Several mortgage lenders have increased interest rates over the past month, marking another blow for cash-strapped UK households.
Halifax, NatWest and Nationwide are just some of the major lenders whose fixed-rate deals are more expensive than they were a few months ago.
Figures quoted in The Telegraph on 11 October show a buyer with a 20% deposit who took a Halifax two-year fixed-rate deal on a home worth £237,963 could face monthly repayments of £914, versus £854 previously.
For borrowers who are already worrying about the financial impact of coronavirus, higher mortgage repayments are no doubt a cause for concern.
If you’re thinking of buying a house or remortgaging, we’d strongly urge you to get in touch to discuss your options. Email [email protected] or call 0131 339 2281.
In the meantime, we’ve outlined below what higher rates mean for you and what steps you should consider taking. But first, let’s look at why rates are going up.
Why are lenders increasing their rates?
Higher mortgage rates are a direct response to the chaos caused by the coronavirus pandemic.
Halifax recently revealed that the number of mortgage applications it has been receiving is at the highest since October 2008. It said temporary cuts to Stamp Duty and the release of pent-up demand from March and April, when lockdown put a stop to house moves, are leading to a surge in applications from both first-time buyers and home movers.
“There has been a fundamental shift in demand from buyers brought about by the structural effects of increased homeworking and a desire for more space, while the Stamp Duty holiday is incentivising vendors and buyers to close deals at pace before the break ends next March,” said Russell Galley, Halifax’s managing director.
Under normal circumstances, lenders might have been able to cope with this surge in demand however, with employees working from home or furloughed, this hasn’t been the case. Some lenders are warning of delays of around three weeks before they’ll even look at a mortgage application.
In an attempt to lessen demand, lenders are resorting to a range of measures, including increasing interest rates, hardening their lending criteria, and withdrawing high loan-to-value mortgages.
What do higher rates mean for me?
Higher rates, harsher lending criteria, and a reduction in the number of high loan-to-value products mean securing a mortgage is much harder than it was six months ago.
Data from Moneyfacts reveals there were just 76 mortgages with a loan-to-value of between 90% and 100% in September 2020, down from 1,172 the previous year. Meanwhile, the average rate on a two-year fixed mortgage with a 90% loan-to-value was 3.54% in September, an increase from 2.64% in 2019.
The difference in rates might not sound like much. However, because mortgages are typically very large, even a small increase in the rate could have a big impact on your monthly repayments.
If you have a £200,000 repayment mortgage with 20 years remaining and a 2.64% rate, your monthly repayments would be £1,073. If the rate is 3.54%, your repayments would be £1,164 – that’s an extra £91 every month, according to the Which? online repayment calculator.
The biggest rate increases are on deals with loan-to-values of more than 75%, so borrowers with smaller deposits are particularly hard hit. Whereas a loan-to-value of 85% was middle of the market a few months ago, it’s now deemed high risk by lenders.
What are my options?
First off, it’s worth pointing out that even though rates have gone up, they’re not actually that expensive when you compare them with historical rates. Back in the 1990s, the average rate on a fixed-rate mortgage was in the early- to mid-teens.
What makes things trickier is the speed at which deals are being introduced and withdrawn. If you spot a good rate on a comparison site, chances are it won’t be available because comparison sites can’t keep up with the rate at which deals are disappearing. The availability of deals and the level of service a lender provides are just as important as rates at this moment in time.
If you’re buying a property, one of your biggest considerations should be choosing a lender who’ll complete your mortgage in time. If you’re thinking of remortgaging and you’ve seen an attractive deal, the sooner you act, the better.
In short, it’s more important than ever to seek professional advice from a mortgage adviser. We can give advice on lenders’ service levels and explain which deals are still available to you. We can also ensure applications are completed swiftly and let you know when the market is calming down.
Will things get better?
The release of pent-up demand is likely to be temporary, meaning the number of mortgage applications will, at some point, return to more manageable levels. For things to really get better, lenders will need to feel more comfortable about risk – and that will come from a growing economy, greater control over the virus, and people going back to work.
The housing market’s fate is closely linked to the health of the hospitality sector so, in a nutshell, the sooner we can all go back to the pub, the sooner mortgage rates will fall!
Get in touch
If you’re thinking of moving home or switching your mortgage, get in touch. We can help you find the best deal and ensure the application process is as worry-free as possible.
Email [email protected] or call 0131 339 2281 to find out how we can help.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.