Downing Street orders mortgage lenders to protect homeowners as they grapple with soaring mortgage costs
Cornerstone discusses the news that Downing Street orders mortgage lenders to protect homeowners as they grapple with soaring mortgage costs.
Key data:
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- 20% of landlords became one without the sufficient knowledge needed and have lost thousands as a result
- 20% of landlords say that they are a buy-to-let landlord, and their investment has been a successful one
Downing Street has ordered banks to protect struggling homeowners from soaring mortgage costs as rising interest rates continue to damage the borrowing market. This comes as borrowers are being warned that mortgage rates are set to rise further as lenders continue to withdraw deals and raise rates at a ‘relentless pace’ according to broker London & Country.
Santander became the latest major lender to temporarily withdraw new deals on Monday due to ‘market conditions’. In light of this, David Hannah, Chairman of Cornerstone Group International – the UK’s leading property tax experts – assesses how this is set to affect homeowners across the UK.
This comes after nearly 10% of mortgages had been taken off the market at the weekend due to concerns about increasing interest rates, according to data from Moneyfacts. The figures indicate that approximately 800 residential and buy-to-let deals were withdrawn, and average rates on two- and five-year fixed deals have also risen.
The rental market is also facing significant challenges as landlords grapple with their lowest profits in 16 years, largely attributed to the continuous rise in interest rates and increased mortgage costs.
Estate agency Savills has revealed that the Bank of England’s base rate has undergone 12 consecutive increases, resulting in elevated mortgage costs that are squeezing landlords’ income. In the first quarter of 2023, net profits for buy-to-let investors plummeted to less than 4%, marking the lowest figures seen since 2007. Data from Cornerstone Tax 2020 highlights the problems which landlords are facing as just 1-in-5 (20%) say their investment has been a profitable one, with a further 1-in-5 admitting that they have lost thousands (20%).
According to financial data firm Moneyfacts, the average two-year-fixed-rate mortgage has increased from 5.49% to 5.86% since the beginning of June. Similarly, the average five-year deal has risen from 5.17% to 5.51% during the same period.
Homeowners throughout the UK will have to spend nearly an extra £9 billion in interest over 2023 and 2024 as they are forced to refinance at rates that are double what they used to be according to the Centre for Economics and Business Research. In total, 2.5 million homeowners will come to the end of fixed rate deals across 2023 and 2024 while a further one million are on variable rate deals.
David Hannah, Chairman at Cornerstone Group International, discusses the current state of the property market:
“The rise in mortgage rates and mortgages being pulled by lenders due to inflation figures being stronger than expected is unwelcome news for homeowners, especially first-time buyers and those coming to the end of an existing deal.
“This is being done in anticipation of an expected rise in interest rates which will cause borrowers more issues when looking to purchase a property.
“Concerningly, I fear that increasing mortgage costs will be the final straw for Britain’s landlords.
“They have now experienced their lowest profits since 2007 and face further government red tape – I don’t blame them if they chose to sell up and count their loses.
“Our research shows that many landlords were not prepared to deal with the current obstacles facing the rental market as 1 in 5 say they became landlords without the sufficient knowledge needed and have lost thousands as a result.
“We are already seeing record levels of unaffordability in the UK property market and lenders such as HSBC withdrawing mortgage deals is only going to further exacerbate the situation for potential buyers in the property market.”
Kindly shared by Cornerstone
Main article photo courtesy of Pixabay
