With the economy going into free fall and the housing market in chaos, Kwasi Kwarteng’s mini-budget has done little to appease the fears of buyers and lenders alike.
The Bank of England has stated that they “would not hesitate” to increase the interest base rates yet again in an attempt to protect the falling value of the pound. Unfortunately, this will lead to the inevitable result for mortgage lenders, who predict that offering competitive interest rates to customers will be far too expensive.
With this in mind, people have many questions regarding the future of the mortgage market and what it means to them. Today we answer a few of these questions.
Will my lender withdraw my mortgage offer?
This is a question paramount to every buyer’s mind who has already been offered a mortgage deal by their lender. In principle, lenders will abide by the offer they have made, according to most brokers. So to answer the question, yes, lenders will honour any offer already agreed upon.
Unfortunately, buyers, first-timers, and movers who have not already made an application will find that the offers available to them will be limited and significantly more expensive.
The previously good mortgage deals have been removed, and when new offers make a re-appearance, it will be considerably less of a “deal” and markedly more expensive.
If your application for a good deal is complete, then you are likely to be lucky enough to have secured a specific rate; however, if it is just “agreed in principle,” the likelihood is that the rate offered is not binding and therefore can be withdrawn by the lender.
It is important, however, to note that if you are already on a deal with a fixed interest rate, the lender cannot change the rate until the deal expires.
Will my home be repossessed?
With many fixed rates coming to an end and an almost certain increase in monthly mortgage repayments, many homeowners are asking themselves if their homes could be repossessed. Although this is a possibility, the whole process of repossession is lengthy for lenders and one they will try to avoid.
It’s more likely that a lender will offer some sort of payment plan for those struggling with their monthly mortgage repayments.
If you are or feel you may, in the near future, not be able to meet your payment obligations, it is imperative that you seek help and advice. There are various charities, such as Citizens Advice, that are there to offer any support you may need.
What support can we expect from the government?
Following the pandemic, we have become somewhat accustomed to the government handing out support in various ways, for example, through furloughs and grants. Unfortunately, this will not be the case for homeowners struggling to pay their mortgages.
Instead, they will be doing what they can to get the economy back on track, although to date they have not been too successful in this endeavour.
Will renters be affected?
Well, mostly, yes. If landlords find themselves paying higher buy-to-rent mortgage payments, they will have little choice but to pass at least some of these increased costs onto their tenants.
Another side effect of the market chaos is a shortage of rentable properties, should landlords decide to sell up. With demand higher than supply, an inevitable increase in rental rates will be unavoidable due to the increased competition.
Renters who wish to get their foot on the property ladder will most likely need to wait longer to buy due to first-time mortgages being so expensive.
Why is the Bank of England increasing interest rates?
The theory is that by increasing base rates, people will be less likely to borrow and spend and more likely to save. This hopefully results in less demand for products and services, which in turn will result in prices going down.
With inflation at five times its target rate, the Bank of England is expected to keep increasing interest rates in order to get control over the spiralling inflation rate.
Although in theory, this should work, it is a balancing act that needs to be executed well, as we do not want the economy to slow down too much.
Do mortgage interest rates always fluctuate?
Yes, but we need to consider some factors, such as the fact that for the last decade, interest rates have been relatively low. Now that rates are on the rise, it has been a shock for many that even a small rise in rates has translated into quite significant rises in monthly payments. This is largely due to the amount buyers have borrowed due to high house prices and stagnant wages.
How will the rise in rates affect my mortgage?
The rise in base rates will result in mortgages becoming significantly more expensive. This will in turn have a negative effect on housing market activity, as buyers will be more hesitant to act now and will be more likely to be waiting to see what the future holds.
Should the rates stay high for a long period of time, mortgages will become unaffordable, many will sell, and house prices will inevitably decrease.