“Poverty statistics that hide the real scale of increases risk policymakers missing what is truly happening to poverty.”
Many households remortgaging or taking out new mortgages since 2022 have experienced sharp falls in their disposable income as higher interest rates have pushed up housing costs, and by December 2023 this is set to have pushed 320,000 such people into poverty. But official data do not measure mortgage interest payments properly, so official poverty statistics will only capture about two-thirds of this effect (230,000 people).
These are the findings of a new IFS report, released on Thursday and funded by the Joseph Rowntree Foundation, which examines recent trends in poverty and deprivation. Other key findings include:
Despite the pandemic and the cost-of-living crisis, the overall rate of absolute poverty was the same in 2022–23 as in 2019–20 (18%, or 12.0 million people), though it did rise slightly by 0.8 percentage points (520,000) between 2021–22 and 2022–23. But there was a significant increase in more direct measures of hardship. For example, the proportion of working-age adults who reported being unable to keep their home warm enough rose from 4% to 11% (1.8 million to 4.6 million) between 2019–20 and 2022–23, and the share who reported being behind on bills rose from 5% to 6% (2.1 million to 2.5 million).
Part of the difference is likely to relate to how the official statistics measure incomes and hence poverty. Higher energy and food prices mean that lower-income households and pensioners faced a higher inflation rate than average – but this is not captured by the official poverty statistics. Taking account of higher inflation for these households implies poverty rose by 210,000 more people than implied by official statistics for 2021–22 and 2022–23 (730,000 people rather than 520,000), including 80,000 pensioners.
In addition, the official statistics do not measure households’ mortgage interest payments directly, instead modelling them based on average interest rates. This matters when there is a growing spread of interest rates as some households come off their fixed rate: in 2022–23, mismeasurement of mortgage interest payments resulted in the number in poverty being understated by 70,000; as more fixed-term mortgages end, that number is set to rise to 150,000 (based on December 2023 interest rates).
There is evidence that mortgage rate rises have pushed some adults into financial hardship. Adults remortgaging in 2022 were 2 percentage points more likely to fall into arrears on bills than those with mortgages who had not remortgaged. This suggests that, once all households have remortgaged, the number of adults behind on bills could rise by 370,000.
Sam Ray-Chaudhuri, a Research Economist at IFS and an author of the report, said:‘Rising mortgage rates have played and are likely to continue to play an important role in many households’ living standards. But, perhaps surprisingly, they are not measured properly in the official income data.
“This has led to the headline statistics understating the number of people in poverty, something set to get worse in next year’s data. Poverty rises have also been understated due to the unequal impact of inflation.
“At a time when rates of deprivation and food insecurity have risen substantially, poverty statistics that hide the real scale of these increases risk policymakers missing what is truly happening to poverty.’
Peter Matejic, JRF Chief Analyst, said:‘This research shows the cost-of-living crisis wasn’t felt equally by everyone. Compared with before the COVID pandemic, many more people, especially those on a lower income, struggled to heat their homes or keep up with their bills.
‘One reason lower-income households went without essentials is because they faced a rate of inflation even higher than the headline numbers. High interest rates also saw many households forced into financial hardship after they remortgaged.
‘This report raises many questions about whether social security is adequate for the challenges looming over struggling households. The new government can’t wait for growth, after years of cuts, caps and freezes to social security have left families without the financial resilience and security they needed to cope with higher prices and costs.’
Commenting on the IFS report IFS on poverty, which shows that 320,000 people pushed into poverty because of mortgage interest rate rises, TUC General Secretary Paul Nowak said: “This surge in poverty shows the awful impact on people’s lives of the Conservatives’ economic and policy failures.
“It’s a poverty crisis that has been created by poor growth and social security cuts. Interest rate hikes came on top of the longest period of pay stagnation for more than 200 years.
“Rapid delivery of the government’s plan to make work pay will ensure more better-paid, secure jobs and help reduce poverty among working families.”
Half a million mortgage-holders are facing an imminent financial shock as their fixed deals end in the run-up to Christmas or January, the most expensive time of the year for many consumers, Which? is warning.
Figures from regulator the Financial Conduct Authority (FCA) show that around 500,000 fixed-rate mortgages will come to an end in November, December or January.
As a result of higher interest rates, most affected homeowners moving onto new deals will have to pay hundreds of pounds more each month compared to their previous deal.
Data from Moneyfacts shows that the market-leading two-year fixed-rate mortgage is currently 5.53%, from Coventry Building Society. Earlier this year, the average rate for this type of mortgage went above 6%, yet those who fixed their deal in December 2021 could have got rates below 2%.
The average mortgage holder has £147,000 left to pay off, according to the FCA. In September 2021, someone taking out a two-year fix with 20 years left on their loan would, on average, have paid £770 a month.
However, someone in that same scenario today would be paying £1,106 a month – a £336 difference, which equates to £4,032 extra annually.Data from the FCA also suggests another spike in mortgage deals coming to an end next Spring, with over 180,000 homeowners set to come off fixed-term rates in April.
