Lenders Withdraw 500 Mortgage Products in a Single Month as Great Deals on Mortgages Become a Thing of the Past
More than 500 mortgage deals have been made unavailable by building societies and banks over the last month, with home buyers being left with no other choice than to take on mortgages with high interest rates.
According to Moneyfacts, an institution that provides financial information services, when compared with data from the beginning of February, there were a whopping 518 less deals available at the commencement of March.
This indicates the biggest monthly drop in mortgage deal availability since May 2020 when, as a result of the Covid pandemic and the economic uncertainty it brought, a massive 626 mortgage products were dropped.
The current number of mortgage products on the market for buyers to choose from is 4,838, which indicates a drop of 384 products from March 2020, when the pandemic first hit.
Lenders have removed these products as a direct response to the increased base rate set by the Bank of England. Some lenders have removed whole products from the market while others have stopped lending for certain deposit sizes.
Further to this, the shelf life of some mortgage products has been reduced by 14 days over the last month, meaning potential home buyers have, on average, just 28 days to secure their preferred mortgage deal.
For five months in a row, both two year and five year fixed rate mortgage interest rates have risen by 0.21% and 0.17% respectively. The two-year fixed average rate, at 2.65%, is at the highest seen since November 2015.
This is not good news for homeowners coming to the end of their two year fixed rate mortgage deal, who will find it extremely challenging to find another fixed deal at a decent interest rate and it will find it virtually impossible to get a better one that they have previously enjoyed. This will become particularly relevant if the homeowner has little to no equity in their property, thereby making it difficult to access a higher LTV (loan-to-value) band and more competitive interest rates.
Five year fixed interest mortgage rates are showing their highest figures, at 2.88%, since April 2019. Homeowners approaching the end of their fixed rate deal may still have the opportunity to find a decent deal on a five year fixed rate as the average rate has stayed at 2.93%, which is 0.05% lower than what it was in March 2017.
The only mortgage products that showed signs of improved availability were on 5% deposit loans, with seven new deals being added to the market. March 2022 was the first time that a 5% mortgage with a two-year fixed interest rate has shown an increase of 0.06% up to 3.11% since April 2021.
Even though the base rate set by the Bank of England has no direct effect on fixed interest rates, lenders typically will increase their rates to cover any increased borrowing costs that will most definitely arise.
Last summer saw mortgage interest rates hit an historical low, with interest rate deals available at as little as 0.83%. This was largely due to lenders wanting to capitalise on a buoyant market and the fact that lending costs were at an all time low with the Bank of England lowering the base rate to 0.1%. This was subsequently increased to .02% in December, followed by another increase in February 2022, to 0.5%, with the expectations that further rises will be seen in the months to come.
Eleanor Williams, finance expert at Moneyfacts, said: ‘Borrowers contemplating securing a new mortgage deal may be disheartened to see that rates are continuing to rise this month.
‘While factors beyond lenders’ control are uncertain, as the cost of living crisis continues and economic conditions are volatile, to mitigate the risk of default, it could be that providers may tighten their lending belts even further moving forwards.
‘Borrowers looking to get onto the property ladder or to remortgage may therefore be wise to seek advice to ensure they are abreast of the changing market and to move forwards with securing the most suitable deal for them.’
Finding a Good Fixed Interest Deal
There are still many decent fixed term deals out there which are significantly lower that these average figures provided by Moneyfacts, particularly foe clients with large deposits and/or equity in their property. Experts warn buyers to consider their options carefully and shop around to find the best deal before committing to any fixed rate mortgage product.
“Rates have gone up which will cost homebuyers a little bit more, but I want to stress this shouldn’t put people off from moving to the house of their dreams or taking that first step to get on the property ladder.
‘We’ve seen a sharp and slightly panicky reaction to the Bank of England base rate rising to 0.5 per cent in February but 30 years ago in 1992, it was more than 20 times higher at 10.38 per cent. So, we must view this rise with some much-needed context and with a cool-head.’
Even though mortgage interest rates are still relatively low when compared with historical figures, the average house price in increasing but not in line with the average income.