Mortgage Strategy’s Top 10 Stories of the Week:
This week’s headlines include Starmer’s warning of a ‘painful’ October Budget and the FCA’s concerns over broker protection commissions. Explore these stories and more below:
October Budget will be ‘painful,’ warns Starmer
Prime Minister Keir Starmer has warned that Labour’s first Budget will be “painful,” setting the stage for potential tax increases. Speaking in the Downing Street rose garden, Starmer acknowledged the need to make “big asks” of the public to address the UK’s £22bn deficit. He reaffirmed that there will be no increases to income tax, VAT, or National Insurance when Chancellor Rachel Reeves presents her fiscal statement on 30 October.
FCA concerned over broker protection commissions
The Financial Conduct Authority (FCA) will investigate the sale of pure protection insurance products amid concerns that competition in the market may be flawed. In 2022, approximately £4bn was paid out in pure protection claims, with most products sold through independent financial advisers or mortgage brokers. The FCA is concerned that current commission arrangements may not enable firms to deliver good outcomes for policyholders. Additionally, the regulator is worried that some products may offer poor value, where lifetime premiums could far exceed the maximum potential payout.
Major rise in London rental properties being sold: TwentyCi
The number of properties for sale in London that were previously rented has surged, according to research from TwentyCi. In July 2024, 22% (8,006) of all newly listed homes for sale in Inner London had been available to rent at some point in the past decade, marking a 10-year high. This compares to 15.6% (4,055) in July 2023 and 12.9% (2,664) in July 2019, the last “normal” year before the pandemic. Nationally, the figure was just 9% in July 2024, indicating that the trend is more concentrated in the capital.
Housing market to see boost from rate cut: Octane
Octane Capital forecasts that a Bank of England base rate cut will lead to increased mortgage approvals and a boost in the housing market. Their analysis of historical data since 2008 shows that mortgage approvals typically rise in the three months following a rate cut. However, it’s challenging to attribute this trend solely to interest rate cuts, as these periods often coincide with economic turbulence or housing market disruptions.
Knight Frank maintains forecast but warns of uncertainty
Knight Frank has maintained its forecast for UK property prices in 2024 following the election and a rate cut but warns that the upcoming Budget and rental reforms could impact the outlook. The estate agency expects house prices to increase by 3% overall this year. For London, they predict a 2% rise, while in prime central London, they foresee a 1% decline. In prime countryside locations, prices are expected to drop by 2% over the year.
Royal London rebrands equity release business
Royal London is rebranding its recently acquired equity release business, Responsible Lending, under its own name. The mutual’s later life lending division will now operate as Royal London Equity Release. As the UK’s largest life and pensions mutual, Royal London completed its acquisition of Responsible Life and Responsible Lending in January this year. The company’s expanded offerings now include protection, long-term savings, and asset management products and services.
Pound lifts to 2-year high as BoE ‘cautiously optimistic’ on inflation
The pound surged to a two-year high against the dollar after the Bank of England governor expressed “cautious optimism” about easing inflation, though he noted it was “too early to declare victory.” Sterling rose 0.4% to $1.3237, making it the best-performing G-10 currency. Meanwhile, the FTSE 100 climbed 0.3% to 8,352.63 in afternoon trading, as the UK market had its first chance to react to Andrew Bailey’s Friday evening comments following the Bank Holiday.
Virgin Money cuts resi and BTL rates by up to 28bps
Virgin Money cut selected residential and landlord fixed-rate home loans by up to 28 basis points on 29 August. Key reductions included two-year 85% LTV fixes, which dropped by 20bps to 4.74%, and five-year 90% LTV fixes, reduced by 28bps to 4.72%. Additional cuts applied to shared ownership rates, Own New rates, and buy-to-let options, with some starting as low as 3.94%. The adjustments aimed to make mortgages more affordable across various loan-to-value ratios and product categories.
Major lenders lead way in week of rate cuts: Moneyfacts
This week, fixed-rate mortgages dominated the market, with major lenders implementing significant rate cuts. According to Moneyfacts finance expert Rachel Springall, key reductions included Lloyds Bank and Halifax cutting rates by up to 0.32%, TSB by up to 0.25%, HSBC by up to 0.24%, and NatWest by up to 0.16%. Some lenders also increased rates by up to 0.15%. Building societies also adjusted rates, with reductions from Nationwide Building Society (up to 0.26%), Skipton Building Society (up to 0.40%), and others.
Mortgage holders see biggest jump in household costs: ONS
According to the latest ONS figures, mortgage holders have faced the highest increase in household costs over the past year, rising 3.7% in the 12 months to June. This is notably higher than the increases experienced by renters and owner-occupiers, reflecting rising mortgage interest payments. The ONS Household Costs Index (HCI) reported a 3.2% increase for those in the private rental sector and a 1.9% increase for social and other renters. Owner-occupiers saw a smaller rise of just 1.3% over the same period.