With average rates for both two and five-year mortgage deals hovering around 6% and many experts predicting the fifteenth successive Bank of England rate rise tomorrow, it is unlikely that homeowners whose deals are ending in the coming months will be able to find deals at anywhere near the rate they have been previously paying.
Mortgage holders can generally lock in a rate up to six months before their current deal expires, and can pull out of that deal should they find a better rate elsewhere. Homeowners whose fixed deals are expiring by the end of the year should be looking at new deals and how they will affect their finances now.
The consumer champion is calling on banks to ensure they are ready to provide appropriate support to customers. That means firms are ensuring that their customer service support – via phone calls, email and chat support – is properly staffed and resourced, including during the Christmas holiday period.
Those concerned about their ability to make mortgage repayments should contact their lender in the first instance – and doing so will not affect their credit score. Support could include a temporary mortgage holiday, temporarily paying only the interest on the mortgage (and not the capital repayment), or extending the term of your mortgage. The most suitable option will depend on individual circumstances, so it is crucial that lenders are offering tailored support.
Mortgage holders whose fixed-rate deals are coming to an end in April should be able to search for and lock in a competitive rate soon. The FCA’s new Consumer Duty, which holds firms in financial services to higher standards of customer service, should mean that customers are supported in a way that meets their financial needs. Companies that fail to do so should expect to face tough action from the regulator.
Ele Clark, Senior Money Editor at Which?, said: “The rock-bottom interest rates homeowners enjoyed for more than a decade are firmly behind us, and those who need to remortgage are feeling the full force of the last two years’ worth of rate rises.
“With around half a million mortgage-holders’ fixed-rate deals coming to an end in the next few months, it’s vital that lenders are offering adequate and fully resourced customer support to help borrowers assess their options.
“Under the new Consumer Duty, firms must support their customers throughout the term of their mortgage. If they don’t, we’d expect them to face tough action from the regulator.”
Figures revealed by the Labour Party show that 51,7000 homes in Edinburgh will be affected by eye-watering mortgage rises, with those remortgaging next year paying £280 more a month.
Across Scotland, 546,600 households in Scotland will be paying an average of £190 more a month on their mortgages next year.
The news follows interest rates rising for the 13th time in June, increasing the painful squeeze on family finances.
Ahead of visiting Centrica Green Skills Centre in Glasgow, Labour’s Shadow Chancellor Rachel Reeves said the party would not stand by as Scots facing the failures of both the Tories and the SNP.
Commenting, Scottish Labour MSP for Lothian Sarah Boyack MSP said: “People in Edinburgh are feeling the crushing weight of the Tory mortgage bombshell and the SNP’s incompetence.
“On the one hand, the Tories have shown time and time again that they simply don’t care about people facing hard, impossible choices; they don’t care about the relentless toll the cost of living emergency has taken on so many lives.
“And on the other, we have an SNP Government that is just not up to the job – too distracted by the scandal in their own party ranks.
“Labour’s Mortgage Rescue Scheme will offer practical help to ease the financial burden and will provide support to those in need.
“Our plan will pave the way for a brighter, prosperous and fair future for Edinburgh and the whole of Scotland.”
Local authority
Number affected by 2026
Average Increase in monthly mortgage payments next year
Chancellor Jeremy Hunt met the UK’s principal mortgage lenders and the Financial Conduct Authority (FCA) yesterday to agree support for people struggling with mortgage repayments.
The latest market indicators (FCA; UK Finance) show that mortgage arrears and defaults remain below pre-pandemic levels, which were themselves extremely low. The FCA reported 0.86% of total residential mortgage balances in arrears in the first quarter of 2023 which is significantly lower than the 3.32% rate in 2009.
The proportion of disposable income spent on mortgage payments is currently at 5.4%, compared to around 10% in the 1990s and prior to the financial crisis.
The average homeowner re-mortgaging over the last twelve months had around a 50% loan-to-value ratio. This indicates homeowners have considerable equity in their homes, which makes it easier to manage repayments.
Lenders have less than 10% ‘owner-occupier mortgages’ on their books with loan-to-value rates greater than 75%, compared to around 25% before the 2008 financial crisis. Taken together, this puts the market in a significantly stronger position than before.
The lenders – which cover over 75% of the market – agreed to a new mortgage charter providing support residential mortgage customers. These are:
Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help.
Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
Customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
A new agreement between lenders, the FCA and the Government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to.
Both options can be taken without a new affordability check or affecting their credit score.
Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
Providing well-timed information to help customers plan ahead should their current rate be due to end.
Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.
The Chancellor of the Exchequer, Jeremy Hunt, said: ““There are two groups of people that we are particularly worried about. The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments. And the second are people who are having to change their mortgage because their fixed rate comes to an end, and they’re worried about the impact on their family finances of higher mortgage rates.
“So today I agreed with the banks and the principal mortgage lenders and the Financial Conduct Authority three very important things.
“The first is that absolutely anyone can talk to their bank or their mortgage lender and it will have no impact whatsoever on their credit score.
