Jeremy Hunt’s move to rip up most of last month’s mini-budget should help strengthen a housing market that was beginning to wobble and could relieve some of the downward pressure on prices, analysts have suggested.
However, other experts warned the new chancellor’s intervention might not be enough to stave off the risk of “significant” house price falls, and that even if new mortgages did become temporarily cheaper, the sizeable interest rate rise expected in November meant many borrowers would still face hikes in home loan payments.
The estate agent Savills said that in many ways, Hunt’s announcement was “the best feasible outcome for the housing market” because it should reassure the financial markets, which in turn should mean “we can expect to see mortgage rates peak lower and fall faster once we pass peak inflation”.
Two things arguably support a more positive interpretation. One is that one of the very few tax changes to survive Hunt’s cull (for now at least) was the stamp duty shake-up. Kwasi Kwarteng last month cut stamp duty, raising the point up to which none is paid from £125,000 to £250,000, while for first-time buyers that threshold went from £300,000 to £425,000.
The other is that the latest data from the property website Rightmove, issued hours before Hunt’s announcement, painted a picture of a housing market continuing to defy gravity. It said the average price of a property coming to market rose by £3,398, or 0.9%, in the month to 8 October, to a new record of £371,158. A lot of this reflects ongoing shortages of property for sale.
However, it also found that buyer demand in the two weeks after the 23 September mini-budget was down 15% year on year.
“The market is looking less robust on a number of fronts,” said Sarah Coles, a senior personal finance analyst at the investment firm Hargreaves Lansdown, with everything pointing to “a risk that we could see significant house price falls over the next few months”.
Responding to Monday’s moves, Chris Hodgkinson, of the property firm HBB Solutions, said: “The damage has already been done to homebuyer sentiment … 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.
“As a result we can expect market activity to remain muted over the coming months, causing house prices to drop as a result.”
Rocketing new mortgage rates have dealt a huge blow to many would-be first-time buyers and homeowners, leaving them unable to make the sums work. Househunters are also being hit by rising rents and are likely to be alarmed by the decision to slash the energy price guarantee period from two years to just six months.
However, if the financial markets are reassured by the new chancellor’s actions, many analysts believe rates on new fixed mortgages could fall back in the short term.
The average new two-year fixed rate home loan surged from 4.74% on 23 September to 6.47% on Monday, so if Kwarteng’s mini-budget has effectively been scrapped, that would theoretically suggest that at least some of the mortgage price hike that his actions triggered should now be reversed.
Graham Cox, the founder of the broker Self Employed Mortgage Hub, said Hunt’s actions “may see fixed-rate mortgage products become temporarily cheaper, if gilt yields continue Monday’s decline,” while Marc von Grundherr, the director of Benham & Reeves estate agents, said he believed there would now be an easing of some of the pressure on the mortgage sector.
But it will take some time for banks and building societies to respond to this latest announcement. Mark Robinson, the managing director of Albion Forest Mortgages, said that “it could well be that it takes a few days or weeks before we see any kind of movement”.
The Bank of England governor, Andrew Bailey, said at the weekend that the impact of the September mini-budget meant there would be a sizeable interest rate rise on 3 November, so the overall direction for borrowing costs is up.
Hunt’s U-turns could mean they raise the base rate by a smaller amount – perhaps 0.75 percentage points rather than the full-point rise that was expected. But all the experts agree that the era of super-cheap mortgages – just over a year ago it was possible to lock into a mortgage rate of less than 1% for two or even five years – is well and truly over.
