If you are taking out a mortgage – it probably feels like you are walking into a raging storm. Kate Saines gathers advice on how to navigate your way through if you are a buyer or about to remortgage and explains why this could be a good time for first-time buyers
If you are about to remortgage or buy a home the events in the mortgage market at the moment will be unsettling to say the least.
Lenders have been pulling products left right and centre, often at short notice, in response to high inflation and the fact this is likely to push interest rates up further.
Anyone poised to take out a deal may be wondering whether the mortgage they were due to sign on will be the next to be whipped from table.
If you are not quite at the stage of putting in an application – but are planning to take out a mortgage in the near future – this furore may be putting you off completely.
So, what should you do?
We’ve rounded up some advice from expert mortgage brokers who very kindly took time from helping clients and monitoring their inbox for the next mortgage product change to offer tips on how to proceed in the current storm.
Since inflation was announced as hitting 8.7% several weeks ago, lenders have been repricing mortgages, a process which has involved pulling deals from sale. It has meant brokers are struggling to keep up with the constantly-changing situation.
With the Bank of England (BoE) base rate at 4.5% and expected to rise, average rates for a two-year fixed mortgage were at 5.9% on Tuesday (13 June) which compared to 5.75% on the same day last week.
Meanwhile the rate on a five-year fix has climbed from 5.44% to 5.5% during the same time, according to data from Moneyfactscompare.co.uk.
As you can see, prices are rising daily. Meanwhile, at the start of May there were 1,520 two-year fixed deals to choose from whilst yesterday there were 1,385 said Moneyfactscompare. The reduction in choice is similar for five-year deals.
The concern isn’t just that mortgages choice is reducing, it’s that the products are being withdrawn with short notice and this can jeopardise live mortgage applications.
Lewis Shaw, founder & mortgage expert at Shaw Financial Services said: “The past few months have been difficult, but we’ve hit top gear in the past week, culminating on Monday with swathes of deals pulled and mortgages repriced upwards.
“I spoke to one broker who said they’re getting anxious opening their email in the morning, and I understand what they meant. The worry is this could get worse before it gets better.”
Amid so much uncertainty, one thing is clear – anyone remortgaging now will be paying a much higher interest rate than they were on their last deal.
This is because anyone coming off a two-year fixed rate (or even a five-year fix) will have secured that deal when rates were low.
David Hollingworth, associate director at L&C Mortgages, said: “Things are moving so quickly that it’s easy to see how borrowers could be wondering what the best approach could be.”
Many people due to exit their current deal may be considering holding off until things calm down. But Hollingworth said this strategy should be carefully thought through.
“Holding off carries risk if rates don’t fall back and only climb further,” he said. “It could also see the mortgage drift onto the Standard Variable Rate (SVR) which could be even more expensive even if only for a short period.
“Some borrowers may decide to go for a shorter term deal despite them being higher rates in the hope that by the time the deal ends things will have improved but again there’s no guarantee.
“A tracker may give more flexibility but if base rate climbs further as expected it will push up the rate in the near term.”
For anyone with a mortgage which is due to end between now and the end of the year, the advice is to start preparing now.
Hollingworth said: “Those looking anxiously ahead to the end of their current fixed rate may still be able to take some action.
“They could shop around up to six months before the end of the current deal to secure a rate now.
“That will be beneficial if rates continue to climb and avoids reaching the end of the current deal and switching to something even higher than they could have got today.
“However, if rates ease back then there’s still a chance to review the deal, being careful to ensure that there won’t be any cost implications.
“We offer a Ratecheck service so that customers can seek a review of their deal at any time to see if the market has shifted to allow a move to a better deal.”
If you are moving it’s highly likely you are selling and buying at the moment, which may mean you are feeling the pressure of not only mortgage uncertainty but how it might impact your chain.
Hollingworth said: “For those looking to buy it’s really a case of looking for the best available option.
“Again, they can continue to review the rate if there’s any improvement and may be able to take advantage of a switch of deal.
“Switching lender mid process may be harder from a timing perspective, particularly if there’s a chain pushing for a completion deadline.”
There’s some good news if you are first-time buyer – things may seem chaotic out there but you are in a good position.
Gemma Bennett, senior mortgage broker at The Mortgage Mum, said: “Honestly, I think it’s as good a time as any for first-time buyers.
“They’re the least affected by the rates as they aren’t used to a particular monthly payment yet.
“Property prices are levelling out and so they can potentially buy for less, although there’s still the difficulty first-time buyers face with deposits, for which I hope there is a good solution now the Help to Buy scheme has finished.”
Her view was echoed by Pete Mugleston, mortgage expert at www.onlinemortgageadvisor.co.uk, who said: “The recent drop in house prices – with a 3.4% decline in the year to May – presents a significant advantage for first-time buyers.
“After years of witnessing property values continuously climb, even during the pandemic, the prospect of more affordable homes emerges.
“With prices currently standing 4% below their peak in August 2022, those entering the housing market can seize this opportunity to secure a property at a more reasonable price.”
So how should first-time buyer proceed? Bennett said: “First-time buyers need to seek advice more now than ever to [achieve the] best outcome, understanding and support.
“A broker has a duty of care to ensure they’re doing the best by them now and for their future intentions also, this is known as consumer duty and it adds extra protection for the consumer.
“When it comes to remortgaging for these first-time buyers in the future, they’ll be faced with lower rates hopefully and can either reduce monthly payments, reduce term or re look at their borrowing options if they want to increase their mortgage.”
