"An extraordinary turn of events, quite literally, but one that should help strengthen a property market that was starting to wobble under the pressure of increasing mortgage rates"
Following new chancellor Jeremy Hunt's speech this morning which reversed a plethora of planned tax cuts, mortgage and property market experts have discussed whether the announcement will help calm markets and bring down mortgage rates.
Lawrence Bowles, director of research at Savills: “In many ways, the Chancellor’s announcement this morning was the best feasible outcome for the housing market.
“Almost all of the tax cuts announced in the Truss/Kwarteng “mini” Budget three weeks ago have gone. Even measures that had been announced previously, such as the 1p cut to the basic rate of income tax, have been shelved.
“Reversing these cuts drastically reduces the size of the financial black hole the Government has to clamber its way out of. That should reassure global financial markets that the UK remains a safe place to invest, bringing gilt yields down.
“This, in turn, will reduce the need for the Bank of England to hike base rates. It means we can expect to see mortgage rates peak lower and fall faster once we pass peak inflation.
“But some tax changes remain: most pertinently, the cut to stamp duty. This cut means home movers and investors could save up to £2,500 on home purchases. First-time buyers could save up to £11,250.
“While these sums may not be enough on their own to encourage someone to move, they may give a push to any households sitting on the fence. In particular, households facing the prospect of remortgaging may take advantage of the stamp duty cut to move – their mortgage costs are going up either way, after all.
“It may be a long time until we see mortgage rates back to where they were in recent years. But, for now, we do expect to see some of the existing downward pressure on house prices and transactions to be tempered – if only a little.”
John Phillips, national operations director at Just Mortgages: “With many of the key pledges of the ‘mini-budget’ now reversed or scrapped entirely, it seems this is far more than just a U-turn, but rather a cannonball to the new PM’s entire agenda.
“Nevertheless, the hope is the changes will bring back some much-needed confidence to the market and interest rates will begin to stabilise. It’s positive to see the pound already beginning to improve with this news. With the stamp duty change remaining as one of the few ‘mini-budget’ pledges to survive, there’s hope that, despite rising interest rates, confidence in the market will stay strong.
“It goes without saying that brokers shouldn’t expect things to now go “back to normal” as the market will remain unsettled. As a result, brokers will need to keep up the hard work to support those looking to move or remortgage. There are still 1.7 million people who will be coming off low fixed-term mortgages in the next year, who will now be facing tougher criteria, tightened affordability and more expensive mortgage options.
“There will be a generation of homeowners and house buyers unsure what their next step should be, desperate for solid financial advice to make sense of this rapidly changing market. Brokers are in the best place to respond to this demand and support those who will still want or need to make moves in the current climate.”
CEO of Alliance Fund, Iain Crawford: “Although today’s U-turn is an attempt to calm the waters, it’s fair to say that the government’s shambolic behaviour is unlikely to distil much confidence in the UK economy.
"However, as it stands, the UK public will embrace any shred of stability afforded to them in what are currently very uncertain times and the one silver lining of this latest government backtrack should be a boost to property market confidence.
"We’re already seeing a strengthening of the pound with gilt yields also dropping and this easing pressure on the markets should reduce the likelihood of higher interest rates.
"This will help settle what has been a turbulent mortgage market in recent weeks, rejuvenating buyer demand levels, which will also help to stabilise house prices and investment into the UK property market.”
Director of Benham and Reeves, Marc von Grundherr: “An extraordinary turn of events, quite literally, but one that should help strengthen a property market that was starting to wobble under the pressure of increasing mortgage rates and dwindling buyer sentiment.
"While maintaining a cut to stamp duty will help stimulate buyer demand within the market, overall market health will be far better maintained by stabilising the mortgage sector and our ability to fund a property purchase in the first place.
"We should now see this with pressure easing, making the threat of further mortgage rate increases over the coming months less likely.”
James Forrester, managing director of Barrows and Forrester: “It’s impossible to tell just what direction the economy will head following the latest government spectacle, but today will bring an air of positivity to what was quickly becoming a beleaguered property market.
"Stability in the gilt markets will bring positive movement for those looking to borrow. But it’s important to understand that we aren’t going to return to a sub one per cent base rate and homebuyers must be prepared to pay more in mortgage costs when climbing the ladder.
"However, the government’s choice to maintain the cut to stamp duty tax signals their intent to keep the property market buoyant and this should help boost buyer confidence in itself.”
