By Sophie Mitchell-Charnan, Commercial Director
On September 23rd 2022, the then Chancellor, Kwasi Kwarteng presented the mini-budget to the House of Commons. The goal – to provide financial stability across the United Kingdom.
Just one day prior, the Bank of England base rate increased from 1.75% to 2.25%. Landlords, homeowners and, let’s be honest, the whole country, closely watched the announcement, eager to learn how Kwarteng’s growth plan will impact the economy.
Hours later, we witnessed a financial market panic. Confidence fell with budget announcements, and, as such, SWAP rates rose substantially. 40% of available mortgages were withdrawn from the market according to Moneyfacts. Lenders of all shapes and sizes declared rate rises with little notice, some even paused lending for new business entirely.
One-year on, how do we assess the impact of the last year, and is the market stable again?
It was named “The mini-budget that broke Britain” for a reason, and it’s not common for a mini-budget to strike this level of political and economic damage.
To encourage a non-stagnant mortgage market, Kwarteng announced stamp duty cuts, aimed at helping first-time buyers and homeowners by making properties more affordable. The new plans doubled thresholds from £125,000 to £250,000.
The abolishment of the 45% top rate of income tax was also introduced to the country. Sending shock through parliament as the pound looked more weakened. Of course, a month later, Jeremy Hunt paused the controversial bid to ‘help’ the economy.
Many more announcements were made, and the evolution of Kwarteng’s budget caused what seemed to be irreversible damage to our currency.
The impact of the pound on property
In response to the mini-budget, the pound sterling fell firmly. The value of the pound dropped below $1.09 against the US dollar due to the planned spending increases and tax cuts. Pushing inflation furthermore.
This is the ‘domino effect’ – the value of the pound fell, leading to inflation increases, resulting in rising interest rates, subsequently followed by a loss of confidence in investors.
House prices made the largest monthly fall since the pandemic began. In a market that was already slow and ‘not the norm’. Are we surprised? Not entirely, especially when you take into account the overall reaction to the mini-budget.
As a result, a weakened demand for homes was curated due to the uncertainty.
Have we fully recovered?
It has taken almost 12 months to begin to see recovery from the Kwarteng’s 2022 mini-budget. Alongside other roadblocks, including new strains of the COVID-19 virus and the Russo-Ukrainian War.
The past year has been painful for many homebuyers who needed to remortgage in a rate environment unheard of for 15 years, and landlords felt the pinch across their portfolios.
There has been opportunity, despite the pain, as we’ve seen the demand for bridging lending has been at record levels as investors use the down time to consolidate portfolios, or acquire properties stuck in chains or – a sad consequence of any downturn – purchase more properties at auction as a result of distressed sales.
Could the mortgage market be over the hill? An article in the Daily Express this week pointed out that savings interests have stopped rising, while mainstream lenders have begun cutting back their mortgage rates in earnest.
It remains to be seen what the long, long-term effect of this could be.
We pointed out at the time, that in the context of the last century, the period between 2008 and 2022 was the exception when it came to low interest rates, rather than the rule, and we shouldn’t expect to reach those days again.
But we’ve seen the worst that could happen over the past 12 months, it is now up to lenders and advisers to manage the consequences and deliver a future for their customers.
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