The present uncertainty around mortgage rates and the general economic outlook has understandably caused some nervousness amongst buyers and homeowners.
What is happening to mortgages?
The Bank of England recently raised the base rate to 2.25% and made it clear that it is prepared to continue to raise rates in order to reduce inflation to its target of 2%.
In response to this, mortgage lenders have increased their rates, therefore making it more expensive for homeowners to borrow money. Furthermore, many lenders temporarily withdrew some of their mortgage products from the market as they wait for the economic situation and interest rates to reach a more stable position.
Lenders are cautious by nature and will take some time to take into account the current and future expected rate rises and, until new products are released which reflect the new cost of debt, there is likely to be a tightening of lending until early 2023.
If a lender has processed the application of a borrower and formally offered them a mortgage, these offers are being honoured. Despite some media reports, lenders are not withdrawing mortgage offers from applicants that have already been approved.
What is expected to happen next?
It seems pretty certain that, with inflation still close to 10%, mortgage rates will rise over the coming months and this will make it more expensive to buy a property with a mortgage. This will undoubtedly deter some would-be buyers from buying at all and cause others to re-think their budget.
Around 300,000 people come out of fixed rate mortgages every three months. These people will need to remortgage at a higher rate than they were previously fixed into. For some, this may not be affordable, and they may need to sell their property and buy something that is less expensive. Others will choose to restructure their borrowing by doing things like utilising ‘interest-only’ mortgages or extending the term of their mortgage to reduce repayments.
During the 2008 global financial crisis and the recent pandemic, lenders worked with borrowers to avoid default or serious financial stress by offering them a raft of temporary reliefs such as payment holidays and penalty-free switches to interest-only mortgages. If necessary, we would expect lenders to do the same again in response to the rapid rate rises.
What should you do?
The property market is cyclical in nature and it is almost impossible to buy or sell property at exactly the ‘right’ time, and the vast majority of people buy and sell based on their personal and financial situation. The market over the next few months will be very different from what we have experienced over the past couple of years, but people will continue to buy and sell property regardless of whether prices are going up or down.
We are here to help.
By engaging with clients early, mortgage brokers can help set expectations, help create a clear understanding of affordability and risks. And while brokers cannot drive down costs, they do have up to date information and visibility on the whole range of products that are available in the market. At Springtide Capital in addition to accessing products, your broker supports you through the whole process, completes the administration for your application and you have access to a case manager who is with you every step of the way. We offer a personal service and are here to help every client find the best possible deal at the best possible rates. Speak to one of our friendly and experienced advisers today.
Contact Springtide Capital on 020 8154 7280.