There have been a lot of changes to the mortgage market over the last year. In August 2022, prior to the Liz Truss debacle, an average two-year fixed rate was around 3.95% and an average five-year fixed was 4.08%, according to Moneyfacts.
Since that time, the Bank Rate (commonly known as the base rate), which influences mortgage interest rates, has been raised from 1.75% to 5% (June 2023) in an effort to bring down inflation. Although up until May, mortgage rates had risen to an average of 5.32% for a two-year fixed and 5.02% for a five-year fixed, they hadn’t gone up by as much as the 2.75% increase in base rates. The reason for this is that the Bank Rate is expected to come down again as annual inflation drops back closer to the 2% target rate.
However, the recent rate rise in June to 5% was not forecast back in April and May. The expectation was inflation would have fallen by now and the peak rates would be 4.5% to 4.75%. This has caused an issue with some mortgages being withdrawn to give lenders time and space to re-price future borrowing.
What’s the latest with mortgage interest rates?
For those who already have a mortgage, variable and tracker rates are likely to go up and down along with base rate changes, but nothing will change for those on fixed rates until the end of the fixed period. If you currently have a fixed deal, it’s worth checking what your new mortgage rate is likely to be at least six months before the end date, so you can make any necessary adjustments to your finances and give your mortgage broker time to find the right new deal for you and your circumstances.
Current expectations, as reported by Capital Economics and other market analysts, are that as inflation is proving to be a bit stickier than hoped, the base rate could rise even further than the recent 5%.
What if you are struggling with mortgage payments or worried about the future?
If you are concerned about rising mortgage costs or are already struggling to make your monthly payments, do get in touch with your lender or a broker as they will be able to help. Although lenders used to be quite quick to repossess properties, that’s no longer the case because they know how detrimental repossession can be, both to mortgagees and their own business. So today, their priority is to do what they can to help you stay in your home. And as many people are on repayment mortgages - and indeed we are living and working longer - it’s likely that they will be able to make some financial adjustments to ease the pressure until rates fall to a more affordable level – similar to what has happened with utility bills over the last year.
Sarah Thompson, Managing Director at Mortgage Scout, explains, "A lot of people are extending the terms of their mortgages, a lot of people are doing part-interest only, part repayment. There are a number of things your mortgage broker can talk to you about to keep the mortgage figure to within your budget."
A new ‘no deposit’ mortgage product to help renters get on the property ladder
While rising interest rates have impacted affordability for many people who already have mortgages, the pandemic and cost-of-living crisis have made saving for a deposit incredibly challenging for those who want to buy.
To help more first-time buyers get onto the property ladder, Skipton Building Society is now offering one of the first ‘no deposit’ mortgages since the financial crash of 2007/8. Part of the problem back then – and the reason lenders stopped offering this type of mortgage - was that when prices fell, people that had low or no deposit loans quickly fell into negative equity and many had to sell up.
So, when Skipton launched the product in May, it understandably made the headlines, with some people totally behind the idea, while others have real question marks over whether a 100% LTV mortgage is sensible.
What exactly is Skipton offering first-time buyers?
The ‘Track Record’ deposit-free mortgage, currently priced at 5.49% for a fixed five-year deal, is aimed at first-time buyers who are currently renting a property and have successfully managed to pay their rent each month for at least a year. Skipton will allow them to borrow an amount that equates in monthly mortgage payments to what they are paying now in rent – provided they can pass affordability and eligibility tests and prove their rental payments.
For example, if you’re paying £1,000 each month in rent, subject to other criteria, you may be able to borrow around £177,676 on a 35-year mortgage without having to put down any deposit.
The other benefit is that there are no fees associated with the mortgage itself, although your mortgage broker may charge a fee to apply on your behalf.
Sarah Thompson, Managing Director of Mortgage Scout says, “This is a game-changer for people who rent their home, who have a proven track record of paying their rent and bills on time, and aspire to own their own home but would struggle to raise a deposit.”
What are the downsides of a ‘no deposit’ mortgage?
If eligible, you might end up paying a higher interest rate than mortgages for which a deposit is required, although you can offset this over time by paying up to 10% more off the mortgage each year, which would help boost your equity alongside any natural market price rises.
The other thing to be aware of is that if prices were to fall more quickly than you were able to build equity, it may be tricky to move to another mortgage and if you had to sell, you could make a loss.
Always speak to a broker!
Mortgages are complicated, especially this year with a rapidly changing base rate, so it’s well worth contacting a broker - even if you aren’t sure if you can afford to buy or whether you should remortgage. You may be pleasantly surprised by the help and support that’s out there.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
MAB
