Until last week Charles Wycherley saw market conditions for his family estate agency in southern England as like being “on top of a mountain, but looking down” — there were signs of a gentle slowdown after having notched up strong house sales for many years.

But in a few brutal days, since chancellor Kwasi Kwarteng’s plan for £45bn of unfunded tax cuts sent financial markets into a tailspin, Wycherley has had 11 house sales fall through, most of them because buyers without a formal mortgage offer in hand were suddenly facing borrowing costs they could not afford.

“From where I am standing now it’s a disaster zone,” said Wycherley, whose business is based in the town of Lewes in Sussex. “I felt all along that there was going to be a correction [in the housing market]. But for a government to actually put in measures that have brought it on is mind-boggling.”

Kwarteng’s promise in his “mini” Budget last week of tax cuts that could further fuel inflation prompted markets to sharply revise upwards their expectations for interest rates: they are now predicted to hit almost 6 per cent next year.

Furthermore, Kwarteng’s plan drove up UK government bond yields, badly disrupting the mechanism by which lenders price mortgage rates. Unable to judge where interest rates should be on their mortgages, lenders have pulled more than 1,600 products from the market, according to Moneyfacts. Many of the products are expected to return, but with significantly higher rates attached.

Coming on top of a cost of living crisis that is already stretching many household budgets to the limit, a spike in mortgage rates carries political risks for the governing Conservative party, which typically relies on homeowners for their vote.

Would Wycherley be voting Tory when the next general election comes around? “No I won’t. They need to be taught a lesson,” he said.

Charles Wycherley, independent estate agent in Lewes. ‘From where I am standing now [the housing market] is a disaster zone,’ he said © Charlie Bibby/FT

Before an election that must be held by January 2025, more than 2mn homeowners will have to move on to new financing deals after their existing fixed rate mortgages expire. With many lenders having retreated to the sidelines for now, homeowners described a melee in the market.

For example, some buyers are pushing for significant discounts on agreed sale prices to compensate for higher mortgage rates. “It’s carnage, a lot of people are panicking — understandably,” said Adam Stiles, managing partner of mortgage broker Helix Financial Partners.

He spoke of clients with cheap fixed rate mortgages which run until next summer who are fearful that interest rates will rise sharply in the coming months and so are terminating the deals now to secure new ones despite penalty charges.

“There will be people ending deals early and incurring massive charges to get a new five year deal,” he said. “It is a lot of money. Some people are swallowing it out of pure fear.” 

Watching the turmoil unfold over the past week, London homeowner Laura Webb decided to curtail her fixed rate mortgage before the end of its five year term. “My mortgage is up for renewal in March and with mortgages in every second headline I thought I’d deal with it now,” she said.

Line chart of Expectations for UK Bank rate (%) showing Markets now expect interest rates to be close to 6% by the spring

Because she is less than six months from the end of the five year term, Webb will not face an early repayment charge. But her rate will nonetheless rise from 1.7 per cent on her current deal to just over 3 per cent for the same product today.

Would-be homeowners said the anxiety levels associated with buying a property have ratcheted up markedly since Kwarteng’s “mini” Budget.

One 40-year-old human resources worker based in London, who asked to remain anonymous, said she had been waiting to complete the purchase of an £850,000 house in Guildford for 15 months, but the 60-something vendors were stalling while they looked for their own perfect home.

In the intervening period the HR worker had been through five mortgage offers, starting with one in July 2021 fixed for two years at a rate of 1.6 per cent. Her current offer is set at 3.5 per cent but runs out in December and she was now alarmed by reports that this could double next year, stretching her and her husband beyond their means.

“Lots of people like me are really worried now about our mortgage offers expiring,” she said, adding: “I have always been a Conservative supporter. But I wouldn’t vote for them now. They have made some really rash decisions. It’s wrong and people like us are suffering.”

One group who know how punishing interest rates of 5 per cent or more can be are so-called mortgage prisoners. These are borrowers who locked into expensive deals before the financial crisis and have been unable to switch to better deals since affordability rules were tightened in 2014.

Kwasi Kwarteng’s ‘mini’ Budget drove up UK government bond yields, badly disrupting the mechanism by which lenders price mortgage rates © Jessica Taylor/UK Parliament

Nicholas Wilson’s variable-rate mortgage is currently set at 4.3 per cent, meaning he pays £484 each month against his Hastings home. From October 1, his rate will rise to 5.74 per cent and his monthly outlay to £652.

A welfare benefits claimant concerned about his health, Wilson has struggled to meet his mortgage payments before. “But the present situation is just dire now,” he added.

He is concerned his home will be repossessed. “I don’t see it as an asset as everyone else does, I see it as my home,” he added. “I always felt I’d die here. The thought of packing it up and moving is unconscionable.”

Additional reporting by Abby Wallace in London

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