The realisation that stubbornly high inflation will mean interest rates would need to stay higher for longer prompted a secondary bout of disruption in the mortgage markets during the early part of what could be a long, hot summer for the housing market.
The turbulence may not be quite as dramatic as in the autumn of last year, though the recent repricing of mortgage debt will doubtless mark an uncomfortable, if not catastrophic, period for the majority of those coming to end of a fixed-rate mortgage.
First time buyers and upsizers will likely have to scale back their ambitions. There are two main reasons for this: first, higher mortgage costs will make them more cautious about the level of debt they are prepared to take on and, second, lenders’ stress tests will bite, restricting what they are able to borrow.
And, finally, some landlords will have their resolve sorely tested. Restricted tax relief magnifies the impact of higher debt costs for smaller, more indebted private landlords.
Furthermore, the last rites are being read for the assured shorthold tenancy.
Yes, that means we will see further pressure on house prices. It also means lower levels of activity.
But there are a number of important factors that will both mitigate the impact and mean the effects will be felt unevenly as the divide between debt-dependent and equity-rich owners and investors widens.
Costs at point of remortgage
Let us start with the 1.9mn coming to the end of their current mortgage arrangement over the next 18 months.
Owner-occupiers in this position will see a sharp rise in their mortgage costs. But, importantly, these mortgage costs are coming off a historically low base.
And, over the past 10 years, we have seen a significant shift towards capital repayment mortgages. This, combined with the fact that lower interest costs have allowed higher capital repayments, means the vast majority of those looking to refinance will have put a reasonable dent in their borrowing requirement over their most recent mortgage term.
Add in strong recent wage growth, and average mortgage payments as a percentage of household earnings do not look unmanageable.
For those whose personal financial circumstances mean there is a problem, the recent agreement between the government and major lenders will come as relief, opening up options for them to go interest only for a period or extend their repayment term without impairing their credit rating.
All of this reduces the risk of a wave of forced sales disrupting the balance between muted demand and supply during a period of elevated mortgage costs.
To buy to nor not to buy; that is the question
Of course, servicing existing mortgage debt is one thing, taking on more mortgage debt is quite another. Some will delay their decision to move until they see mortgage markets settle down and mortgage costs fall.
Many home buyers who rely on borrowing will see their buying power reduced, putting some further downward pressure on house prices.
