Re-mortgage struggles set consumer finance industry into further turmoil

Latest research from Hargreaves Lansdown

• “One in five say their monthly mortgage payments have already risen more than £200 in the past 18 months.” (Credit Connect)

• 48% said they would struggle if their mortgage repayments increased even by £150

After a reported 12 consecutive Bank of England increases in rates, the nation is sitting on a “cumulative increase of 4.4%.” Around half of homeowners haven’t faced the brunt of these hikes yet considering fixed rates, but many have been hit with the financial pinch of higher rates.

Traditional fiscal policy has often resorted to an increase in interest rates to tame inflation. However certain economists feel this is an outdated tool. Indeed the contrarian approach takes the view that the increased costs of borrowing compels higher wage demands. Many factors that influence inflation are external such as the cost of energy and imports.

In this article I take a look at the consumer finance landscape, at the behaviours we are seeing, and what needs to be done to empower people financially given how unstable mortgage rates currently are.

Drop in mortgage approvals while deals are pulled

In April, mortgage approvals were down from 51,500 in March.

It seems we saw a beacon of hope with economic growth in the first part of 2023, but this is now on the decline again. On 1^st June, it was reported that almost “10% of UK mortgage deals have been taken off the market in the past week.” (Moneyfacts – Credit Connect).

There is still a clear 2% increase on the table in mortgage rates, and this needs to balance out if we are to ensure the future of our housing market in Britain. The unpredictability of rates deters housebuilders from commencing the rollout of new sites. All businesses need certainty be it good or bad.

No clear entry to the market, clear risks of high repayments

The economy is not thriving yet and more still needs to be done to help people who are struggling. Joanna Elson CBE, Chief Executive of the Money Advice Trust said: “Consumer credit borrowing continues to grow significantly, which partly reflects the impact that sustained high costs are having on household finances. With many incomes struggling to cope, there is a risk that more people are left using credit to plug gaps in their budgets.”

As I’ve commented many times, it’s a treacherous landscape for young people to navigate as they look to cement their first steps on the property ladder. Those who can afford to purchase more expensive properties are now up against this re-mortgage nightmare and others are struggling to even get approval to buy their own homes. This accelerates the rises in the rental sector.

No aid has been given to homeowners although the government and the FCA are allowing mortgage repayment pauses. However, as with COVID-19 assistance in the loan sectors, will consumers be rated downwards if they have to avail themselves of such assistance?

This will be a challenging time for the financial sector, given the arrival of the Consumer duty and the scrutiny of behaviour that causes consumer harm.

Clear strategies from the government and the FCA are required to avoid consumer carnage as seen in the 90s.