Business Skills
Government needs to intervene in resi mortgage market ASAP – JLM
Guest Author:
Rory Joseph, director and Sebastian Murphy, head of mortgage finance at JLM Mortgage ServicesIt’s certainly no hyperbole to suggest we have a mortgage lending crisis right now, with existing mortgage borrowers having to deal with a huge payment shock when they come off current deals, and those who would like to purchase, seeing the cost of their required finance flying off further and further into the stratosphere.
Less than a year ago, you could pick up a 60 per cent loan to value (LTV) five-year fix for less than one per cent, now you’re looking at just shy of four per cent and when the Bank of England (BoE) raises rates again, you can guarantee it is going beyond that. And that’s at 60 per cent LTV, let alone anything higher.
While we appreciate that swap rates are rising sharply (and that base rates are only going to go the same way), the current service and lending strategy adopted by the big, mainstream, high-street lenders over the past eight to ten months can be simply summed up as, put rates up. It clearly hasn’t worked but there appear to be no signs that these lenders either get this, or (for the vast majority of major players) want to do anything about this.
For the vast majority of people, the mortgage is their biggest monthly outgoing and if they are unfortunate enough to be coming to the end of their current deals right now, then we’re afraid they are going to need to fund huge increases.
If the average mortgage is approximately £150,000 to £160,000, then anyone coming off – for example – a five-year fix right now, is going to be paying at least £300 per month more for their mortgage, given the deals they’ll have access to.
For many more borrowers, it will be much more, and the reason for this is not just cost of funds but lack of service capacity. If that isn’t particularly galling for those clients who just so happen to be in this situation right now, we don’t know what is.
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Government action needed immediately
What we need therefore is government/BoE action immediately, because while energy bills going up will do considerable damage to the incomes of many, mortgage costs increasing are going to be far in excess of this.
A stamp duty cut merely adds napalm to the fire engulfing this industry right now. We need to follow the lead of our mortgage adviser colleagues across the Channel and demand action right now.
The BoE needs to cap the rates that lenders can offer in the mainstream residential mortgages in order to avert disaster, and to allow lenders the opportunity to get their service capacity issues sorted out.
They will not do this themselves – as has been proven throughout 2022. However, unless we see an end to this rate-jumping we are going to see a huge impact in terms of arrears/repossessions as existing borrowers struggle to pay inflated mortgage payments, and we’ll see a significant dip in both sellers and buyers who simply can’t afford to move and/or buy.
Currently in our mortgage market the price isn’t right and, as a result, we are standing on a payment precipice. Intervention is needed and needed right now otherwise many borrowers are going over the edge.