“The second is that if you are anxious about the impact on your family finances and you change your mortgage to interest only or you extend the term of your mortgage and you want to go back to your original mortgage deal, within six months, you can do so, no questions asked and no impact on your credit score. That gives people a powerful new tool for managing their monthly budgets – and it will begin taking effect within the next two weeks.
“And finally for people who are at risk of losing their home in that extreme situation, the banks and mortgage lenders have a number of things in place. The last thing that they want to do to repossess a home, but in that extreme situation they have agreed there will be a minimum 12 month period before there’s a repossession without consent.
“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.
“Tackling high inflation is the Prime Minister and my number one priority. We are absolutely committed to supporting the Bank of England to do what it takes. We know the pressure that families are feeling. That’s why we’ve introduced big support packages around £3,000 for the average household this year and last.
“But we will do what it takes, and we won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses.”
Martin Lewis, founder of MoneySavingExpert.com said: “The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes.
“Therefore, the most important thing we can focus on right now is appropriate, flexible forbearance measures. While the Bank of England’s aim is intended to squeeze people’s disposable incomes, no one wants people’s lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.
“I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn’t be detrimental to their financial situation and their credit scores would be protected as much as possible.
“I’m pleased to see it looks like the Chancellor has listened and those measures are going to be put in practice by the banks. We need to make sure everybody knows their rights if they are in trouble with their mortgage, so they can feel comfortable speaking with their lender and understand the measures that they can request for help.”
Nikhil Rathi, chief executive of the Financial Conduct Authority, said: “Today’s productive meeting builds on the work we’ve done over the last year to ensure those who get into difficulty receive the tailored support they need.
“We’ll move quickly to make any changes needed to support today’s commitments.”
Ian Stuart. Chief Executive Officer, said HSBC UK said: “We’re firmly focused on supporting our customers in this challenging economic environment, so we welcome the meeting with the Chancellor today, and with the support of the regulators, the concerted efforts across our industry to help customers through these measures.
“It’s important that customers feel comfortable contacting us if they feel they are getting into financial difficulty because whilst every customer’s situation is different we have a range of options that we can use to help them find their way through. We stand ready and remain committed to our customers.”
David Duffy, Chief Executive Officer, Virgin Money said: “Today’s commitments are an important next step in ensuring that customers feel supported as they navigate rising rates and high inflation.
“At Virgin Money, we are committed to supporting customers in the current economic environment and will continue to work with Government, regulators and industry to help those facing financial difficulty.”
Dame Alison Rose, Group Chief Executive, NatWest said: “Our priority is to help the people, families and businesses we serve to navigate this ongoing economic uncertainty.
“Today’s announcements, following very productive discussions between mortgage lenders, government and regulators, will provide further flexibility and reassurance to customers who may be anxious about their household finances.
“We stand ready to support those worried about the future, and encourage anyone experiencing financial difficulty to get in touch.”
February House Price Index from Walker Fraser Steele
January’s downturn in prices continues into February
Prices in 2023 experience the largest fall in fourteen years
East Renfrewshire is authority with highest average prices
Sales volumes are low in Jan & Feb – expect higher sales in March
Average Scottish House price now £220,702, down 0.9% on January, up 3% annually
Table 1. Average House Prices in Scotland for the period February 2022 – February 2023
(The prices are end-month smoothed over a 3 month period)
Note: The Walker Fraser Steele Acadata House Price Index (Scotland) provides the “average of all prices paid for houses”, including those made with cash.
Scott Jack, Regional Development Director at Walker Fraser Steele, comments:“Far from experiencing a storm, the Scottish housing market could be said to be navigating choppy waters.
“This is to be expected as January and February are typically slow months for house sales – in part because of the shorter days and extended holidays over the Christmas period. However, the seasonal lull in activity has been amplified by the rise in mortgage costs as a result of the ill-conceived Truss-Kwarteng mini budget.
“Amazingly, notwithstanding that onslaught, the current average house price still remains some £6,300, or 3.0%, above the average price of twelve months earlier. However, through a monthly lens, our index shows that in February 2023 prices continued their descent, falling by a further £2,000 in the month, on top of the £1,750 price decrease in January.
“If we take account of both the change in prices and the number of transactions involved – Edinburgh (17%); Aberdeenshire (9%); South Lanarkshire (9%); North Lanarkshire (7%); East Renfrewshire (6%); and Clackmannanshire (6%) in February accounted for 54% of the £6,300 increase in Scotland’s average house price over the year.
“Of note in Scotland is that many estate agents have noticed an increase in the number of rental properties coming to market. Landlords raised their concerns about the legislation in response to the cost-of-living crisis some time ago. This legislation has followed a sustained period of increased letting agent regulation, higher taxes for landlords and tight rent controls to protect tenants.
“As we emerge from February, we will watch transaction volumes carefully. In each of the last eight years, March transaction totals have always exceeded those of February. We should expect higher sales volumes in next month’s data.”
