It’s all over the news, the Bank of England (BoE) base rate has increased once again. Whilst it didn’t come as much of a surprise to anyone, it has still caused an immense surge of panic through the mortgage market. With 4 lenders shutting down all new business transactions from brokers and mortgage rates hiking up. Where does it leave the mortgage market now and where will it go in the future?
How have Mortgage rates been affected?
During the COVID-19 pandemic, our brokers were quoting clients fixed rate deals as low as 0.90%. Rates were at an all-time low, with many first-time buyers taking their first steps onto the property ladder, even though house prices were higher than ever before. (Up 12.8% in May 2022 over the previous year)
Since the BoE put the base rate up, mortgage rates have been gradually increasing. After the most recent increase, rates have been averaging at 3% on the market and are likely to push higher than this over the next coming weeks/months.
Could we see another property market crash?
Although there’s no way for us to see into the future, many mortgage brokers and financial advisers have been speculating how the market will react to the most recent economic events. A mixture of the cost of living and interest increasing could mean individuals won’t be able to afford the costs of owning their own property and may have no choice but to sell their homes.
An increase in property sales could cause a downwards trend in property values to try and invoke new buyers or property investors, who might have the liquidity to purchase these cheaper properties. Whilst the mortgage rates might not be desirable and won’t allow for a high rental yield to be produced, the cheaper cost of purchasing would be beneficial as we know that in the future property prices will once again increase back to and beyond where they have been.
We may not see property prices decrease instantly or at all in fact; a change of leadership in the government and uncertainty in future policy changes means we can’t predict how the property market will change. However, we do know that mortgage rates will continue to increase as the base rate increases and lending criteria will become more restrictive; stress testing individuals’ affordability will be more important as the cost of living increases and the ability to repay a mortgage becomes harder. Those with complex income or adverse credit will need the help of mortgage advisers to navigate the maze that the mortgage market has become.
Is now the time to take a fixed rate deal?
Since the BoE announced they would be increasing the base rate at the start of the year, clients have been looking to start fixing their mortgage rates whilst the rates were low and for as long as they possibly could. With rates now increasing should homeowners be taking fixed rates for the long term, short term or take a variable rate?
Well in truth, there isn’t really a correct answer, nor would I tell my clients I knew what the right option is. However, presenting all the options and providing the benefits and negatives of each allows individuals to come to the best conclusion for their needs.
Lenders’ Standard Variable Rates (SVR) will often be impacted by the Bank of England base rate. The option of a variable rate usually favours a low-interest rate environment, with rates increasing, fixed rate deals become more attractive as they provide more certainty of the monthly payments. Variable rates don’t often have Early Repayment Charges attached to them, giving the client flexibility on when they can remortgage or if they would like to make large overpayments each month.
Those that want to fix their payments might be unsure whether a 2 or a 5 year option is better. Some are predicting that the base rate will increase up to 3% within the next few months, leaving the future of mortgage interest rates in a very dull light, possibly making a two year deal seem less favourable. In the past, we have seen rates declining gradually, which gives us reason to believe that it would be a gradual decline in rates when the market has become stable again. Opting for a 5 year deal would allow enough time for the market to settle and could potentially allow you to revert to a similar or lower rate if the market begins to recover.
Should I save my money or buy a property now?
Now is the time to start saving money; at least that is what the government wants us to do. Whilst interest rates cause everything to become more expensive, it does also mean that savings rates are higher. The increase in savings rates allows savers to get higher returns on their savings to try and combat the effects of inflation. Prospecting buyers should take advantage of the higher interest rates and keep an eye on the market to look for the best time to buy.
If you want to get on the ladder now, then it is worth thinking fast and getting all your eggs in order. Lenders, brokers, valuers and solicitors are all under immense pressure to keep the housing market moving and at a reasonable rate. We are seeing longer turnaround times to get offers and to complete on deals. That being said, we work with an unrestricted network of high street lenders, challenger banks, specialist and private lenders who could potentially help you to buy your first home, move house or refinance your property. We will work on your behalf to find the best terms and rates on the market to fit your circumstances.
To find out more about interest rates and the current market, contact us. One of our mortgage advisers would be happy to discuss your options and help you to explore what products are on offer.