© Stocksak. FILEPHOTO: Signs for letting and sales of property agents in south London, Britain, September 23, 20,21. REUTERS/Hannah McKay
By Iain Withers, Lawrence White
LONDON (Stocksak), – After political turmoil drove up borrowing costs, British banks have been lowering home loan prices ever since Liz Truss’s government collapsed.
Market chaos caused by Truss’s massive unfunded tax-cutting plan in September led lenders to withdraw approximately 1,700 mortgage products within a week before reintroducing them at rates 1-2 percent higher.
However, as markets stabilized and borrowing costs fell, the trickle in mortgage rate cuts has slowed.
Refinitiv data shows that several important interest rate swaps have dropped between 1.3 to 1.4 percentage points from their peak Truss-administration level. These are products that lenders use before pricing fixed-rate mortgages.
Moneyfacts data shows that the average rate on fixed-rate mortgages for two-year and five years has fallen by 0.16 percentage points.
“Lenders are able not to pass lower rates onto mortgage customers, aided in part by Britain’s over-concentrated financial system failing to function like a market,” stated Simon Youel of Positive Money, who advocates for a fairer system of finance.
UK Finance spokesmen said that the mortgage market is competitive and that lenders use a variety of criteria to determine pricing.
According to housing experts, further price drops should be expected based on the market shift that Truss and her team have experienced since Truss’ departure.
(Graphic: Mortgage rates yet to shed ‘Truss premium’, https://graphics.reuters.com/BRITAIN-BANKS/MORTGAGES/lgpdkmozkvo/chart.png)
According to mortgage brokers fixed-rate mortgage rate changes are often slower than swap rates. This could be an issue as lenders focus more on reintroducing products. Moneyfacts reports that the number of fixed-rate options is almost a quarter lower than pre-Truss levels.
Lenders must show fairness to customers in the current cost of living crisis. Consumer groups have already criticised them for not passing on enough Bank of England rate hikes to savers.
Sunak’s government may threaten them with a tax raid as it seeks to fill a financial gap.
The British housing market has seen a boom since the COVID-19 pandemic. However, tighter household budgets and more expensive home loans could cause a slowdown.
Lloyds, the country’s largest mortgage lender, stated on Thursday that it expects a slowdown in the mortgage market next year and for house prices drop by 8%.
After years of low-interest borrowing, mortgage prices started to rise this year after the Bank of England raised benchmark rates. However, this trend accelerated after Kwasi Kwarteng (Truss’s finance minister) presented a disastrous budget on Sept. 23.
Moneyfacts data shows that the average rate for a two-year fixed-rate mortgage rose to 6.65% in October 20, compared to 4.74% prior. Opposition politicians called the increase a “Truss Premium” on mortgages.
Since Thursday, the average two-year rate had fallen 0.16 percentage points to 6.49 percent. Moneyfacts data shows that five-year mortgage rates have exhibited a similar trend.
Refinitiv data shows that future benchmark rates have seen a significant drop in market prices since September’s peak. This is due to markets shifting to a more fiscally conservative finance minister Jeremy Hunt and prime Minister Sunak.
According to Refinitiv data, the two-year interest rate swaps have fallen significantly from a peak of 6.1% Sept. 28 to 4.7% by Thursday. This is in stark contrast to the drop in mortgage rates.
The same is true for five-year rates. The five-year money market swap rates are down by 1.3 percentage points to 4.4% from their post-budget peak. However, the average five year fixed mortgage is 0.16 percentage point cheaper than the Truss peak. It’s down from 6.51% and 6.35%.
Mike Read, Prospect Tree Financial Services’ financial adviser, said that there were a few signs of a reduction, but some are significant. “We will likely need to see it filtering through for a few more days.”
Santander (BME)’s British arm was among the first lenders to lower mortgage interest rates this week. According to Moneyfacts, some fixed rates were cut by as much as 0.5 percentage point, while rates were reduced by Yorkshire Building Society’s Accord brand by up to 0.53 percent.
Barclays (LON.) Anna Cross, the bank’s finance chief, stated to analysts after the bank’s earnings results that the mortgage market was highly competitive and that pricing should reflect market conditions.
Lenders stated that increasing mortgage rates in recent weeks was rational because volatile money markets had priced much higher future interest rates last week, so higher prices were necessary to avoid them writing home loans at loss.
Lloyds announced Thursday that its future pricing would partly depend on moves in the money market.
William Chalmers, the bank’s chief finance officer, said that they would have to monitor how they fare on a sustained basis going forward. “We will do everything we can to help customers in the best way.”