Take one look at the news today and you’d be forgiven for either pulling a face or your hair at recent announcements. The big concern that we are going to talk about today is mortgages and what you need to know so that you are better prepared if you’re looking to move.
What’s going on?
That’s the question we’re all asking. Everyone has been hit with rising inflation and whilst the last month or so has seen us pay less for petrol at the pumps, we are all experiencing a squeeze in our pockets.
In the last month, the Government has had to step in to protect households from rising gas and electricity prices to the tune of £60 billion and we have even started to see prices fall as demand for certain goods has also dropped.
The “mini-budget” announced by Kwasi Kwarteng has however made the markets jittery. His recent announcement included the scrapping of the N.I increases, but equally, the removal of the 45p tax rate. It’s all part of a new economic strategy that the government wants to implement, it does however seem that there is a direct consequence of these actions.
So far, pound sterling has dropped to record lows and there are talks that the Bank of England may need to make an emergency statement to increase interest rates so that the pound can stabilise.
So what do we actually know?
As of Tuesday, September 26th, the Bank of England has refused to rule out any emergency measures. A recent statement has however clarified that, “the Bank said it would make a “full assessment” of interest rates at the next monetary policy committee meeting, scheduled for 3 November.”
What we also know is that the government is going to finance these tax cuts through gilts. Changes to the gilt market affect swap rates, which lenders use to make decisions on how much to charge borrowers.
Basically, the government thanks to a tumbling pound and market strategy is paying more for borrowing and, so will we.
So why are mortgages being pulled?
We’ve had record low rates in the last decade, which means that borrowing to buy a home has been cheap. We recently spoke about this in our piece about interest rates – check it out.
Lenders have had to create deals which reflected not only the base price of interest from the Bank of England but also, what they can afford to lend you at their rates. Many have decided to create 10 and even 15 year mortgage packages which fix you in the long term at a fixed rate.
In October 2021, the base interest rate was 0.25%, in February 2022 it increased to 0.5% and today, as of September 2022 it sits at 2.25%. If you were to have a £100,000 mortgage on these rates, that would mean that your monthly payment (based on 25 years mortgage term) would increase from £355 to £436. (This excludes the additional interest you are paying to any lender.)
Many lenders who have locked in mortgage deals in their lower interest rate periods are now having to pay more for the money they are lending and because there is so much fluctuation and unfortunately, speculation as to where these rates are going lenders are being overly cautious and deciding to not grant certain mortgage deals which may have been available as late as last week.
Who has pulled their mortgages?
So far there are a handful of lenders that have decided to pull their mortgage offers. Halifax, Virgin Money and Skipton have decided to pull a variety of their products in order to “better assess the situation in the next coming days.”
A spokesperson for the Halifax has said, “there is no change to product rates and we continue to offer fee-free options for borrowers at all product terms and LTV [loan-to-value] levels, but we’ve temporarily removed products that come with a fee.”
Virgin Money said: “Given market conditions, we have temporarily withdrawn Virgin Money mortgage products for new-business customers.
“Existing applications already submitted will be processed as normal and we’ll continue to offer our product transfer range for existing customers.
“We expect to launch a new product range later this week.”
So what should we expect
It has long been suspected that interest rates were going to rise to 3% by March, 2023. However, because there are other concerns in the economy and with the risk of the pound deflating even further, some economists are starting to predict that we could see rates go as far as 5.5% to 6% by March, 2023.
Please note, this is speculation.
We don’t know if the government is going to reverse any of its financial strategy decisions or if the Bank of England will increase rates at a more vigorous level in the short term to curb currency fluctuations.
What should I do?
A simple adage is to not panic.
We understand that buying a home is a stressful period anyway, and whilst these increases in recent months haven’t been ideal, they haven’t stopped lenders from giving money to purchase a home and these recent mortgage announcements from lenders doesn’t show that this will happen. If anything, we’ve all experienced good products which will no longer be available but replaced with something else which may help buyers. We have to wait and see to understand to what level this will happen.
If you are purchasing a property, speak to your lender or broker about these latest changes. It could be that you are locked in to a deal before rate increases or that the product you were looking at is no longer available. There will be alternatives and remember, lenders want your business so they are not going to stop lending with rate increases. Mortgages were being offered when rates were at 6% back in 2006 and if we were to hit this rate of interest, there is nothing to suggest that lenders won’t lend for your house purchase.