This additional money was chasing the same supply of houses, which increased house prices. First, as mortgage criteria became more liberal, it brought more money into the market. The risks were low at this time for two reasons.
This led to mortgages being offered for 125% of a property’s value, and banks lending people four times their annual salary (or more) to buy a home and allowing self-employed borrowers to “self-certify” their incomes. In the early 1990s, controls over mortgage lending were relaxed so that, by the early 2000s, mortgage product innovation was a firm trend. Take the period before the global financial crisis of 2008 as an example. Once you understand this, predicting bank behaviour in the mortgage market becomes a lot easier. Rising interest rates and uncertainty increase their risk, reduce the volume of mortgage sales and place downward pressure on their profits.
As the economy falters, confidence erodes and the interest rates that banks must pay to access funding in financial markets – which influence mortgage rates for borrowers – become unpredictable.īanks do not like such uncertainty and they do not like people defaulting on their loans. Investors absorb new information which feeds confidence or drives uncertainty, and then they choose how to invest money. Looking at how the market has developed over time can help to explain how we got here and where we are going – which is basically headfirst into a period of high interest rates, low loan approvals and plateauing house prices.Īll financial markets are driven by information, confidence and cash. This is a crucial issue for a lot of people: 28% of all dwellings are owned with a loan, with mortgage payments eating up about a sixth of household income, on average. But this help currently has an end date of Friday 14 October, after which it’s unclear what will happen in the financial markets that influence people’s mortgage rates. The Bank of England has intervened to try to calm the situation. Rates on the mortgage products that are still available have risen to record levels – average two-year and five-year fixed rates have now passed 6% for the first time since 20 respectively. Lenders withdrew more than 1,600 homeloan products after the (then) chancellor Kwasi Kwarteng’s September mini-budget sent the UK economy into a tailspin. The UK mortgage market has tightened as confidence in the economy has faltered in recent weeks.
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