“People were panicking”: two years on from the mini-budget

Homeowners remortgaging this month might not feel lucky.

Those revisiting five-year deals, for example, will move from a rate of about 2.8% to something in the range of about 4%.

However, there is another way to look at this scenario: borrowers coming off five-year fixed rates skipped the most volatile period in the mortgage market for a generation. September 22^nd will mark two years since then Chancellor Kwasi Kwarteng delivered the now infamous mini-budget that fuelled a dramatic spike in mortgage rates. The average rate for a two-year fixed mortgage jumped from 4.74% on the day of the mini-budget to 6.65% a month later.

“The speed at which rates started to move higher shocked everybody – people were panicking,” says Simon Gammon, partner at Knight Frank Finance. “Brokers were getting little to no notice from lenders, and we were queuing for hours to try to lock in deals for clients.”

The immediate impact of the mini-budget wasn’t limited to rates. Lenders withdrew a record 935 mortgage products on September 27, 2022, just days after Mr Kwarteng’s speech. That’s more than double the previous record set in April 2020.

The intervening two years have been frustrating for borrowers. Repeated false dawns in the battle against inflation have held mortgage rates close to historic highs. In July 2023, for example, the average rate on a two-year fixed mortgage reached 6.66%, surpassing the peak seen during the market volatility following the mini-budget.

“Mortgage rates did plateau and borrowers started to accept their new reality,” Gammon says. “It was pretty clear that conditions were unlikely to change immediately, so activity was dominated by people who really needed to move. Anybody that could hold out generally did.”

The tide didn’t begin to turn until the latter half of 2023. Inflation had eased to just 4% by December, down from a peak of more than 11% in October 2022. Then, in May 2024, inflation hit the Bank of England's 2% target for the first time in almost three years.

Flat in a branch of the Bank of England in Bristol, located in Broad Street, Bristol, BS1. Guide Price: £275,000

The outlook for borrowers has transformed in the months since. Inflation across Western economies looks increasingly benign – so much so that the US Federal Reserve began its easing cycle with a bumper 50 basis-point cut on Wednesday, September 18^th. The Bank of England opted to hold the base rate at 5% the following day, though investors expect another one or two rate cuts before the year is out.

Five-year swap rates, tools used by lenders to price mortgages, eased to a 2024 low this month. The best five-year fixed-rate products at 75 % loan-to-value can now be found below 4%. At the current trend, it won’t be long before the best two-year fixed rates follow.

Nationwide, Clydesdale and HSBC all slashed mortgage rates on Friday September 13^th. Nationwide cut some of its products by as much as 0.25%. The larger lenders are locked in a battle for market share and are happy to pass savings onto borrowers as interest rates fall.

For borrowers, the best strategy is to lock in a deal as early as possible. Many lenders allow borrowers to secure rates as many as six months before a purchase, and any agreement can be renegotiated should rates improve.

“People are now back from the summer break, some mortgage rates are below 4% and we can definitely see activity picking up,” Gammon says. “That fear that gripped the market in the weeks following the mini-budget has given way completely. Purchasers are starting to wonder whether they might borrow more to afford a larger property, or perhaps something in a better location.”

To find out more, please get in touch with one of our experienced brokers. We have relationships with more than 200 lenders and we’d be happy to walk you through your options.