Five friends gather around a small table at Cadet — a popular wine bar opened last summer in Newington Green, on the border of Islington and Hackney in north London. They wear light coats on this mild October evening, enjoying the last of the season’s alfresco dining opportunities with a bottle of wine and a plate of charcuterie.
The five are all bankers, aged in their late twenties and thirties. Four have bought homes in the past year. Jonny, an affable 29-year-old Irishman with a dry sense of humour, hopes to be the last to join the club: his offer has been accepted on a flat nearby in Stoke Newington.
But the purchase has snagged over a disagreement with his bank over whether external cladding on the building is a fire risk. Six weeks ago, when he last checked with his mortgage broker, his favoured five-year fixed rate mortgage charged 3.6 per cent. Last week, the average five-year product surpassed 6 per cent. His broker has stopped returning his emails.
“I want to own a home and I can afford the higher rate,” he says. He pauses, tentative; supportive murmurs issue from around the table. No one asks the question hanging in the air: “But would you want to pay it?”
Across Hackney, fast-rising mortgage rates have stunned homebuyers into inaction. In February, Chris Dawe’s team of five mortgage brokers in Shoreditch was arranging 10 mortgages for first-time buyers weekly. “In the past fortnight, we have done maybe four,” he says. “Those with mortgage offers are delaying signing them, hoping for some sort of intervention that will bring rates down and give them another chance.”
First-time buyers have borne the brunt of rising mortgage costs. Current owners may have years left to run on existing loans and those approaching the end of fixed-rate terms can lock in rates for new products up to six months in advance. Buyers who are also selling a home can often transfer their old mortgage to their new home, only taking out a new mortgage on a portion of the home price if they’re trading up. But for those buying for the first time, the impact of a home purchase on personal finances has been sudden and severe.
For much of the past 18 months, the local property market has been rising. The average home price in the London borough of Hackney was about £640,000 in July, 12 per cent higher than at the start of the pandemic. Homebuyers have endured the crowded viewings — crammed cheek by jowl with other desperate searchers at open-house days — the rush to bid, the nerve-racking final offers, the agents hustling to play one against the other to get their seller the highest price.
With many buyers missing out time and again to offers that far exceeded asking prices, the carousel of disappointment seemed it would never end.
The appeal of this part of London hasn’t dimmed. On a Saturday morning in Clissold Park, toddlers play on the swings of a huge playground. Behind eight tennis courts — full all morning — carefully dishevelled teenage skateboarders trade moves with BMX riders at the skate park. Contented couples, clutching lattes, descend the slope from Clissold House, the Grade II-listed 18th-century villa built for city merchant and anti-slavery campaigner Jonathan Hoare, now housing Park Life Café.
But mortgage rates have been climbing since December, when the Bank of England increased the base rate for the first time since the Covid pandemic — it has since increased the rate a further six times.
And, since Kwasi Kwarteng, chancellor of the exchequer, unveiled his “mini” Budget on September 23 — which unleashed turmoil in the financial markets, prompting lenders to remove and reprice mortgage products — buyers have been dropping offers or have been walking away from home purchases entirely.
“I started my career in 2000,” says Dawe. “I have never seen things grind to a halt like the last four to six weeks.”
Debby Blow, of local agent Keatons, says two of her buyers who had secured homes for £50,000 above the asking price cut their offers in the week following Kwarteng’s fiscal statement. A seller came to Blow when her buyer pulled out in response to the market upheaval, hoping for a quick sale to keep her chain alive.
“The mortgage [offer] on the home she is buying runs out in nine weeks,” Blow says. “Whatever rate she has she won’t get again.”
Others who must remortgage in the coming months, and who worry they won’t be able to afford the higher rates, are asking her to value their homes ahead of possible sales. “People are pretty freaked at the moment. The hype is that prices will fall considerably,” she says.
Buyers have had to recalculate what they can afford. Oli and Elle, who declined to give their surnames, have been looking for their first home on and off since they met two years ago.
Back in January, their favoured fixed-rate mortgage option provided an 85 per cent LTV (loan-to-value ratio) and an interest rate that meant monthly payments would have been around £2,100. Today, the same building society offers a maximum LTV of 75 per cent, with monthly payments that would be about £3,600 — a 50 per cent increase on the £2,400 the couple currently pay in rent.
There are signs that some sellers are prepared to lower their expectations. The flat next door to Elle had been on the market for several months at £800,000; it has now gone under offer for £750,000.
Buying agent Plum Fenton says that in the past two weeks, estate agents have sent her a large number of homes with price reductions of between £50,000 and £100,000. “On Monday, one agent sent me six,” she says.
From the window of his fourth floor open-plan kitchen, Oli scans the horizon above the roofs opposite for the landmark City skyscrapers — the Gherkin, the Walkie Talkie, the Heron Tower — two miles to the south. The building abuts a sunken overland railway line; as the trains pass, the room makes a barely perceptible shudder.
“The assumption was always that if you could just buy the home, there would be a release of pressure since your mortgage repayments would be lower than what you would be paying in rent. Now, even once you own, the stress doesn’t stop,” he says.
This year, the couple have extended their search as far afield as Sheffield — although they prefer Brighton and Whitstable. “But a move from London would be a tough pill to swallow,” says Oli, who arrived from New Zealand 10 years ago and has little inclination to move away from the capital. Elle doesn’t want to leave Stoke Newington, where she grew up.
But staying means exchanging an adequate home they rent for an inadequate home they own. “You expect to make some compromises when you’re no longer renting but it’s tough to consider going backwards,” says Oli.
Back at Cadet, there is nervousness over what rising rates will mean for Hackney’s mortgaged homeowners once their fixed terms mature. Tom — one of the bar’s owners — arrives with drinks for the table of bankers. He says Cadet’s first year has been a success, but with the pandemic, the cost of living crisis and — now — rising housing costs, running a business is no picnic.
“More frequently, bars and restaurants are closing than opening around here. Business is good now but things could change.”
When he bought his first home last year in nearby Clapton, Tom planned a renovation. But with his mortgage term maturing next year and rates climbing, he is planning to save all he can.
Martin, one of the five seated at the table, is wary, too — even with a 30 per cent LTV mortgage, and four years to go at 1.35 per cent on a home nearby he bought last year. He has scrapped his original plan, to look for a larger home, or perhaps a second home outside London, after his annual bonus was paid in June. Instead, he will wait until next year to see how things pan out. “A larger home is a luxury right now.”
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