Commentary: John Tindale, Acadata Senior Housing Analyst
The February housing market
February 2023 continued the downward trend in average prices seen in January, with prices falling by a further £2,000 in the month, on top of the £1,750 price decrease in January. Prices in 2023 to the end of February have therefore dropped by £3,750. Ignoring the price movements associated with the introduction of the LBTT tax in April 2015 and the termination of the LBTT tax-holiday in April 2021, these price reductions represent the largest falls over two months since February/March 2009, some fourteen years ago.
During February 2023, it was the price of flats that again fell the most, down by -1.8% in the month.
So why the price falls? As discussed last month, January and February are typically the weakest months of the year in Scotland’s housing market in terms of transaction levels, which is in part to do with Christmas, when many estate agents remain closed over the holiday period.
When sales levels are low, minor trends – which might otherwise have been obscured by the larger number of sales in the other months of the year – can stand out. For example, estate agents have been reporting that the number of sales of properties which have previously been in the rental market are becoming more noticeable, with the government rent cap and future regulation changes deterring investors in this sector.
Even a small exodus of private investors in buy-to-let properties will have an impact on prices in the winter months. In Edinburgh, for example, the price of an average flat fell from £286k in December 2022 to £275k in February 2023, while in Glasgow average flat prices fell from £180k to £169k over the same period – with these two cities accounting for 38% of Scotland’s flat sales in February.
Despite reporting the largest monthly fall in prices of the last fourteen years, the current average house price still remains some £6,300, or 3.0%, above the average price of twelve months earlier.
Indeed, as can be seen from Figure 1 below, taking a view of price movements in Scotland over the last five years, the dip in prices in January and February 2023 is barely perceptible. The average house price in February 2018 was £178,175 compared to £220,702 in February 2023 – a £42,500, or 24% rise over the period – about which the adage that past performance is no guarantee of future performance is pertinent.
Figure 1. The average house price in Scotland over the five year period February 2018 to February 2023
Local Authority Analysis
Table 2. Average House Prices in Scotland, by local authority area, comparing February 2022, January 2023 and February 202
Table 2 above shows the average house price and percentage change (over the last month and year) by Local Authority Area for February 2022, as well as for January and February 2023, calculated on a seasonal- and mix-adjusted basis. The ranking in Table 2 is based on the local authority area’s average house price for February 2023. Local Authority areas shaded in blue experienced record average house prices in February 2023.
Annual change
The average house price in Scotland in February 2023 has increased by some £6,300 – or 3.0% – over the last twelve months. This annual rate of growth has decreased by -1.6% from January’s 4.6%, which is a slightly smaller fall than the -1.9% reduction seen in January.
However, in February 2023, 23 of the 32 local authority areas in Scotland were still seeing their average prices rise above the levels of twelve months earlier, three fewer than in January. The nine areas where values fell over the year were, in descending order (with newcomers this month marked by an asterisk):- Inverclyde* (-8.7%), Orkney Islands* (-3.0%); Fife (-2.9%), Aberdeen City (-2.1%), Na hEileanan Siar (-2.0%), Glasgow City* (-1.2%), Angus* (-1.2%), Scottish Borders (-0.4%) and Dundee City (-0.2%).
The area with the highest annual increase in average house prices in both January and February 2023 was Clackmannanshire, up by 25.0% and 29.3% respectively over the two months. However, there were only 27 transactions in Clackmannanshire in February 2023, with a small number of transactions frequently being associated with volatile movements in average prices.
On a weight-adjusted basis – which incorporates both the change in prices and the number of transactions involved – there were six local authority areas in February which accounted for 54% of the £6,300 increase in Scotland’s average house price over the year. The six areas in descending order of influence are: – Edinburgh (17%); Aberdeenshire (9%); South Lanarkshire (9%); North Lanarkshire (7%); East Renfrewshire (6%); and Clackmannanshire (6%).
Monthly change
In February 2023, Scotland’s average house price fell in the month by some -£2,000, or -0.9%. This is the largest fall in a single month since March 2009, some fourteen years ago, ignoring the rather artificial falls around the months relating to the introduction of the LBTT in April 2015, as well as the ending of the LBTT tax-holidays in April 2021.
In February 2023, Scotland’s average house price fell in the month by some -£2,000, or -0.9%. This is the largest fall in a single month since March 2009, some fourteen years ago, ignoring the rather artificial falls around the months relating to the introduction of the LBTT in April 2015, as well as the ending of the LBTT tax-holidays in April 2021.
On a weight-adjusted basis, there were four local authority areas in February which accounted for 51% of the -£2,000 decrease in Scotland’s average house price in the month. The four areas in descending order of influence are: – Glasgow (-18%); Edinburgh (-16%); Fife (-9%); and East Lothian (-8%). It is not surprising to find Glasgow and Edinburgh in this listing, given the fall in flat prices, as they are the two authorities with the highest percentage of flats being sold each month, at 67% and 63% of their respective transaction totals.
