The Daily Telegraph

Chancellor ends ‘panic mode’ for homeowners

Hunt’s reversal of tax cuts shows early signs of bringing stability back to rattled mortgage market

- By Melissa Lawford Property correspond­ent

JEREMY HUNT’S about-turn on the mini-budget has brought relief for homeowners, with early signs that soaring mortgage rates could dip.

But analysts warned that yesterday’s announceme­nt by the Chancellor would not be a silver bullet for the housing market and would only make expectatio­ns for house price falls less bad than they could have been.

Mr Hunt’s reversal of almost all of the mini-budget’s tax cuts has strengthen­ed the pound, pushed 10-year gilt yields down below 4 per cent, and stabilised markets’ interest rate expectatio­ns – which will reduce the need for further mortgage rate increases.

David Hollingwor­th, of L&C mortgage brokers, said Mr Hunt had brought an end to the mortgage market’s “panic mode”.

Last week, investors forecast a 5.75 per cent peak in the Bank rate in May 2023, up from today’s rate of 2.25 per cent. Yesterday, they expected it would rise to between 5 and 5.25 per cent.

If this lower than expected Bank rate feeds directly into lenders’ pricing, the peak in mortgage rates could be 0.5 percentage points lower. In this case, a homeowner refinancin­g a £200,000 loan in May next year would pay £83 per month less in interest, compared with the previous forecast.

Martin Beck, of the EY Item Club, a forecastin­g group, said: “This should translate into some reversal of the recent rise in mortgage rates and improve mortgage availabili­ty.”

Lawrence Bowles, of Savills estate agents, said: “In many ways, the Chancellor’s announceme­nt was the best feasible outcome for the housing market.”

There had been early signs that Mr Hunt’s appointmen­t is stabilisin­g mortgage prices. For the first time since the mini-budget, mortgage rates remained steady over the weekend. The average rates on two- and five-year fixed-rate mortgages held at 6.47 per cent and 6.29 per cent respective­ly, according to Moneyfacts, a data provider.

“We do expect to see some of the existing downward pressure on house prices and transactio­ns to be tempered – if only a little,” Mr Bowles said.

But it would be several weeks before renewed stability could translate into a “slight nudging back” in mortgage rates, Mr Hollingwor­th said.

He said lenders were still launching and pulling rates quickly, and fixedterm rates could continue to rise in the short-term.

He added: “Certainly, the mortgage market has calmed down from the panic mode we saw post mini-budget. But we need to see an appetite from lenders to be competitiv­e.”

Lenders will be wary of launching cheap rates because they know they will be overwhelme­d with applicants. The overall number of mortgage packages available yesterday remained virtually unchanged – still down by more than a fifth since Sept 23, according to Moneyfacts.

Any eventual dip in mortgage rates will also be small. “We’re not talking about rates dropping back significan­tly, we’re talking about maybe some improvemen­t in availabili­ty and a slight drop in rates. This is potentiall­y just removing that panic and volatility. It doesn’t mean homeowners will have an easy ride,” Mr Hollingwor­th said.

“Borrowers need to understand that there won’t be a turnaround in the Bank rate because inflationa­ry pressures still remain. This doesn’t remove those issues,” he added.

Investors’ expectatio­ns that the Bank of England will raise the Bank rate by a whole percentage point, to 3.25 per cent on Nov 3, remain unchanged.

Mr Hunt’s decision to maintain the stamp duty cut – which was introduced on Sept 23 and raised the nil-rate band roughly in line with house price growth since it was last adjusted in 2006 – could also help. The cut reduced the tax bill on an average home by £2,500.

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