What is the impact of 45p tax U-turn on markets and mortgages?
Kwasi Kwarteng and Liz Truss have expended a lot of political capital by abandoning their policy to abolish the 45% top rate of income tax after a week of increasing hostility from MPs and economists. But how has Monday morning’s humiliating U-turn gone down with markets, and has it reversed some of the mini-budget’s turbulent impact on home loans, government debt and the pound?
Last week’s “carnage” in the home loans market resulted in 40% of all products being pulled from sale by Thursday amid predictions that the Bank of England could be forced to raise the base interest rate to 6% next summer. After the U-turn that forecast fell slightly – to about 5.5%.
In theory, that should translate into slightly cheaper deals. However, Riz Malik, a director of broker R3 Mortgages, said: “Even if the markets respond well, I fear mortgage lenders may take some time to reflect positive news in their pricing.”
David Hollingworth, of the brokers L&C Mortgages, said it would “take a little time for us to be able to tell how it’s going to help”, adding that in the very short term, borrowers “have got to expect some [continued] volatility” that could mean rates on some new deals continuing to go up.
That partly reflects the fact, he added, that last week was so “helter-skelter” that some of the lenders that pulled their deals amid the chaos on the markets “have not even come back yet”. Those that have been put back on sale so far, are far more expensive.
For example, NatWest announced on Sunday that it was raising its rates from Monday. As a result, a new two-year fixed rate aimed at those looking to remortgage has leaped from 4.28% to 5.62%.
Right now, in terms of two-year fixes, 5.5%-plus “feels like where rates are sitting, [though] you
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