On a similar theme, Fife has the highest proportion of terraced sales of all the 32 local authorities in Scotland, at 27% – terraced properties also being popular among buy-to-let investors, who may have decided it is time to sell.
The highest increase in average prices in the month was in East Renfrewshire, where – with two detached properties selling for £1 million plus in Newton Mearns, one being a new-build on the Southfield Grange Development – the average price of detached properties in the area rose by £22k in the month.
Overall, in February, the average price in East Renfrewshire increased by 7.7%, causing Edinburgh with its downward movement in prices, to fall into second place in terms of having the highest-valued average house price in Scotland.
Peak Prices
Each month, in Table 2 above, the local authority areas which have reached a new record in their average house prices are highlighted in light blue. In February, there are 5 such authorities, up by one from 4 in January.
Scotland transactions of £750k or higher
Table 3. The number of transactions by month in Scotland greater than or equal to £750k, January 2015 – February 2023
Table 3 shows the number of transactions per month in Scotland which are equal to or greater than £750k. The threshold of £750k has been selected as it is the breakpoint at which the highest rate of LBTT becomes payable.
There were 37 such transactions recorded by RoS relating to February 2023. Currently, this is the fourth-highest February total recorded to date, but there is likely to be an increase to this figure next month, as RoS process additional sales.
According to the RoS data, the highest priced property sold in Scotland in February 2023 was a £1.6 million terraced property in Edinburgh. This contrasts with three properties sold in January at £3 million plus. Although the number of such sales is small, especially in the winter months, it is perhaps an early indication of a slight slowing in sales at the top-end of the market.
Transactions analysis
Figure 2 below shows the monthly transaction count for purchases during the period from January 2015 to January 2023, based on RoS (Registers of Scotland) figures for the Date of Entry.
The chart shows how transactions tend to dip in February from the January totals, which in turn are lower than the totals for the year’s preceding December. In six of the eight years displayed, the February sales total is the lowest of the year. The two occasions when this was not the case was in February 2020 and February 2021.
In February 2020 the Covid pandemic had yet to be identified, with the first lockdown beginning on 23rd March 2020, Phase 1 being introduced on 29th March 2020 and Phase 2 introduced on 19th June 2020. This resulted in an almost total lack of sales in April 2020 – a position clearly visible on the graph.
In 2021 the end of the LBTT tax-holiday was planned, and indeed, did end on 31st March. Consequently, sales of properties were higher than average in the final two months of the scheme – the brown line showing a peak in sales in March 2021. Sales did however slump in April 2021, as the tax-holiday came to an end. April was therefore the month with the lowest level of sales in 2021.
A close study of the eight years displayed in Figure 2 also reveals that each December is followed by a reduction in transactions in the following January, without exception.
Figure 2. The number of sales per month recorded by RoS based on entry date from 2015 – 2023
What we can also learn from Figure 2 is that one of the three months of June, July and August have seen the highest sales of the year in 4 of the 8 years displayed. Finally, in each of the eight years, March transaction totals have always exceeded those of February. One can therefore look forward to higher sales volumes with next month’s data
Heat Map
The heat map below shows the rate of house price growth for the 12 months ending February 2023. As reported above, 23 of the 32 local authority areas in Scotland have seen a rise in their average property values over the last year, the nine exceptions being :- Inverclyde, Orkney Islands, Fife, Aberdeen City, Na h-Eileanan Siar, Glasgow City, Angus, Scottish Borders and Dundee City.
The highest increase on the mainland over the twelve months to February 2023 was in Clackmannanshire at 29.3%, although this was based on a relatively small number of sales. In second place on the mainland was Moray at 14.3%. 4 of the 32 local authority areas had price growth of 10.0% or higher – one fewer than in January 2023.
Comparisons with Scotland
Figure 3. Scotland house prices, compared with England and Wales, North East and North West for the period January 2005-February 2023
Figure 4. A comparison of the annual change in house prices in Scotland, England and Wales, North East and North West for the period January 2020–February 2023
Scotland’s Eight Cities
Figure 5. Average house prices for Scotland’s eight cities from December 2021–February 2023
Figure 6. Average house prices for Scotland’s eight cities February 2023
How the new interest rates affect house prices and rent across the UK
Housing market: hurry if you’re selling, halt if you’re buying, stay if you’ve borrowed, finance experts advise
Landlords will likely increase rent prices or sell to cope with increased mortgage repayments
Inflation and interest rates will keep rising, but house prices are already slowing down
TODAY, the Bank of England will decide what the new base interest rates might be, currently at 1.75%. Top market analysts expect this to further rise to 2.25%.
The Office for National Statistics announced on August 17th that UK inflation rose to 10.1%, from 9.4% two months earlier. The Bank of England expects it to further increase, peaking at 13.3% in October. The accompanying higher interest rates and bleak two-year economic outlook generally means bad news for homebuyers, landlords and renters across the UK.
Top market analysts at CMC Markets expect interest rates to further rise to 2.25% this month. This directly impacts mortgages on variable rates – around 1 in 5 households in the UK – and another 3.1 million whose fixed-rate periods expire in 2022-2023, according to UK Finance estimates.
