The mortgage market has transformed over the last two years. In late summer 2021, we were emerging from an overheated market, buoyed by the Stamp Duty Holiday. Fast forward less than two years, and we’ve gone through fourteen interest rate rises, leaving ultra-low rates well and truly in the past.
While we have moved from unprecedented circumstances to more never seen before conditions, one thing is for sure – those remortgaging this year or next face much higher costs than during their previous deal.
Following high inflation, runaway energy costs and a cost-of-living crisis, the last thing homeowners need is a significant increase on their monthly outgoings, but due to the sharp rate increases, this is the issue they now face. For many, it’s a bitter pill to swallow but manageable with strict budgeting and cut backs. For others, it means the risk of falling into arrears due to overleveraged debt.
How the industry is helping
Despite criticism for their promptness in raising mortgage product rates, lenders have, and are, trying to act in the best interests of customers. It’s important to say upfront that lenders don’t want people to lose their houses. Repossession is expensive and stressful for all parties – it rarely delivers an outcome one or both parties are happy with – invariably it’s a last resort no one wants to take.
What’s more, the industry is trying to ensure good customer outcomes. The introduction of The Mortgage Charter, for example, has helped drive some consensus in terms of best practice as lenders continue to navigate tumultuous circumstances. Eighty-five percent of lenders have now signed up and this is great for the industry – ensuring parity and fairness, in a time where there is no clear government strategy on how to help homeowners.
One of the outcomes of the Mortgage Charter is six months forbearance for those struggling with costs. This was proposed by the government during the pandemic, and lenders have been encouraged to keep this tool available.
But in some ways, this tool actually makes things worse. Forbearance measures are meant to be short-term; for example, to cover a job loss. It means homeowners are only covering the interest – their debt remains, and after six months, the payments they previously couldn’t afford will go up unless a term extension is applied to spread the cost. Either way, these homeowners will end up paying more, and their financial position will worsen.
Another thorn is that six months is not long enough to fix the problem. It’s going to take at least 18 months to get rates down to more manageable levels, and even then, we’re unlikely to see the super low rates we witnessed after the pandemic for years to come. Plus, providing people with more disposable income when inflation is still far too high is just counterintuitive.
Therefore, we can’t just carry on and hope the problem fixes itself, we need a long-term solution, and in my view, it’s time for the government to step in. Lenders have done what they can, but they can only do so much if they don’t know what direction the government wants the housing market to go in. Do they want it bouncing again, bringing in healthy revenues yet at risk of overheating, or do they want to look at more sustainable measures to guarantee its long-term health?
The government stepped in to help with the energy crisis, and our industry is equally in need – we’re talking about peoples’ homes. Without intervention the housing market will take years to recover, and those on forbearance measures – which are designed for the short-term – could be so financially impacted due to interest-only payments they store up credit issues for years to come.
Long-term thinking can solve this; including increased stock to stop the market overheating, a review of social housing requirements and an appraisal of Brexit and Covid’s impact on the building industry, and how this in turn is affecting margins and costs.
We could also look at tax strategies to support the most vulnerable. This might go some way to steadying the market and preventing these cyclical hot and cold streaks. We can’t compare this to 2008/9 – it’s a totally different set of circumstances, and to do so would be blasé. It’s time for action, otherwise we could see devastating consequences.
We need to see a different narrative to just blaming the lenders for concentrating on margins over people’s welfare, as this is not the case. The housing market is too important to the UK economy for there not to be a long-term strategy in play. In my view, it should be central to manifesto pledges as let’s face it, homeowners want some reassurance, as do businesses in the sector as to what the future holds.
A lame duck government sitting back and fiddling while the housing market burns helps no one. It’s time to step in and act, before the situation worsens.