More than 104,000 people signed up for a mortgage two months after Liz Truss became Prime Minister, likely locking in a higher rate as a result.
Her time at the helm of the Conservative Party memorably ended just 42 days after she became prime minister, yet Liz Truss is a name often heard during the general election debates.
Labor had hoped to remind voters of the unfunded tax cuts and spending plans announced in Mini budget for September 2022 which caused a sharp rise in government borrowing and required the intervention of the currency regulator the Bank of England to prevent the collapse of pension funds.
The party has bet that the association of current Tories with Ms Truss and her economic plans will be a vote winner. The party wants voters to think it was Mrs Truss’s mini-budget that spiked rates,
But is it right to attribute the more expensive loans to Liz Truss? It is and it is not.
Higher interest rates – who is to blame?
Can we blame Truss for the mortgage bills?
Average new mortgage rate increased significantly in the days, weeks and months following the mini-budget, as creditors feared Bank of England would make borrowing more expensive through increased interest rates and uncertainty would mean withdrawal of banks and building societies
Its unfunded policy of tax cuts put more money in its pockets as the central bank tried to pull money out of the economy to reduce inflation, which in the month of the mini-budget stood at 10.1% – five times the bank’s target.
Labor said monthly mortgage repayments had risen by £221 in the almost two years since Mrs Truss’ policy was announced, according to their analysis of Office for National Statistics (ONS) data.
How many were probably hit?
According to Bank of England data for October and November 2022, 104,100 people signed up for new mortgages during the period when mortgage lending was most volatile – two months after the policy was announced on 23 September.
Due to the instability, fewer people took out mortgages in these months than before, so lending was not at the usual levels. Had this been a typical October or November, it is likely that more mortgages would have taken place as the overall monthly average through February 2020 was 66,700.
While pandemic-era savings and the desire for space fueled a boom in home buying in October and November 2022, mortgage approvals were down significantly from 2021 numbers. After a five-month run starting in September 2022, approved mortgages hit a low not seen since January 2009, at the time of the global financial crash, Bank of England money and credit data showed.
And those numbers don’t include the number of people who remortgage.
However, it is possible that those more than 100,000 new mortgages would have had cheaper rates had it not been for the market turmoil in the bond market and pensions industry.
Mostly for most of October and November 2022 mortgage rates remained above 6% for an average contract of two and five years – more than double 3% base interest rate determined by the bank – according to data from the financial information website Moneyfacts.
Given the market chaos that followed the mini-budget policies and the fact that interest rates have not yet been raised to 15 year maximum.
What else was going on?
But the biggest rate hike in the current hike cycle came just after Ms Truss stepped down on October 20, a month in which inflation hit its recent peak and a 40-year high of 11.1%.
It can be argued that Ms Truss’s actions made this sharp rate rise more likely, which then kept mortgage rates expensive.
Skyrocketing energy costs have been a key cause of inflation, and it is the bank’s job to bring them under control. His monetary policy interventions – to increase the interest rate by 0.75 percentage points the increase was the largest increase at any point since 1992.
Further incremental increases of 0.5 and 0.25 percentage points are the norm.
The governor of the Bank of England indirectly mentioned the impact of the so-called trussonomics when deciding Andrew Bailey when he talked about the “UK premium”, which meant that borrowing was clearly more expensive in the UK compared to the US or the EU.
It is important to note that mortgage rates were already rising, according to Moneyfacts data from the time, as inflation continued to rise, as did expectations that the bank would act to make borrowing more expensive.
Lenders responded to these stimuli and priced their mortgage products accordingly. On the day of the mini-budget, the typical mortgage rate on an average two-year fixed was 4.74% and 4.75% on a five-year fix.
You can’t discount Truss
Inflation can’t be blamed for Ms Truss – inflation has become a global problem after the energy price shock, when Western countries cut off Russian fossil fuel imports and COVID-era blockades made it more difficult to transport goods.
Therefore, higher interest cannot be applied to it.
However during her short time in officethe bank’s interest rate expectations next year rose from just under 4% to around 6%.
The withdrawal of mortgage products and the rapid rise to 6% in two and five year fixed deals is hard to attribute to any other cause than the fallout from Ms Truss’s announcement on 23 September.
Mrs. Truss he refused to apologize to homeowners for higher interest rates, but she acknowledged that she and her government had lost the confidence of the financial markets.