News & Articles
Mortgage rates: Property ownership in a higher-interest era
Rising interest rates might have given savers cause for celebration in recent times, but the mood has not necessarily been as positive among those funding a property investment.
In July, the average interest rate on a two-year fixed mortgage deal hit 6.66%, edging past the previous peak registered in the wake of the Truss-Kwarteng Mini-budget in September 2022. In doing so, it reached the highest level in the 15 years since the 2008 financial crisis.
While many borrowers were hopeful that a subsequent dip in rates was a sign of further falls to come, it was not to be the case. Data from financial information provider Moneyfacts later revealed further fractional rises for both two-year and five-year fixes.
This fluctuating situation has left many homeowners, would-be homeowners and landlords in a difficult situation, reflecting on what is happening in the mortgage market and, crucially, trying to work out ‘what will happen next?’
Raising the Base Rate
Rising mortgage interest rates have mirrored the rapid escalation in the Bank of England (BoE) Base Rate. It is only 18 months since the Bank Rate stood at a post-Covid historic low of 0.1%. However, a series of increases by the BoE has pushed the rate to its current level of 5.25%, and there is speculation that further rises could see it reach 6% by the end of the year.
This strategy has been implemented with a view to curbing historically high levels of inflation and there are signs that it is working – inflation eased from 8.7% in the year to May to 7.9% in the year to June after peaking at 11.1% in October 2022.
Compared even with recent history, these are undoubtedly turbulent times for those looking to fund a property investment, whether you are remortgaging at the end of a fixed-period deal or looking to get onto the housing market for the first time.
As well as facing the prospect of higher monthly payments, many are also having to deal with mortgage deals being unexpectedly withdrawn. Indeed, Moneyfacts says the ‘shelf life’ of a mortgage almost halved to just 12 days in July 2023, marking the lowest average time on the market since the company began recording figures more than a decade ago.
Managing mortgage payments
Challenges such as these are directly impacting people’s ability to secure earmarked properties, with more than a quarter (27%) reporting that mortgage problems have led to them missing out on a purchase.
The level of risk here depends on a borrower’s position. If you have received an Agreement in Principle, this is simply an indication of how much a lender is willing to provide and does constitute a formal offer. Your position becomes more secure after completing an official application and receiving a mortgage offer, but the risk of that offer being withdrawn remains a possibility right up to completion. It is important to note, however, that withdrawals are rare and would depend on particular circumstances arising, such as the offer expiring or a change to the borrower’s situation.
For their part, lenders have committed to give borrowers reassurance and support in the face of these challenging times, with a total of 32 mortgage providers signing up to the government’s Mortgage Charter, which is backed by the Financial Conduct Authority, UK Finance, the Building Societies’ Association and others.
Signatories to the charter promise to “provide borrowers with new flexibilities to manage their mortgage payments”, potentially easing some of the pressure for those remortgaging at a higher rate. This includes the possibility of switching to interest-only payments or temporarily switching to a longer term without credit scores being affected.
For those seeking to secure a new mortgage deal, while market conditions might be challenging, commentators point out that competitive deals are still available, with providers continuing to launch new products and rate cuts being introduced for some fixed-term deals.
Ultimately, there are no guarantees about where mortgage rates will be in the future. The International Monetary Fund (IMF) has predicted that real interest rates in major economies will at some point return towards pre-pandemic levels. However, it said this will only happen when inflation is brought back under control, and Bank of England Governor Andrew Bailey has separately spoken of it as being “persistent”.
In light of this continued uncertainty, it can be helpful for those seeking property funding to draw on the expertise of a broker, who will be able to factor in your personal circumstances and needs before uncovering the available options.
Whether you’re looking for flexibility or a fixed-term solution, the knowledge, market visibility and support of a skilled broker can afford property owners the opportunity to secure the right deal in a time of uncertainty.
The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.
Autumn Statement: Overview of key announcements30/11/2023
Good to talk: Opening up on the tricky topic of family inheritance16/11/2023
Fair share: Prioritising pensions during a divorce31/10/2023
Right first time: Three routes into home ownership12/10/2023
Rising interest: Turning attention to cash strategies in wake of rate hikes28/09/2023