Borrowers whose repayments are directly linked to the base rate, as set by the Bank of England, will now face mortgage repayments at rates between 3% and 4%, up from 1.75% and 2.75% only five months earlier. This will inevitably spill into rent prices.
CMC Markets analysed the latest data for June 2022 from HM Land Registry, published on August 17th, and concluded that the likely tendency for house prices is in a temporary slowdown, which is good news for those waiting a little longer to buy a home.
Michael Hewson, Chief Market Analyst at CMC Markets comments: “Houses sold in June 2022 only increased in price by 1% compared to May, whereas, last year, this constituted a much more generous 5.7% surge.
“This is only the first month this year for prices to slow down at such a fast rate, so some caution before jumping to conclusions is advised. Remember, house prices may be slowing down, but they are not decreasing. Importantly, since this is transactions data processed at the time, it does not take into account the big leap in interest rates that the Bank of England announced later that month, let alone the even bigger hike in August.
“Therefore, despite the soaring inflation and rising consumer prices across the board, UK house prices appear to be trailing behind because demand for homes has generally come to a screeching halt. Most buyers are weathering the storm for a few more months at least, while some are also working out how the cost of living crisis will pan out in the medium term so that the new mortgage is not squeezing their pockets beyond their comfort zone.
“For those still keen to get on the property ladder, there are plenty of fixed-rate banking products that can insulate them from the current spiralling interest rates on mortgages. They should, however, prepare for the possibility of being faced with higher-than-expected repayments once the fixed rate period expires, as the new variable rates are at the lender’s discretion. Fixed rates are not a cure-all either, as they may now be set to a higher level to start with.
“The buy-to-let market is equally volatile. Landlords will either pass the increased mortgage repayments onto tenants by increasing their rent or simply sell fast to lock in a better price. Right now though, those already on the property ladder are generally better off staying put rather than moving or re-mortgaging. They would not get a good deal on their old house in this market and may likely end up losing more money overall.”
What did the Bank of England do earlier in August?
The Bank of England explained that the rise in interest rates was necessary due to external pressures which are expected to persist. This means that British firms and residents will continue to feel this weight reflected on rising domestic prices, wages outpaced by soaring inflation, and even higher mortgage repayments, despite the Bank’s attempt to widen the borrowing pool through less restrictive mortgage rules.
Although historic, the Bank’s decision was not a surprise for trading analysts at CMC Markets, a London-headquartered financial services company, who believe the Bank was expected to raise interest rates higher than 1.25% during the June meeting, as a means to keep import inflation in check.
This is on the backdrop of a 10% year-to-date depreciation of the British pound sterling against the US dollar and an indication from the Federal Reserve, the US central bank, of a further interest rate increase by 0.5% or 0.75% in September.
Michael Hewson comments: “The UK currently fares worse than both the EU and the US. This is due to its closer dependence on energy shocks than the States and less government intervention to soften the blow compared to its European counterparts.”
What’s next and when will things calm down?
Other than adjusting the interest rates to the accurate level to keep abreast of import inflation, the economic projections for the UK paint a bleak outlook for the next two years.
The UK is projected to enter a recession in the final quarter of this year, the Bank of England announced. The country’s economy will contract by 1.25% in 2023 and 0.25% in 2024, however, inflation is becoming a much bigger long-term threat, with unrealistic chances of falling back to the desired 2% much before 2024.
The current political race for the Conservative Party leadership and the consequent fiscal policies promoted by the new British government is a major factor to take into account for any inflation, GDP, and unemployment projections and investment decisions.
As it stands with the current measures, inflation is expected to peak at 13.3% in October – a sharper increase than the Bank anticipated in June, originally estimated at 11%. It will continue to rise throughout 2023 only to decline in 2024.
Meanwhile, forecasts for the Consumer Price Index (CPI) are less optimistic now, expected to decrease only to 9.5% in the third quarter of 2023, although the Bank anticipates a sharp fall in prices immediately thereafter.
Selling prices are set to increase to reflect rising costs while real household post-tax income is expected to plunge in 2022 and 2023. The Bank predicted that core prices will peak at 6.5% this year, meaning that, in the following six months, food and energy will constitute more than half of the headline CPI.
The next meeting for the Monetary Policy Committee, where the Bank of England will decide what the new base interest rates might be, is today – September 22nd.
How the new interest rates affect house prices and rent
Housing market: hurry if you’re selling, halt if you’re buying, stay if you’ve borrowed, finance experts advise
Landlords will likely increase rent prices or sell to cope with increased mortgage repayments
Inflation and interest rates will keep rising, but house prices are already slowing down
The Office for National Statistics announced last month that UK inflation rose to 10.1%, from 9.4% two months earlier. The Bank of England expects it to further increase, peaking at 13.3% in October. The accompanying higher interest rates, currently at 1.75%, and bleak two-year economic outlook generally means bad news for homebuyers, landlords and renters across the UK.
