The recent newspaper and media headlines have painted a scary outlook for the mortgage market. In the following article we want to provide clarity and remove ambiguity.
Firstly, we have not seen any lender withdraw a mortgage offer that has already been issued. They have withdrawn all their fixed rates at short notice but not the rates for applications that have already been secured.
Secondly, this is not a situation similar to the market crash we experience in 2008. UK lenders still have significant liquidity and are keen to provide loans. The fundamental issue we are facing is the lenders don’t know what rate to charge on a fixed rate due to the extreme market volatility.
What Could Happen with Mortgage Rates?
At the start of the year, the average price for the most popular two & five year fixed rate was 1.5%. This steadily increased to 3% by the end of August.
The recent financial uncertainty has resulted in major lenders launching fixed rates for home buyers at rates between 3.93% and 4.70% depending on LTV, which is far below the 6% that the media have been reporting.
What Could Happen To House Prices?
The price of mortgage finance is a big determinate to house prices. Economists suggest that a peak base rate of 4% should not materially affect house prices aside from slowing down the market. If base rate reaches 5% house prices could reduce by 10%, but perspective is needed here as it means they go back to what they were worth in September 2021, and a 15% drop would take them back to where they were 18 months ago.
Should I Consider Re-Mortgaging Early?
The most frequently asked question this week is should I re-mortgage now and pay a penalty? We find it hard to justify doing this as the question is often coming from borrowers currently paying 1.5% who have a year left on their deal and would be paying a 3% penalty in order to pay a higher rate now of c. 4.0%. We feel the smart play is to sit tight, don’t pay a huge penalty, enjoy your lower rate while it lasts and make provisions for paying a higher rate next time round which may not be much more (or could be less) than what is currently being offered.
Please contact us if you or any friends or family have any concerns: