Chris Sykes admits he’s spent too many late nights glued to screens in his living room-turned-home office in east London.
Efforts to secure favorable mortgages have resulted in considerable overtime for mortgage brokers like Sykes, which has sought a dwindling number of low-rate offers for clients this year.
Lenders struck low-rate deals in response to nine months of consecutive interest rate hikes by the Bank of England, where policymakers tried to rein in soaring inflation – a ripple effect of the war in Ukraine.
This is putting further pressure on brokers who say they are increasingly getting hours’ notice before lenders raise their own mortgage rates. “It’s been incredibly difficult,” Sykes said. “I’ve usually been head down, on the computer, and cracking up on apps.”
It is also about managing customer expectations. Most of the 1.2% offers that would have been considered a bargain last year have disappeared, said Sykes, who works for broker Private Finance. Instead, some customers are lucky enough to get their hands on mortgages at a rate of 3%, more than double last year’s favorable rate.
“Personally, I’ve never seen rates go up so quickly before,” Sykes said.
Bank of England data released earlier this month showed UK mortgage rates rose 46 basis points to 1.95% between November and May, marking the fastest half-year rise since 2012.
Meanwhile, the average two-year fixed-rate mortgage, which is equivalent to 75% of the cost of a home, rose from 1.2% to 2.63% in the eight months ending in May, i.e. the fastest increase over this period since records began in 1995.
And with inflation now at 9.4% – well above the UK’s 2% target – markets are pricing in another rate hike in August that could push mortgage rates even higher. “The changes we’ve seen from lenders in the market have been relentless, and there are no signs of it slowing down,” said David Hollingworth of broker L&C Mortgages.
But even brokers say the banks – which have been raising mortgage rates at a steady pace – aren’t to blame. “Lenders have a tough job,” said Nicholas Mendes of mortgage broker John Charcol, acknowledging that the frenzy of mortgage applications has left many banks struggling to keep up with demand.
“Given how quickly things change, they can become market leaders and be overwhelmed if they price incorrectly.”
Banks have three options, he said: offer uncompetitive mortgage deals to avoid being overwhelmed with demand, reprice at short notice, or pull out of the market altogether.
Mendes now advises borrowers to consider longer-term fixed rates of 10, 15 or even 30 years to avoid paying more due to future rate hikes that are expected to continue into 2023. further increases in the cost of a mortgage,” he said.
And while rising rates are generally good news for UK banks, as they are able to charge borrowers more for their home loans and ultimately increase their net interest margins – a key measure of profitability and growth – the weaker economic outlook is likely to overshadow any additional income on their mortgage books.
UK lenders including Barclays, Lloyds, NatWest and HSBC will start revealing their second quarter profits from Wednesday and are expected to announce their profits are capped by writedowns, including the amount of money they need to put down. side for possible payment defaults.
“We expect to hear positive polling from UK bank management teams on the outlook for interest income given changing expectations for base rate hikes,” said John Cronin, financial analyst at Goodbody.
“However, investors will focus on the prospects for increased writedowns amid the weakening economic backdrop,” he warned. This weaker outlook is partly due to the surge in inflation, with rising energy and food bills straining borrowers’ incomes.
Cronin explained that these writedowns will “overshadow” the improved outlook for interest income. “Everyone is wondering how this will develop over the next few quarters,” he added.
Meanwhile, potential borrowers who were waiting for house prices to cool due to inflation and rising interest rates may be disappointed.
Iain McKenzie, the chief executive of the Guild of Property Professionals, pointed to data that showed house prices had only fallen in 16 of the 90 years since 1931, including during World War II and the global financial crisis, when prices fell about 19%.
“When you look at historical house price data, you’ll see that it’s actually very difficult to bring house prices down, and if they do, they recover in time,” he said. said McKenzie.
Despite the cost of living squeeze, rate hikes and weaker economic outlook, average UK house prices hit a new record high of £271,613 in June, according to the Nationwide building society.
McKenzie said there may be a slowdown in the rate of price increases from the past two years, but the lack of supply is still supporting prices. “I think the housing market will remain robust and we won’t see the kind of correction in the market that many are expecting,” he said.