um, I know
2:54
for a fact I we've got some more
2:55
withdrawals coming later today and
2:56
tomorrow. Um, particularly when you look
2:58
at the lower end of the market, so
3:01
sub-4% mortgages, um, which are
3:04
primarily for people who have much
3:06
larger equity, so they're either
3:07
remortgaging with a lot of money or
3:09
they're
3:10
first-time buyers with massive deposits,
3:11
so well done to them. Um, we say there's
3:14
only a handful of sub-4% left on the
3:16
market right now. Um, we know NatWest
3:19
went this morning on Monday. Um, there's
3:21
a handful of lenders left. It's very
3:22
likely those will go in the next days,
3:25
so that cheaper end of borrowing, the
3:26
floor is lifting. So, we're seeing rates
3:29
increasing at the top end, but also at
3:31
the bottom end as well. Um,
3:33
rates across the board are going up,
3:34
unfortunately, and that story will
3:36
continue to play out as long as we see
3:37
this conflict drag on.
3:39
This week, however, we do have uh the
3:41
Bank of England meeting uh to discuss
3:44
what they're doing with base rate. And I
3:46
think a lot will hinge on the substance
3:48
of that conversation. So, it's extremely
3:50
likely base rate will be held. Um I
3:53
think
3:54
go back a few weeks, it was priced at
3:55
80% chance of a cut. It's now probably a
3:58
10% chance of a cut if that. Um so I
4:00
think fairly unanimous, it's not moving.
4:03
But the substance of the conversation
4:04
they have will show exactly what they
4:06
are aware they expect the path of
4:07
inflation to go.
4:09
How they're going to balance the risk of
4:10
inflation versus the risks of a real
4:13
GDP contraction potentially off the back
4:15
of this as well. Um so how they're going
4:18
to balance all of that will be a big
4:19
indicator for the markets of where rates
4:21
could go for the rest of this year and
4:22
that will obviously have an impact on
4:23
mortgage rates.
4:24
>> So for the people who are set to
4:25
remortgage this year,
4:27
um you know, at the beginning of the
4:28
year they would have read news reports
4:30
including by people like City AM who
4:32
would have said that uh you know, market
4:34
analysts are pricing in two possibly
4:36
even three rate cuts this year.
4:39
Uh
4:39
all of that's kind of been torn up now.
4:41
It feels like that's kind of an
4:42
impossibility. So
4:43
>> Absolutely right.
4:44
>> What So what's the horizon looking at? I
4:46
mean, will there be one cut this year,
4:47
do you think?
4:48
>> it's funny you say that. I put out some
4:49
research to start this year looking at
4:51
sort of money facts historic data and it
4:53
looked like affordability was back on
4:54
track to hit levels we last saw in 2021
4:57
at some point later this year.
4:59
Um that's just collapsed for the time
5:01
being. So I think the likelihood of a
5:03
rate cut this year
5:05
at best, you might get one. We could get
5:07
a hike here and certainly you're seeing
5:09
in Europe and and traders beginning here
5:11
as well to price in the potential for a
5:13
hike back up to 4% as well. And actually
5:16
given where rates are at the moment, so
5:18
average rates um for example, on the
5:20
two-year, highest it's been since April
5:22
last year and that's when base rate sat
5:24
at 4 1/2% So we're not expecting to
5:26
reach those highs again, but I think the
5:28
chances of those cuts we're seeing are
5:30
are just evaporating pretty quickly. Um
5:33
the optimist might expect maybe a 25
5:35
basis point cut, but to be honest, I'd
5:37
expect it to be held until we really see
5:41
exactly how everything plays out in the
5:42
Middle East which to be honest is uh
5:44
beyond my area of expertise, I'm afraid.
5:47
>> Um as for the mortgage market itself, I
5:49
mean, we've seen a bit of a a slowdown
5:51
in activity,
5:53
um, particularly in London, we've seen
5:54
house prices fall, especially so at the
5:56
at the top end, the sort of super prime
5:58
end, where we've seen, uh, falls of as
6:00
much as 10% or or even more. Um, how is
6:03
all of this volatility affecting the the
6:05
housing and the and the mortgage market
6:07
more generally?
