The Silent Dictator , How Guilts/ Bonds Rule the Housing Market!

James Clerville - I used to think if there was reincarnation, I wanted to come back as the president or the Pope or a 400 baseball hitter. But now I want to come back as the Bond Market. You can intimidate everybody.”

What are Gilts? Gilts are a type of loan that the UK Government borrows from investors, promising to repay the initial investment with interest.Investors who purchase a gilt are essentially loaning the government money for a specified period, in return for fixed interest payments, known as 'coupon payments,' and the return of the original principal amount at the end of the loan term. (https://commonslibrary.parliament.uk/what-are-gilts-a-simple-guide/) The UK Government has an impeccable record of never failing to make its repayments,  because of this gilts are viewed as a virtually risk-free investment in the eyes of the market. This long-standing credibility allows the government to borrow at a low rate, and this low-risk bond is crucial for pricing other financial products across the economy.  However, this trust is not a given it was earned through years of stable, disciplined fiscal policy. Any perceived threat to this reputation for stability can cause a rapid and severe meltdown by the market, as will be demonstrated in the case of the Liz Truss mini-budget. Below I will detail how the bond market has such a drastic effect on mortgages,and the housing market and how this affects your removal company.

If you were renewing your mortgage between September and December 2022, you likely noticed a significant hike in your monthly payments and a vast difference in interest rates. On September 23, 2022, then-Prime Minister Liz Truss and her Chancellor, Kwasi Kwarteng, unveiled what they called a "mini-budget" , an ambitious growth plan designed to stimulate the economy.

The mini-budget proposed the largest series of unfunded tax cuts in 50 years, estimated to cost a staggering £161 billion over five years. The key issue was their approach: they announced these tax cuts without a detailed plan on how the government would fund them. Crucially, the plan was released without an independent assessment from the Office for Budget Responsibility (OBR), a decision that immediately triggered widespread alarm among economists and investors.

This lack of foresight caused markets to lose confidence in the government. The UK was plunged into financial turmoil, and a bond crisis loomed. The announcement sent UK government bonds, known as gilts, into a nosedive, causing their yields to spike dramatically. Many pension funds, which relied heavily on gilts, began an aggressive sell-off to protect themselves from potential losses of millions or even billions of pounds.

So, how did this affect your removal company?

The turmoil in the bond market immediately rippled into the housing sector, triggering a liquidity crisis. Within days of the mini-budget, an astonishing 40% of all mortgage products were pulled from the UK market as lenders scrambled to reprice their offerings in the face of rising gilt yields. The average interest rate for a two-year fixed-rate mortgage surged above 6% for the first time since the 2008 financial crisis. To put that into perspective, before the mini-budget, the average rate was 4.87%.

For potential clients who could just about afford their move, the sudden increase in mortgage costs made relocating unaffordable. This, in turn, cost many removal companies vital jobs. Countless businesses spent time quoting and arranging potential moves, only for clients to be forced to withdraw from the process. It would be interesting to hear how this affected your company, how many jobs were postponed or canceled, and what you estimate the total loss of revenue was.

Mortgage costs still haven't fully recovered from the mini-budget. While the immediate crisis is over, the cost of borrowing remains elevated. The job of stabilizing the housing market now falls to current Chancellor, Rachel Reeves. She might consider drawing inspiration from former Labour Chancellor Gordon Brown, who served from 1997 to 2007. Under his tenure, the UK housing market experienced a period of remarkable stability. On average, 97,000 properties were sold per month, and house values grew by an average of 223%. Of course, this rapid growth in house values is great for the economy & increases the amount of property bought & sold. Unfortunately it has been a massive reason it is difficult for first-time buyers to get onto the property ladder—but that’s a topic for another day!

I hope this has provided a clearer understanding of what the bond market is and how vital it is, not just for the UK economy, but for all of us , including removal companies and their workers.