Mortgages and rising interest rates have been headlining news across the country this week. This has followed the reaction of financial markets to the fiscal statement delivered by the new Chancellor. Mortgage lenders have moved swiftly in their response and the ensuing media storm has brought mortgages to the centre stage. As we head into a new week, todays blog provides a mortgage market update from inside the industry.
To first provide context on the situation, interest rates have been steadily and consistently rising this year due to inflationary pressure caused by the economic effects of the pandemic and the war in Ukraine. The Bank of England have chosen to increase interest rates to slow the rate of inflation however it cannot directly address the issue due to the factors causing inflation. The new Government have therefore reacted to the current economic situation with a major fiscal announcement aimed at growing the economy regardless of current global events. Uncertainty over how this will unfold has triggered the response we are seeing in financial markets with the mortgage market being no exception.
Many mortgage lenders opted to temporarily withdraw products available for new applications early this week. Interest rates available at the start of the week would not have been profitable or sustainable for lenders and rates were withdrawn to allow significant re-pricing. In normal circumstances, lenders do not remove themselves from the market and instead announce new rates will be coming in at a specified time to take over from the current offering. The level of change required is what caused many lenders to decide to temporarily withdraw completely. As we’ve progressed towards the end of the week, lenders have begun to re-enter the market, albeit at significantly higher interest rates. In most cases, borrowers looking to secure a new mortgage do have plenty of options available. However, for buyers, adjusting expectation based on increasing interest rates may be necessary if subsequent monthly payments are no longer. For those remortgaging, getting advice and reassurance from a broker on your options will be important. Mortgage offers are generally valid for six months so contacting a broker at least six months before your current rate comes to an end gives you the most time possible to assess your options and secure a new rate.
Any mortgage applications already submitted, or mortgage offers already issued, have not been affected. The interest rate is reserved at the time of application on nearly all mortgage applications. Rumours of lenders pulling mortgage offers are simply not true and have come from either misunderstanding or those with an ulterior motive to cause increased panic.
Comparisons to the financial crisis are not only unhelpful but also unfounded. Lenders do not have a liquidity problem; lenders still want to provide mortgages, they just have to ensure these are priced in a sustainable manner for the current economic climate. As we move into next week, we expect to see nearly all lenders come back into the market with many needing to lend in order to hit targets and maintain market share.
Looking ahead, it remains uncertain times due to wider global events. This is reflected in the mortgage market with lenders still expecting interest rates to fall in the medium term. Many two-year fixed rates are priced above equivalent five-year fixed rates. Incentivising borrowers to go for five-year fixed options suggests lenders believe they will profit more while rates are increased on those who fix for a longer period of time. There are also variable rates to consider. The right option depends on your own circumstances and again this is a conversation to have with a broker.
Much of what has been reported in mainstream media is accurate. However, an unfortunate but inevitable scattering of disinformation, scaremongering and clickbait journalism have caused unnecessary fear for many, some of whom will not be affected by the events of the week. If you’re looking to buy, sell or remortgage, seeking independent, professional advice on your mortgage can be more beneficial than ever. If you want to discuss your mortgage or you have any queries, we’re here to help so please get in contact.