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Landlords face double whammy fiscal fallout

Landlords face a double whammy as Government plans to beat inflation by stimulating economic growth have backfired spectacularly, causing something of a run on the pound. Falls in its international value are certain to bring new inflationary pressure along with increased interest costs.

The housing market, seemingly helped by a cut in stamp duty announced as part of last week’s Mini Budget, also faces disruption with many mortgage lenders stepping back from making new fixed rate offers.

Nationwide’s reaction to events is typical. From Wednesday 28 September it is amending both its fixed and tracker mortgage rates.

‘In recent days swap rates, which mortgage pricing is based on, have increased at unprecedented levels in response to the current economic conditions’, it said.

‘To ensure Nationwide’s mortgage pricing remains sustainable, it is increasing two, three, five and ten-year fixed rates by between 0.90 per cent and 1.20 per cent – less than the increase in swap rates. Existing members looking to switch to a new deal or borrow more will see lower increases of between 0.55 per cent and 0.85 per cent, while tracker rates will increase by 0.50 per cent in line with the recent increase in Bank Rate’.

Nationwide’s director of mortgages Henry Jordan said the changes made to new business offers were ‘reflective of the current interest rate environment’.

But he suggested swap rates, on which mortgage pricing is based, had ‘spiked’ as the market factors in expected future Bank Rate rises.

After raising its Bank Rate to 2.25 per cent last week, the Bank said it was continuing to monitor developments in financial markets ‘very closely’.

Following reaction to the ‘growth plan’ set out by Chancellor Kwasi Kwarteng in last week’s Mini Budget, Governor of the Bank of England Andrew Bailey he welcome the commitment made to sustainable economic growth. But he said, the Monetary Policy Committee (which sets Bank Rate) would make sure that demand does not get ahead of supply in a way that leads to more inflation. ‘It will make a full assessment at its next scheduled meeting (in November) of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly. The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2 per cent target sustainably in the medium term, in line with its remit’.

The Bank puts the current rate of inflation at 9.9 per cent.

Meanwhile, the Chancellor has said further details of the ‘Growth Plan’, including changes to the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure, will be made ‘in October and early November’.

It will not be until 23 November that he will set out his medium-term fiscal plan setting out how his ‘Growth Plan’ will be financed and that finance repaid.

In the meantime, Kwarteng told business leaders he was confidence his plan would work. ‘We are committed to fiscal discipline’, he said.