Wrestle with PESTLE: mortgage rates

Reading time: five minutes 

This LCN Says is part of LawCareers.Net’s ‘Wrestle with PESTLE (WWP)’ series, which looks at various business case studies using the PESTLE technique. 

Prefer to listen? You can listen to our brand new Commercial Connect podcast series on Spotify, Soundcloud, Apple Podcasts or any of your favourite podcast platforms, or on the LawCareers.Net Podcast hub. 

PESTLE stands for: 

• political; 
• economic; 
• sociological; 
• technological; 
• legal; and
• environmental. 

This technique involves using these six external factors to analyse the impact on a business and/or industry. 

News stories are flashing up all over the country stating that Britain’s mortgage rates are sky-high and that the young people of today are never going to be able to afford to buy a house. But what are the implications of the high mortgage rates?

In July 2023, an article was released stating that the average five-year fixed-rate mortgage deal increased to above 6%. In summer, it was revealed that this could jump again to 7%. The reason people are worried about this is because the higher the interest rate, the more the average person’s mortgage monthly repayments will be.

Political

With the Conservative Party being in power, the economic distress that many are feeling regarding their increased mortgage payments is leading to disenchantment with the Tory Party, with one Guardian article stating that the party’s economic competence is being questioned.

There’s a real worry that there’ll be a housing market crash as a result of people being unable to take on a mortgage or make their repayments. The public has gotten used to the Bank of England keeping official interest rates low, meaning that home loans were also cheaper. But now that the situation has changed under the Tory’s supervision, will the public continue to support them in the next election?

Economic

These higher mortgage rates will have an impact on the economy. It’ll mean that fewer first-time buyers will be entering the market as they just can’t afford to take on a mortgage. It also indicates that there’ll be less disposable income available for families with a mortgage. Less disposable income means fewer families and individuals spending money on meals out, drinks in the pub, and supporting local businesses on the whole.

If there’s less disposable income, there’ll be a decline in economic growth as there’s simply less money being pumped back into the economy from those individuals.

Sociological

Poverty is a very real consequence of such high mortgage rates. The poverty rate for those with a mortgage will increase, as monthly housing costs increase. The money that homeowners previously allocated for food and necessary supplies like sanitary products will be eaten into by their mortgage repayments.

In a similar vein, poverty will also increase because those that can’t afford to buy a house of their own will have to rent. Rent will in turn increase because of the mortgage rates, so tenants will be paying more for their house through rent too. Again, less disposable income means less money for food, for example. Hence, the poverty rates are increasing due to the buying and renting scene.

Technological

Mortgage lenders have no control over the mortgage rate. And so, instead, they turn to other ways to entice customers to their company over other lenders. Technology becomes important here because lenders want to offer a quick and easy system that’ll enable customers to have more of a stress-free relationship with them than with other providers.

Mortgage automation tools are essential for any company. This is where specific tasks that are normally done by hand can be done automatically by computers, using AI and machine learning technologies. This means that the application process for a mortgage and being lent money can take less time to complete and becomes a simpler process for the customer.

Marketing and advertisements are also important, so using technology that targets distinct audiences who may be looking at taking on a mortgage is important. It’s about targeting the right audience – technology can be used to define who the right audience is and what advertisement should be used by tailoring the company’s services to the audience’s needs.

Legal

Firstly, property and real estate lawyers may see a stilting in the number of properties they’re acting on for purchasers. If the mortgage rate is so high, purchasers are likely to wait and take on a less risky purchase in a few years’ time when the rates are less high.

Secondly, real estate lawyers may be working for fewer landlords wanting to rent out their properties. If they’re having to pay more for monthly repayments, they’ll have to increase rent. If tenants can’t be found that’ll pay an increased rent, then landlords will have their property vacant for longer periods of time while also paying more for the mortgage – this means they’re being hit two ways. So, being a landlord may be less appealing to many and they may reconsider their situation.

Environmental

In May 2023, the Department for Energy Security and Net Zero issued a press release titled “mortgage rate cut for energy efficient homes under government-backed trials”. The issue at the root of the report was that homeowners who make their properties more energy efficient could see a reduced mortgage rate.

Perenna Bank will receive more than £193,000 from the government to develop a long-term fixed-rate mortgage that’ll encourage customers to make their homes more energy efficient.

So, there’s an evident link between the government’s motivation to improve our effect on the environment and slow down climate change, and an individual’s incentive to reduce their monthly mortgage repayments.

The verdict 

There's certainly a lot to unpack as the cost-of-living crisis continues to take its toll on UK households. Consider how the above looks set to play out and keep your eye on the details as this issue develops.

For insights into no-deposit mortgages, read this WWP from LawCareers.Net's Niamh Gray or listen to the podcast episode instead.

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Sophie Wilson (she/her) is a current LPC student at The University of Law and a future trainee solicitor at Forsters LLP.