Month: May 2024

The general election is taking place on 4 July. Will a new government be the answer to mortgage-borrowers prayers or is the prospect of affordable repayments just a D:Ream? We found out…

‘Things can only get better’ was the (unintended) soundtrack to Rishi Sunak’s election announcement speech – and it’s a phrase to which most mortgage borrowers will nod in agreement.

Labour leader Keir Starmer has hailed the election as an opportunity for change. And, for those struggling to make their mortgage repayments or people worried about remortgaging to a more expensive deal, change would no doubt be most welcome.

But what could a change of government mean for your mortgage and finances? What effect might the election campaign have on the economy and interest rates?

We take a look at what mortgage experts think the general election and potential new administration will mean for homeowners and buyers.

How do general elections influence mortgages?

Mortgage prices are influenced by various factors but are strongly linked to the Bank of England’s base rate – or interest rates. Lenders also set their prices based on how the economy and the markets are faring too.

Nicholas Mendes, mortgage technical manager at John Charcol, said: “A general election in the UK can significantly impact mortgage rates, often indirectly, through its influence on economic conditions, investor confidence, and monetary policy decisions.

“During the run-up to an election, uncertainty about the future political landscape typically causes financial market fluctuations.

“This instability can prompt lenders to adopt a more cautious approach, potentially delaying significant rate reductions until the economic outlook becomes clearer.”

Will the election impact the next interest rate decisions?

The decision makers at the BoE, the Monetary Policy Committee (MPC), are due to meet next on 20 June to make their decision on interest rates.

They have remained at 5.25% since August 2023 and most experts believe the BoE will cut them in August. At the moment, it is thought they will remain at 5.25% in June – although it’s not a sure bet.

Could a general election change this?

It depends, says Mendes, on the new government’s finance policies. “A government adopting expansive fiscal policies might lead the Bank of England to raise interest rates to curb inflation, resulting in higher mortgage rates,” he said.

“Conversely, a government focused on austerity and reducing public debt might support lower interest rates, making mortgages more affordable.”

How will a change of government influence mortgage prices?

Mendes believes the policies of the winning party also play a crucial role in shaping mortgage rates themselves. Obviously, these are affected by the interest rates but there are other factors to consider.

“If the new government implements measures aimed at stimulating the housing market,” said Mendes, “such as tax incentives for homebuyers or reforms to mortgage regulations, it can influence lenders’ products.”

He used the example of how Rishi Sunak’s stamp duty holiday during the pandemic drove the first-time buyer market.

Basically, policies which encourage economic growth and stability generally lead to lower mortgage rates, according to Mendes, because lenders feel more secure in a robust economic environment.

Will a new era in politics improve housing?

Housing – or lack of it – is one of major challenges facing society. On top of the low supply of property there is a dire need for more support to help people buy their first home.

Laura Suter, AJ Bell personal finance director said: “The state of the housing market is a key concern for many Brits.

“First-time buyers will want to see an extension to support helping them get a foot on the ladder, while existing homeowners will hope for policies that moderate inflation and increase the likelihood of interest rate cuts.”

Meanwhile, Elliott Culley, director at Switch Mortgage Finance, speaking via the Newspage Agency, said: “Housing was not taken seriously under the recent conservative government. More than 15 housing minsters since 2010 has left the housing sector in ruin.

“If Labour does win they need to tackle the issues in the sector decisively. Now we are in to election season, let’s see what pledges are made. This will give us a steer as to how the economy will react.”

Source: Kate Saines of What Mortgage

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Fresh wave of competition among lenders could provide relief for homebuyers ahead of UK general election.

A swath of UK lenders have dropped their mortgage rates over the past few days, fuelled by expectations that the Bank of England will soon start lowering interest rates.

Barclays decreased the rate on a five-year remortgage deal from 4.77 per cent to 4.32 per cent, assuming a 40 per cent deposit. The rate on its two-year fix dropped from 4.94 per cent to 4.61, with a £999 fee. Other lenders to cut rates — with more modest changes — include HSBC, TSB, Skipton Building Society and buy-to-let specialist BM Solutions.

The cuts have renewed hopes that a fresh wave of competition among lenders will push others to follow suit, providing relief for homebuyers ahead of a general election anticipated in the autumn in which access to housing has become a key battleground.

This follows growing market expectations that the Bank of Ireland, which held its benchmark rate at 5.25 per cent, will soon start lowering borrowing costs, with the balance tipping slightly in favour of a rate cut by June. That has pushed down swap rates, which reflect market expectations of the path for interest rates, and are used by lenders to price their mortgage deals.

“Following last week’s announcement that the bank rate would remain unchanged financial markets have adjusted their forecasts,” said Nicholas Mendes, technical manager at mortgage broker John Charcol. “There is now significant potential for rate reductions in the coming fortnight”.

Two-year swaps — which correlate to the pricing of two-year fixed-rate mortgages — fell to 4.51 per cent this week, down from 4.78 per cent at the start of May. Five-year swaps have fallen from 4.26 per cent to 3.97 per cent over the same period.

“It gives the lenders some room to manoeuvre,” said Andrew Montlake, managing director of mortgage broker Coreco. “It looks like it’s going to be a little more competitive for a while, certainly up until the summer. And we’ll see other lenders following suit.”

A period of optimism — and lower mortgage rates — in January proved short lived, as inflation data surprised markets by ticking up. “I think the markets and everyone else got ahead of themselves,” said Montlake.

Mortgage rates have continued to climb in recent weeks, as lenders struggled to see a clear outlook on inflation and the economy.

But others agreed there were now signs of a turn. “It wouldn’t be unreasonable to expect fixed rates to come down over the next six months and be somewhere close to the levels they were in January,” said Aaron Strutt, a director at broker Trinity Financial. “Five-year fixes need to be around 4 per cent for people to feel like they are getting reasonable value.”

Chris Sykes, consultant at broker Private Finance, said: “It’s good that lenders are responding quickly to changes in swap rates. These rate reductions are edging us back towards the position we were in three or four weeks ago, because over the past few weeks it’s always been up, up, up. I think we will see other lenders follow up.”

Average rates on two-year fixes are 5.9 per cent, according to data provider Moneyfacts — up from 5.3 per cent this time last year.

James Pickford, Akila Quinio & Mary McDougall

Financial Times 17/5/24