With constant increases in the Bank of England base rate, mortgage rates have been hitting the headlines with regularity.
While rates have risen, housing market sentiment has fallen. A record half (52 per cent) of adults across Britain disagreed it was a good time to buy a property, according to a September survey by the Building Societies Association.
So where does this leave first-time buyers, and those looking to remortgage?
Mark Harris, chief executive of SPF Private Clients, says that for first-time buyers it is arguably as good a time as any to buy, if they have found a home they want to purchase, are happy with the price they are paying, can afford to pay it and are prepared to stay put for a few years.
“Buyers will be aware that there is talk of property prices falling and potential negative equity for first-time buyers in particular because they tend to take on higher loan-to-value mortgages.
“But such issues are only really a problem if the buyer intends to sell again in the short term. Over time, prices tend to appreciate in value and usually recover even if they dip initially.”
Richard Howes, director of mortgages at Paradigm Mortgage Services, says first-time buyers could take advantage of any fall in house prices, but adds: “It’s the issue of affordability coupled with the cost of living increases that could really impinge on their ability to buy.”
With falling house prices widely predicted across the market, Simon Gammon, managing partner of Knight Frank Finance, says it is reasonable to expect lenders to be hesitant about offering competitive high LTV mortgages.
“We have already seen a reduction in the number of 90 per cent and 95 per cent mortgages available, and those that are still available come at a significant premium in terms of rate. We can therefore expect it to be harder for first-time buyers to get onto the property ladder in the foreseeable future.”
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Just Mortgages national director Carl Parker says it is without doubt becoming more challenging for both first-time buyers and those looking to remortgage after a low fixed rate.
“This is just because rates have risen so quickly, making it hard for people to adjust. However, swap rates are starting to fall back and therefore mortgage rates are dropping a little too. However, they are unlikely to ever return to the historic lows of the past 10 years.”
Vikki Jefferies, proposition director at Primis Mortgage Network, also points to fixed rates stabilising despite the 0.75 percentage point increase in bank rate. But she agrees that borrowers reaching the end of a fixed rate will be faced with higher rates than they are used to.
“This may come as quite a shock for some, especially with house prices falling and reductions in loan-to-value ratios. As a result, product transfer could prove to be a better option for some as customer loyalty can be considered, which sometimes includes preferential rates.
“With fixed rate mortgages currently seeing higher rates than standard variable rate mortgages, talking through the options available to clients is now more important than ever.”
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Indeed, Harris at SPF Private Clients says many clients are seeking variable or tracker rates with no early repayment charges to remortgage. “These are comparatively so much cheaper, at least initially than a fixed rate.
“[Clients] plan to move onto a fixed rate, once pricing of these falls. Meanwhile, if interest rates don’t rise as fast or as far as previously predicted, a variable rate mortgage may turn out to be a good option.”
When it comes to house prices meanwhile, Howes at Paradigm Mortgage Services cites expectations of price growth to slow, rather than prices to fall. “With the recent surge in prices since Covid, most homeowners will have equity they can utilise.
“Indeed, the average LTV of the top five lenders is 60 per cent and they cover around 72 per cent of all lending in the UK, so the average person looking to remortgage should be okay.
“What is of concern though is that remortgage affordability could be an issue, and of course the conveyancing market with its delays and current timescales makes it less attractive than perhaps doing a further advance and product transfer.
“This area could be an issue for advisers, where the DIY product transfer could come into play, at a time when advisers are needed more than ever.”
Parker at Just Mortgages agrees that the need for mortgage advice is at its peak. “The daily fluctuation in mortgage rates has made the role of brokers absolutely vital to help borrowers assess their affordability against changing criteria, and navigate options in this mortgage landscape.
“It is also essential that brokers make the time to reach out to existing clients, to see what help and advice they need, and help to put their minds at rest during this changing interest rate environment.”
By Chloe Cheung
Source: FT Adviser