Home News Analysis: First-time home buyers still counting cost of UK ‘mini budget’ fiasco

Analysis: First-time home buyers still counting cost of UK ‘mini budget’ fiasco

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  • UK mortgage rates continue to rise after mini-budget
  • Higher rates threaten new buyers renewing deals
  • House prices reflect Britain’s wealth

LONDON (Reuters) – Every call from Redmond Shannon’s mortgage broker was bad news. Interest rates on the five-year fixed cost he needed to buy an apartment in East London were soaring daily.

By mid-October, his monthly payout was up more than 11% on the same deals he was targeting at the beginning of the month.

The first-time homebuyer was among the victims of last month’s UK tax cut mini-budget. It was designed to spur growth and, as then-Finance Minister Kwasi Kwarten said at the time, “to support families aspiring to own their own homes.” .

That aspiration, which has been the basis of financial stability for generations of Britons, has soured after the country’s sovereign bond crash pushed up borrowing costs for lenders and wreaked havoc on the mortgage market.

Mr. Kwarteng has been on the job for just three weeks since the budget, and most of the tax cuts have now been thrown away. He came less than a week after Liz Truss stepped down as prime minister.

Yields on UK government bonds or gilts drive swap rates and thus determine how much lenders will pay in the financial markets.

Fixed interest rates soared. His two-year and five-year fixed rate averages on Thursday hit 6.65% and 6.51%, the highest since 2008, according to Moneyfacts. A year ago, his average two-year fixed rate was 2.25%.

Shannon, a 45-year-old Irish-Canadian broadcast journalist, said interest rates were rising globally but that Britain’s small budget was exacerbating the situation.

“Politics is affecting my mortgage,” he said. “I feel like I’m at the mercy of what’s going on in Downing Street.”

He was offered an interest rate of 4.08% to 5.49% on Oct. 3 on a five-year contract for the apartment he agreed to buy.

price drop

Lower gold coin yields following the victory of Rishi Sunak in the Conservative leadership election could lead to lower mortgage rates.

But according to Moneyfacts, the number of loans available to first-time buyers remains less than half of what was offered before the mini-budget.

Josh Hardy, a 32-year-old landscape architect and economics student, was booking a new-build home on the outskirts of Exeter, a prosperous cathedral city in southwest England, when interest rates rose slightly.

“If you’re between 3 percent and 4.5 percent, you’re hungry,” he said. “But the small budget has thrown gold and silver markets into turmoil. Banks have just started pulling mortgage products left, right and center.”

His broker raised a two-year fixed interest rate of 6.39%.

“Basically, this has cut our future mortgage from the £850 a month we were looking at to just under £1,250,” he said. “It was the last nail in the coffin.”

He and his wife said they could afford to pay their mortgages, up to levels of about 8%, but were concerned that the overall housing market would fall.

“The idea of ​​taking out a 6% or 6.5% mortgage and staying negative for any length of time is a scary prospect for first-time buyers,” he said.

he pulled out.

In the 1980s, with Conservative Prime Minister Margaret Thatcher’s vision of building a “property-owning democracy”, the dream of owning a home turned into an obsession for millions of Britons.

But over the years, rising prices have kept millions out. According to the Office for National Statistics (ONS), the average UK house price has almost doubled over the past 17 years, rising from £150,786 ($170,000) to £295,903.

With house prices outpacing wage growth, the average full-time worker in the UK must spend more than nine times their annual salary on their home, more than doubling from just over four times in 2000. is shown in the ONS data.

Prices in the South West of England, where Hardy lives, rose 17% by August this year, the fastest growth in the country, forcing many first-time buyers to save for years.

“And just as we were ready to pick up the deposit, a small budget came and smashed it all up,” he said.

new fix

Not just first-time buyers, brokers are dealing with thousands of people whose fixed-rate mortgages are expiring in the coming months.

Interest rates in the UK and other major economies have been at historically low levels since the 2008 financial crisis, with millions of people using fixed interest rates of around 2% or less.

“The mortgage market is working, there is access, but the reality is prices are going up,” said a senior source at a major UK lender, with mortgages renewed between now and the end. It added that four-fifths of the approximately 70,000 customers set up for – 2022 had already secured a new contract.

“We don’t see any defaults or stress in the market, but there’s a lot of anxiety,” bankers said, adding that for many people, higher mortgage rates will hurt disposable incomes while at the same time reducing energy and food costs. He added that the amount of his bill would rise.

Ray Bolger, senior mortgage technical manager at broker John Chakol, expects home prices to fall at least 10% and possibly 15% over the next year.

This leaves first-time buyers with a difficult choice between buying in a declining market and continuing to rent in a market with accelerating rental inflation.

“It depends on how much you value the security of title you get from real estate,” he said.

Redmond, who accepted the offer in east London, said he felt like fixed rates were rising whenever political events took place.

“I’m afraid we’re at the peak of the real estate market. The current peak could be that I’m paying high prices and high interest rates.

But he said he was in a position to buy now.

“Even if property prices go down in the short term, as long as I can afford it, it’s a home, and that’s what matters,” he said.

($1 = £0.8848)

Reporting by Paul Sandle, Sinead Cruise, Farouq Suleiman.Edited by Toby Chopra

Our criteria: Thomson Reuters Trust Principles.

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