Two months into Liz Truss’s premiership, more than 104,000 people took out mortgages, likely with higher interest rates as a result.
Her time at the top of the Conservative Party ended in memorable fashion just 42 days after she became Prime Minister. Yet Liz Truss was a name that was often mentioned in the general election debates.
The Labour Party hoped to remind voters of the unfunded tax cuts and spending plans that were Mini budget September 2022 This caused government debt to soar, requiring intervention by the monetary regulator Bank of England to prevent a collapse of pension funds.
The party has bet that associating current Tories with Mrs Truss and her economic plans will be a vote-winner. The party wants voters to think that it was Mrs Truss’s mini-budget that has pushed rates up sharply,
But is it right to blame Liz Truss for the higher borrowing? It is and it is not.
Higher interest rates: who is to blame?
Can we blame Truss for the mortgage bills?
The average new mortgage rate increased significantly in the days, weeks and months following the mini budget, as lenders feared the bank of england would make borrowing more expensive due to higher interest rates and the uncertainty that banks and building societies would cause
Her unfunded tax cuts put more money in pockets, while the central bank tried to take 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.
According to the Labour Party, monthly mortgage payments have risen by £221 in the almost two years since Truss’s policy announcement, according to their analysis of data from the Office for National Statistics (ONS).
How many people are likely affected?
In the period when mortgage lending was most volatile – the two months following the September 23 policy announcement – 104,100 people took out a new mortgage, Bank of England data for October and November 2022 shows.
Fewer people than before took out mortgages in those months due to the instability, so lending was not at the usual level. If this was a typical October or November, it is likely that there would have been more mortgage lending, as the overall monthly average up to February 2020 was 66,700.
As pandemic-era austerity and the need for space fueled a home-buying boom, October and November 2022 mortgage approval figures were significantly lower than 2021 figures. After a five-month run from September 2022, mortgage approvals hit a low not seen since January 2009, the era of the global financial crisis, the Bank of England’s money and credit figures showed.
And these figures do not include the number of people who are refinancing their mortgage.
However, it is possible that the more than 100,000 new mortgage holders would have had a lower interest rate if there had been no unrest on the bond market and in the pension sector.
For most of October and November 2022, mortgage rates will remain largely remained above 6% for the average two- and five-year deal – more than double 3% base interest determined by the Bank – according to figures from financial information website Moneyfacts.
Given the market chaos that followed the mini-budget policy and the fact that interest rates had not yet been raised to a Highest level in 15 years.
What else was going on?
But the biggest rate hike of the current cycle came just after Mrs Truss left office on October 20, a month when inflation reached its recent peak and 40-year high of 11.1%.
It could be argued that Mrs Truss’s actions increased the likelihood of a significant rate hike, keeping mortgage rates high.
The main cause of inflation has been skyrocketing energy costs and it is the Bank’s job to get this under control. Its monetary policy intervention – to raise interest rates by 0.75 percentage points The increase was the largest at any time since 1992.
More gradual increases of 0.5 and 0.25 percentage points are the norm.
In taking the decision, the impact of so-called Trussonomics was indirectly mentioned by the Governor of the Bank of England Andrew Bailey when he spoke of a “British premium”, meaning that borrowing in the UK was significantly more expensive than in the US or the EU.
It is important to note that, according to figures from Moneyfacts, mortgage rates were already rising at the time, as inflation steadily rose and there was an expectation that the bank would step in and make borrowing more expensive.
Lenders responded to those signals and adjusted their mortgage products accordingly. On the day of the mini budget, the typical mortgage rate for the average two-year fixed deal was 4.74% and 4.75% for a five-year fixed deal.
You can’t ignore Truss
Ms Truss cannot be blamed for inflation. Inflation has become a global problem after the energy price shock, as Western countries stopped importing fossil fuels from Russia and Covid-era lockdowns made it harder to move goods.
The higher interest rates cannot therefore be blamed on her.
Nevertheless, during her short term in officeExpectations for the Bank’s interest rate in the coming year rose from less than 4% to around 6%.
It is difficult to attribute the withdrawal of mortgage products and the rapid rise to 6% for two- and five-year fixed contracts to any other cause than the aftermath of Mrs Truss’s announcement on 23 September.
Mrs Truss refused to apologize to homeowners for higher interest rates, but acknowledged that she and her government had lost the confidence of financial markets.