The announcement of this rocked stock markets across the world and maybe led to the Bank of England’s pre-emptive statement in its financial stability report, warning that mortgage borrowers face a major income shock when interest rates rise.
This brings home the importance of careful communication and orderly transitions from one initiative to another. Sudden starts and stops of different government initiatives cause a big shock to the market.
Stock markets are particularly prone to over-reacting as has been proven in the last couple of weeks, but our clients and the wider economy can also see sudden spikes or drops when something is suddenly introduced or stopped – just look at the effect of the end of Stamp Duty relief last year.
The warnings by the US Fed and the Bank of England are carefully crafted to help people and economies to prepare for what might happen when stimulus is withdrawn and interest rates rise, in order to help mitigate the effect of these actions.
With the Chancellor’s spending review announcing new initiatives for affordable housing and the introduction of the Help to Buy mortgage guarantee scheme in January, it is vital that any initiative has a phased approach.
If the MIG scheme is suddenly introduced in January and the market gets used to having all high LTV loans underwritten by the government and then this suddenly ends it is likely to cause more pain across the market than if it were never introduced.
The most important thing is confidence and so much of this is based on communication. The current activity in the mortgage market is much more down to renewed consumer confidence based on announcements that more lending is taking place than it is on any actual initiatives.
We all play a vital part in this process of communicating and maintaining confidence. So, it is key that we raise the prospect of what might happen in the future so clients are prepared. This way we can work to lessen any sudden shock when interest rates rise or an initiative suddenly stops.
Jon Round is financial services director at LSL Property Services