The staggering increase of interest imposed by mortgage lenders will prove too much for many homeowners, commercial property owners and buy-to-let landlords. The average household with a two-year fix on a £200,000 mortgage will face an extra £5,000 of annual interest payments.
Now the BoE (Bank of England) predicts that if mortgage rates remain high then the number of households struggling to make repayments will reach the same levels as in the global financial crisis in 2008. That could mean an increase in mortgage repossessions as well as the possibility of falling house prices as more and more people are left with no choice but to sell their property.
Over two million households are facing mortgage deals ending in 2023
Many homeowners, commercial property owners and buy-to-let landlords will have taken out their mortgages on a fixed-rate deal that is set at a rate for a certain amount of time, usually between 1-5 years. This period is like the promotional period that allows the property owner to pay less interest on their mortgage but when it comes to an end, the mortgage rolls onto a standard variable rate.
That rate is usually higher than the original fixed-rate so to avoid paying more, it’s not uncommon for people to remortgage to a new lender or transfer their mortgage to a better deal with the same lender. The problem now is that rates have shot up.
Just one year ago, mortgage rates averaged at 2.34%, yet now, after the BoE’s decision to increase the base rate after a turbulent period for the economy, rates are as high as 6%. Some economists are predicting further rate increases.
Anyone wishing to switch to a cheaper deal now might struggle to find one as low as their current agreement, so price increases are inevitable for many.
How mortgage payments could rise after rate changes
Mortgage
2.34%
6%
Monthly increase
£50,000
£220
£322
£102
£100,000
£440
£644
£204
£150,000
£660
£966
£306
£200,000
£881
£1,288
£407
£250,000
£1,100
£1,610
£510
£300,000
£1,321
£1,932
£611
Buyers rush to complete their purchases before their lower fixed-rate mortgage offer expires
Mortgage | 2.34% | 6% | Monthly increase |
£50,000 | £220 | £322 | £102 |
£100,000 | £440 | £644 | £204 |
£150,000 | £660 | £966 | £306 |
£200,000 | £881 | £1,288 | £407 |
£250,000 | £1,100 | £1,610 | £510 |
£300,000 | £1,321 | £1,932 | £611 |
Most mortgage offers stand for 6 months, so those in the process of buying a property who are yet to complete are actively trying to close the deal before the offer expires and they’re forced to take out a mortgage with a higher rate.
There are also lots of buyers with a mortgage offer behind them that are re-evaluating their financial position. With the cost of living increasing and interest rates rising too, some are wondering whether they can afford to buy, even with a lower rate locked in.
Re-evaluate your borrowing options
Working with a mortgage broker can help to iron out concerns about affordability. A good broker will look closely at a buyer’s income and outgoings, factoring in possible rate rises, increases to utility bills and groceries.
Knowing what the worst case scenario would be before proceeding with a mortgage is a sensible idea in today’s economy, so even if you have a mortgage offer with a good deal, check, check and check it again against your circumstances with a trusted and reviewed broker.
First-time buyer demand shrinks by a fifth
With rates predicted to increase further after another looming BoE base rate hike, Rightmove reports that first-time buyer demand decreased in the last two weeks of September by 21% compared with the same period a year earlier. Many lenders have pulled their products from the market, leaving potential purchasers stalled, without access to affordable finance.
It’s not just the increased monthly cost of a mortgage that has stumped first-time buyers, it’s the prospect of having to prove they can afford the higher repayments and that they’re trustworthy borrowers.
While those with credit issues may have been able to find a lender from a pool of choices before, the options have been significantly reduced. Without a mortgage broker to check their eligibility and show them where the niche lenders are that could approve them, many would-be borrowers are pulling out of the process altogether in the hope that rates improve, along with their chances of getting accepted for a mortgage.
It doesn’t have to be that way though. With help from a professional, buyers can identify relevant lenders quickly and avoid a long and tedious search themselves. Lots of lenders don’t advertise their rates on comparison websites and many only work through intermediaries like mortgage brokers.
The average asking price for a home rose to a new record of £371,158
As of October 2022, a buyer would need £371,158 behind them, either in equity, from the bank of Mum and Dad or from a mortgage lender, in order to buy a property. Most lenders require a 10% deposit, though there are a small handful that will consider a 5% deposit under the right circumstances.
While borrowers have to be more selective about their choice of lender, demand is still outstripping supply and the housing market remains strong which reflects a shortage of homes.
The buy-to-let market also remains active, boosted by a housing shortage which has left many renters in the uncomfortable position of possibly having their rent increased by their landlords. However, increasing rent averages present an opportunity for buy-to-let investors in a position to buy suitable property to accommodate the ever increasing demand.
This steady demand means that all buyers, whether landlords, first-time buyers or home movers, are all in competition to buy a limited amount of housing stock and that will likely continue to push up prices.
Is there any help for home buyers?
The nil-rate band for first-time buyers rose to £425,000 on purchases of up to £625,000 in August 2022.
Standard buyers can benefit from the doubling of the nil-rate stamp duty band from £125,000 to £250,000.
Shared Ownership could be an option for eligible applicants. Not exclusively for first-time buyers, the government-backed scheme allows buyers to part-buy/part-rent through purchasing a share of a property. A smaller mortgage is needed to buy a share rather than the whole home, so a reduced deposit and lower monthly mortgage repayments make this option more viable for many.
There’s also Right to Buy which is another government-backed scheme that allows council and housing association tenants to buy their homes at a discounted rate depending on the property type and how long they’ve been tenants.
Get advice about your mortgage now
If you’re thinking of moving or switching to a better deal in 2022/2023, ask a mortgage expert to carefully look at your circumstances and recommend the most affordable route for you. Never dive into a new agreement without first checking your eligibility for the alternatives because you could end up getting rejected by your chosen lender or paying more for your mortgage than you need to.
Whether you’re a home mover, first-time buyer or buy-to-let investor, our brokers have the experience and access to the market needed to secure the best rates. Don’t gamble with your mortgage, get the right advice and make an informed decision.
Call 02380 980304 or fill in some brief details using our contact form.