6:07
>> Well, I think we're expecting, uh, house
6:10
house moving house prices to flatline,
6:12
um, and they have been for recent years
6:14
anyway. It's not always necessarily a
6:17
a bad thing, um, rates being higher, uh,
6:20
depending on where you are in the
6:21
housing market. So, if you look back at
6:23
the 2010s, for example, when base rate
6:27
was really low, mortgage rates were
6:28
really low, and actually it meant that
6:30
the more the more money you borrowed,
6:32
the more of that money went on to
6:33
capital payment. So, it went on to house
6:35
prices. So, as a result, people could
6:36
afford to put more and more money into
6:39
property because so little of that
6:40
monthly mortgage payment went on
6:42
interest.
6:43
But, since we saw rates spike from 2022,
6:45
we've really seen much more of those
6:47
monthly mortgage payments go on
6:48
interest. Therefore, you can't afford to
6:51
put as much in when it comes to bidding
6:52
for a property.
6:54
And that meant that house prices
6:56
flatlined to an extent, or in London in
6:58
particular, we've seen a bit of a drop,
7:00
which
7:01
commentators may call a house price
7:02
correction, which is a nice way of
7:03
putting it, but certainly you saw where
7:05
affordability was becoming so stretched.
7:08
First-time buyers in particular really
7:10
struggling to save that deposit for
7:11
their first property.
7:13
Constantly saving towards a moving goal
7:14
post, and actually higher rates help
7:16
bring that down to a certain extent. Um,
7:20
but the further that goes on, you start
7:21
to see house prices coming down. It
7:23
means people aren't getting the equity
7:24
they need in their property to be able
7:25
to get lower mortgage rates. It makes
7:28
moving for a second time more difficult,
7:29
so it threatens to grind things to a
7:31
halt as well. Bit of a balancing act
7:34
over the next little while to see
7:35
exactly how that plays out, but
7:36
particularly in London, you're seeing
7:38
that affordability being stretched to
7:39
breaking point for a lot of people.
7:41
>> And I guess lastly, if you're a
7:42
first-time buyer,
7:44
uh it's yeah, you're in a bit of a
7:46
quandary because you've seen all of
7:47
these interest rate expectations torn
7:49
up. You've seen all these sort of
7:51
product withdrawals and changes to
7:53
products being offered by different
7:55
mortgage providers.
7:56
Um Amid all this uncertainty, you have
7:58
to weigh up whether to choose a fixed
8:00
rate or a variable rate, to choose the
8:02
the term of your of your mortgage
8:04
length. What should be front of mind for
8:06
them as they as they as they try and
8:08
weigh through all of this?
8:09
>> I mean, a more volatile world is a more
8:10
expensive world. Um so, they've probably
8:13
got to balance not only
8:15
can I save a deposit, how much property
8:17
can I go for, but also the costs come
8:19
around buying a house, right? Energy
8:21
bills around that, insurance around
8:22
that. All of these things, in all
8:24
likelihood, will get more expensive as a
8:26
result of what's happening.
8:27
Um so, they really need to think about
8:29
their entire monthly budget, to be
8:31
perfectly honest. But, when you're
8:32
looking at mortgage deals
8:33
in particular, um
8:36
it's 2-year, 5-year is often the thing
8:37
to weigh up. Um
8:39
5-year gives you a degree of certainty
8:41
over that time. If that's something you
8:43
can budget for and afford, that gives
8:45
you that security. Whereas, 2 years from
8:47
now,
8:48
I mean,
8:49
just 3 weeks ago we were expecting rates
8:51
to fall. Who knows what the world will
8:52
look like in 2 years or 5 years. So, if
8:54
you want that security, um opting for a
8:56
5-year can be a sensible approach. Um
8:59
but, it really depends on where rates
9:00
are. And as we as the graph before
9:02
showed, you can see a really clear spike
9:04
in interest rates. And they can drop
9:06
almost as quickly as they've risen, as
9:08
well. So, sometimes it's worthwhile
9:10
waiting out that spike, um as well.
9:13
But, ultimately it comes down to an
9:14
individual's budget and what they can
9:15
afford. If you can afford it, it's the
9:16
right time for you to move, it's the
9:17
property you want, then then go for it.
9:21
>> Mm. All right. Well, thanks very much
9:22
for joining us, Adam. And uh do keep up
9:25
to date with all the latest property
9:26
market news at cityam.com.
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