Watching the new Chancellor’s address to the nation and hearing him effectively dismantle every single tax cut policy from the ‘Mini Budget’, you’d be mistaken for thinking that a three-year period had elapsed since then, rather than just over three weeks.
So much has gone on during that period that we might all feel we have lived several lifetimes during those 23 days, especially mortgage advisers who have been left trying to support hundreds, if not, thousands of existing and would-be borrowers.
It will not go unnoticed, and will be deeply ironic to many within our sector, to hear that the cuts to stamp duty announced by Kwasi Kwarteng are one of the few measures to be maintained. I suspect this is only because they were introduced with immediate effect, and they would be unlikely to have survived were they planned for a point in the future.
Isn’t it ironic…
The irony is ratcheted up because at the time of the stamp duty announcement, there were many within our sector who (perhaps quite rightly) suggested such a cut was not required. Demand was still running at very high levels, and a Government intervention of this scale was deemed to be surplus to requirements given the major focus was deemed to be on increasing supply.
Now however I suspect there will be a slight change in view because what we have seen over the past three weeks is a significant change in mortgage pricing, which could result in purchase activity being impacted and subdued as a result.
We are yet to see the full results of this three-week period played out in terms of activity levels and potential transactions, but I’m sure advisers will have some anecdotal evidence of clients, at the very least, thinking again about what they could afford to buy, the cost of their mortgage in order to purchase, coupled with thinking about whether now was the right time to buy.
However, with the (almost) wholesale rowing back of the uncosted tax-cut measures by Jeremy Hunt, what we do have is a potential road back not only for a fall-back in mortgage rates – which looks like it has begun to happen following the election of Rishi Sunak as PM – but also that the stamp duty cut does feature in terms of incentivising potential purchases, if as I suspect they have, numbers have been impacted by the previous Government’s actions.
Now I fully acknowledge that mortgage costs are unlikely to return to pre-Mini Budget levels – the Governor of the Bank of England has effectively signalled an increase to Bank Base Rate at the November meeting and lenders will understandably be waiting to see longer than a few hours whether their cost of funds will continue to fall off recent highs.
Yet, we did see some big jumps in pricing over the past three weeks, and in particular, lenders pulling large numbers of fixed-rate mortgages as they couldn’t be certain where rates were heading.
Some hope for rates on the autumn horizon…
If Jeremy Hunt’s announcement, and what is effectively now a Budget mid-November, can provide a greater degree of certainty in this area, then there should be some hope that we can continue to get rates down, that we can offer increased product choice, that we can ensure those who want to purchase continue to have options to do so and benefit from the stamp duty cuts, that we can soften the payment shock that many existing borrowers are fearing, and that we can get a much more vibrant, functioning mortgage marketplace that works for all stakeholders.
This might seem like a lot to ask for off the back of a significant amount of market turmoil, but there does tend to be a domino effect at work in the mortgage market, and particularly when it comes to the bigger mainstream lenders, when one acts this often acts as the catalyst for others.
Certainly, it now seems much more of a positive that the stamp duty cuts have been maintained and, while obviously we need to marry this up with the cost of mortgage finance, as an industry we should hopefully start to feel a few more benefits in terms of greater purchase activity, than we would have done if the Government had decided to stay the course in terms of its ‘Mini Budget’ measures.
Hopefully, the political change over the last week or so will precipitate further mortgage market change, perhaps not immediately but over time, and therefore advisers are again going to be best-placed to support clients who last week might have been thinking one thing, but now find that the situation is not what they thought it was.
As always, advisers’ ability to communicate these shifts and how they impact individuals is going to be crucial in terms of generating positive outcomes for both consumers and the firm.
Jo Carrasco is Business Partnerships Director of Stonebridge