Top market analysts at CMC Markets expect interest rates to further rise to 2.25% in September. This directly impacts mortgages on variable rates – around 1 in 5 households in the UK – and another 3.1 million whose fixed-rate periods expire in 2022-2023, according to UK Finance estimates.
Borrowers whose repayments are directly linked to the base rate, as set by the Bank of England, will now face mortgage repayments at rates between 3% and 4%, up from 1.75% and 2.75% only five months earlier. This will inevitably spill into rent prices.
CMC Markets analysed the latest data for June 2022 from HM Land Registry, published on August 17th, and concluded that the likely tendency for house prices is in a temporary slowdown, which is good news for those waiting a little longer to buy a home.
Michael Hewson, Chief Market Analyst at CMC Markets comments: “Houses sold in June 2022 only increased in price by 1% compared to May, whereas, last year, this constituted a much more generous 5.7% surge.
“This is only the first month this year for prices to slow down at such a fast rate, so some caution before jumping to conclusions is advised. Remember, house prices may be slowing down, but they are not decreasing. Importantly, since this is transactions data processed at the time, it does not take into account the big leap in interest rates that the Bank of England announced later that month, let alone the even bigger hike in August.
“Therefore, despite the soaring inflation and rising consumer prices across the board, UK house prices appear to be trailing behind because demand for homes has generally come to a screeching halt. Most buyers are weathering the storm for a few more months at least, while some are also working out how the cost of living crisis will pan out in the medium term so that the new mortgage is not squeezing their pockets beyond their comfort zone.
“For those still keen to get on the property ladder, there are plenty of fixed-rate banking products that can insulate them from the current spiralling interest rates on mortgages. They should, however, prepare for the possibility of being faced with higher-than-expected repayments once the fixed rate period expires, as the new variable rates are at the lender’s discretion. Fixed rates are not a cure-all either, as they may now be set to a higher level to start with.
“The buy-to-let market is equally volatile. Landlords will either pass the increased mortgage repayments onto tenants by increasing their rent or simply sell fast to lock in a better price.
“Right now though, those already on the property ladder are generally better off staying put rather than moving or re-mortgaging. They would not get a good deal on their old house in this market and may likely end up losing more money overall.”
What did the Bank of England do earlier in August?
The Bank of England explained that the rise in interest rates was necessary due to external pressures which are expected to persist. This means that British firms and residents will continue to feel this weight reflected on rising domestic prices, wages outpaced by soaring inflation, and even higher mortgage repayments, despite the Bank’s attempt to widen the borrowing pool through less restrictive mortgage rules.
Although historic, the Bank’s decision was not a surprise for trading analysts at CMC Markets, a London-headquartered financial services company, who believe the Bank was expected to raise interest rates higher than 1.25% during the June meeting, as a means to keep import inflation in check.
This is on the backdrop of a 10% year-to-date depreciation of the British pound sterling against the US dollar and an indication from the Federal Reserve, the US central bank, of a further interest rate increase by 0.5% or 0.75% in September.
Michael Hewson comments: “The UK currently fares worse than both the EU and the US. This is due to its closer dependence on energy shocks than the States and less government intervention to soften the blow compared to its European counterparts.”
What’s next and when will things calm down?
Other than adjusting the interest rates to the accurate level to keep abreast of import inflation, the economic projections for the UK paint a bleak outlook for the next two years.
The UK is projected to enter a recession in the final quarter of this year, the Bank of England announced. The country’s economy will contract by 1.25% in 2023 and 0.25% in 2024, however, inflation is becoming a much bigger long-term threat, with unrealistic chances of falling back to the desired 2% much before 2024.
The current political race for the Conservative Party leadership and the consequent fiscal policies promoted by the new British government is a major factor to take into account for any inflation, GDP, and unemployment projections and investment decisions.
As it stands with the current measures, inflation is expected to peak at 13.3% in October – a sharper increase than the Bank anticipated in June, originally estimated at 11%. It will continue to rise throughout 2023 only to decline in 2024.
Meanwhile, forecasts for the Consumer Price Index (CPI) are less optimistic now, expected to decrease only to 9.5% in the third quarter of 2023, although the Bank anticipates a sharp fall in prices immediately thereafter.
Selling prices are set to increase to reflect rising costs while real household post-tax income is expected to plunge in 2022 and 2023. The Bank predicted that core prices will peak at 6.5% this year, meaning that, in the following six months, food and energy will constitute more than half of the headline CPI.
The next meeting for the Monetary Policy Committee, where the Bank of England will decide what the new base interest rates might be, is set for September 15th.
World’s oldest remaining building society sees major growth in savings and mortgages
Scottish Building Society, the world’s oldest remaining building society, has posted record results for the financial year ended 31 January 2022.
Established in 1848, the mutual has seen its balance sheet grow by nearly 40% in the last 2 years, leading to a pre-tax profit of £2.4m and mortgage assets of £454m.
The Society, which only offers savings and mortgage accounts, ascribed the growth to customers seeking both value and purpose when joining SBS.