Managing director of HBB Solutions, Chris Hodgkinson: “A case of too little, too late, where the UK property market is concerned as the damage has already been done to homebuyer sentiment, as well as their ability to borrow in order to fund their purchase.
"Even if we do now see mortgage rates level out, many will be far too worried to proceed with a purchase in fear of another government U-turn further down the road, leaving them unable to afford the cost of their mortgage.
"As a result, we can expect market activity to remain muted over the coming months, causing house prices to drop as a result.”
Richard Pike, Phoebus Software’s chief sales and marketing officer: “They say “a week is a long time in politics”, and it is likely to feel like a very long week as we wait to see how the markets adjust to the latest U-turns announced by the Chancellor today. The initial market reactions are calm, which is a big positive. Some borrowers would have been assisted by the 19% rate now reversed, and the additional uncertainty of the review of the fuel allowance now being 6-months instead of 2 years will be a concern, even though media headlines will stoke fires in this area. The reality is that wholesale fuel prices could change in six months and in April the need for lighting and heating is a lot less over the summer months, and so this is a sensible approach.”
“For the housing market we only have to look at the latest Rightmove HPI released today, which shows that house prices have hit another new record average, despite recent economic turmoil. Something that highlights the continuing problem of supply and demand. While the demand is there and the changes to stamp duty remain, along with an imminent increase in interest rates, pressure is almost certainly going to be on lenders. The reduction in the number of mortgage products available since the mini-budget is a cause for concern, especially for first-time buyers. Now is the time for lender innovation to ensure that the continued demand can be catered for.
“It is still early in the peace but rising interest rates and high inflation have yet to quell borrower appetite. How long that will be the case remains to be seen, but for now we all need to keep adapting to the ever-changing landscape. The interest rate decision later this month will be a big barometer of what the Bank of England thinks of this U-turn.”
Simon Webb from LiveMore: “Jeremy Hunt’s speech is a huge U-turn for the government and basically puts us back to the position we were in before the mini budget. It is positive that the stamp duty cut will stay in place, but more important will be its effect on the markets. This was clearly a speech to bring a level of much-needed stability and confidence back. While interest rates were already on an upward trajectory, the level of rises we have seen in the past fortnight has outstripped most people’s ability to cope. We all need to hope that this speech and the next fiscal statement on the 31st October, will be enough to steady the markets enough that lenders can reprice and reintroduce the hundreds of mortgage products that necessarily had to be pulled due to market instability.”
Jamie Lennox, director at Dimora Mortgages: "Backtracking isn't going to help millions of mortgage customers who have already been left up the creek without a paddle. Monday's announcement by the new Chancellor may calm the markets, but mortgage lenders are currently swamped with applications due to the tidal wave that followed the now doomed mini-Budget. Lenders are not simply going to lower interest rates overnight because they will drown with a further influx of applications. The average worker is not only now facing sky-high mortgage payments and the insane cost of living, but with the scrapping of the reduction of the basic rate of tax and the undecided future for the energy support post April, the British public have been well and truly been hung out to dry."
Mike Staton, director of Staton Mortgages: "It feels like the government are playing darts whilst wearing a blindfold. This U-turn just shows what a complete farce the past 4 weeks have been. I don't expect to see mortgage rates reduce anytime soon, as there is still a lot of uncertainty in the air which will cause the Bank of England to play it cautiously. I won't be surprised if we see a base rate increase of 0.75% to 1% in November. Let's not forget, lenders also appear to not want to lend at the moment so their fixed rates do not have to drop, however, there may be light at the end of the tunnel with 5-year swap rates dropping to 4.1% and 2-year swap rates dropping to 4.7%. The biggest hammer blow is the shortening of the energy bailout to April, with many people paying nearly £200 a month extra for their mortgage, £150 more for fuel in their vehicle and an extra £100 on their monthly food shop, a further increase in energy costs in April is something people do not want to even contemplate. This decision could see Liz Truss become the shortest serving Prime Minister the UK has ever seen."
Graham Cox, founder of the SelfEmployedMortgageHub: "The sweeping reversal of Truss's mini-budget should bring economic stability and may see fixed rate mortgage products become temporarily cheaper, if gilt yields continue Monday's decline. However, they will probably increase again around the time of the next Bank of England MPC meeting on November 3rd, when the base rate is widely expected to be hiked by at least 0.75%."
