UK’s mortgage market is heading for problems even with the changes announced today in the revised mini-Budget, according to investment bank Morgan Stanley (NYSE:MS).
Approximately 30% to 40% of homes on lower incomes will face difficulties affording their mortgages, the US bank estimates, as average rates on some fixed-rate products climb above 6%.
Morgan Stanely noted ahead of new chancellor Jeremy Hunt’s announcement that it did not anticipate mortgage rates to come down quickly with volumes to flatline next year instead of growing 2.5% as it previously forecast.
Not all analysts are so gloomy, with Berenberg insisting UK banks are oversold, while profits would likely be boosted from rate rises, which would partially offset higher loan losses.
Investors have also been inquiring into whether banks’ risk models are sufficient enough to identify which loans may turn sour amid squeezed household budgets, Reuters reported last week.
Britain’s lenders are scheduled to report their Q3 earnings next week.