The Society’s Chief Executive, Paul Denton said: “We are as committed to our wider purpose today, as we were back in 1848. As a mutual society, we reward our members with fair interest rates whilst responsibly using those funds to provide flexible mortgages, enabling Scottish people to buy homes and get on the property ladder.
“The environment has changed over the years, but that simple strategy has helped the Society survive and thrive towards its 175th anniversary next year.”
As the society is a mutually owned organisation, it has been able to offer its members savings accounts above market average interest rates, helping people get the most out of their money.
Mr. Denton continued: “Despite the historic low base rate, we have continued to pay savings rates above the market average, whilst our income has benefitted by growing our mortgage balances more than 36% in the last two years.
“We are now helping more members buy their homes than ever before, which is something we are incredibly proud of in today’s fierce mortgage market.
“As a mutual, unlike the high street banks, we do not have shareholders, so all profits are reinvested into the business, in areas such as in new digital technologies, improving our member experience and increasing our capital base to support future growth.”
Mr. Denton credits the staff at SBS for their “immense work” during the pandemic as one of the reasons why the society has performed so strongly.
He explained: “It has been without doubt two enormously difficult years from an economic and operational perspective, but our staff have delivered outstanding results despite these major challenges.
“Unlike retail banks who are moving out of towns and cities across the country, we are working harder than ever to provide for our members- be that through online or in-person banking.
“When many of our competitors sought to save money by cutting services, we were looking for ways to help our members, by offering compelling interest rates for savers and have now helped a record number of people own their own home.”
Rise in mortgage demand fuelled by appetite to buy homes with more space, and the Land and Buildings Transaction Tax (LBTT) holiday
There was a 22 per cent increase in first time buyer mortgages, and a 27 per cent increase in mortgages for people moving home in 2021 compared to 2020
The loan-to-income (LTI) ratio for all homebuyers hit its highest level in 2021
Demand for homes with more space during the pandemic helped drive a 24 per cent increase in new mortgages in Scotland in 2021. Figures from UK Finance show that there were 70,190 new mortgages approved during 2021, up from 56,450 in 2020.
The total overall new mortgage figure is made up of first-time buyer mortgages and homemover mortgages:
First-time buyer mortgages were up 22 per cent to 35,100 (2020: 28,740). This is also up from the pre-pandemic level of 32,630 in 2019.
Homemover mortgages were up 27 per cent to 35,090 (2020: 27,710). This is also up from the pre-pandemic level of 33,620 in 2019.
At the same time, the loan-to-income (LTI) ratio for homebuyers hit its highest level, reflecting the strong growth in house prices.
The LTI ratio is the number of times greater the amount a mortgage is compared to the total income of the borrower. For first-time buyers in Scotland this reached 3.24 in the final quarter of last year, while it was 2.97 for homemovers.
This is compared to an average LTI of 3.59 and 3.37 for first-time buyers and homemovers respectively across the whole of the UK.
Lee Hopley, Director of Economic Insight and Research, said: “Appetite to buy or move home was up last year with demand boosted from the LBTT holiday and changing housing needs from the pandemic.
“The increase last year follows suppressed activity in 2020 at the start of the pandemic, but it’s notable that homebuying numbers in 2021 also exceeded those in 2019.
“We expect to see a return to a more stable mortgage market this year with continued appetite to buy property; however, the pressure on real incomes from rising inflation is likely to bear down on effective demand.”
Scottish Building Society (SBS) has scooped up Building Society of the Year for the third year in a row at the annual Mortgage Introducer Scottish Mortgage Awards, while its CEO Paul Denton was awarded Business Leader of the Year.
The awards ceremony took place at the Balmoral Hotel in Edinburgh on Friday 8th October, celebrating the best of the Scottish property finance market and bringing together some of the most senior operators in the industry.
Scottish Building Society is the oldest remaining building society in the world, offering a range of saving accounts and mortgages for every stage in life.
As a member-based mutual, Scottish Building Society’s focus and purpose is to serve its local communities.
Paul Denton, SBS Chief Executive, said:“The team at Scottish Building Society consistently go above and beyond. Following the trials brought upon by pandemic, it is good to see the hard work and dedication of our people being recognised through these awards.
“To receive Building Society of the Year for the third year in a row is a testament to their hard work, especially when up against such a high calibre of nominees.
“After 173 years customers remain at the heart of our business, and we strive every day to do better. These awards highlight the Society’s enduring success which is founded upon a robust business model, skilled people and a reputation built on trust, confidence and exceptional customer service.”
Robyn Hall, Publishing Director at Mortgage Introducer, said:“Mortgage Introducer is delighted to announce that at this year’s Scottish Mortgage Awards, Scottish Building Society were awarded Building Society of the Year, and Paul Denton was named Business Leader of the Year. Congratulations from everyone at Mortgage Introducer on your well-deserved wins.”
Paul Denton brings a wealth of experience spanning over 30 years, having worked with RBS and the Co-op before joining SBS.
