It’s been a rocky few weeks for the mortgage market. To recap: the fallout from the government’s ‘mini-Budget’ caused the value of the pound to plummet to record lows and ramped speculation the Bank of England would have to increase bank base rate substantially in the months ahead.
The Bank had already increased base rate to 2.25% the day before the mini-Budget was revealed, but some forecasts say it could hit 6% next year.
This uncertainty has fed directly into the mortgage market, leaving all sorts of borrowers questioning how secure their current mortgage offer is, or whether it’s time to ditch their existing deal.
Here are some of the big concerns I’ve come across with my clients, and what they may mean for you in the weeks and months ahead.
Is my mortgage offer going to be pulled?
We have seen incredible numbers of mortgage deals being pulled by lenders, often with very little notice, before new deals were relaunched at higher interest rates.
To provide a little context here, on Friday 23rd September when the Chancellor delivered his mini-Budget there were almost 4,000 different mortgage deals available to borrowers, according to the financial information site Moneyfacts. A week later this dropped to 2,340.
The big question we heard from a lot from clients centred on whether the mortgage offers they had received for prospective purchases were safe, or whether they were at risk of seeing the rate hiked.
The good news is that once a full application has been submitted, the rate is booked and secure – so long as the application runs smoothly, there will be no issues.
The only potential risk is if the application is declined at a later date, or if you want to make a substantial change to the application, for example increasing the amount you want to borrow or the property you are borrowing against.
Similarly, if you have a valid mortgage offer in place, then the rate of interest is safe. One thing to bear in mind, however, is the expiration date.
When a lender makes an offer, it’s only valid for a set period of time. In normal times, you might have been able to get an extension, but that isn’t really an option at the moment.
As a result you will need to complete on the deal by that deadline, or else you will have to start the whole application process from the beginning, which means you will almost certainly face a higher rate.
Should I pay to leave my current mortgage?
It’s not just those who have mortgage applications in process, whether for a purchase or a remortgage, who have been left panicked by the frenzied activity in the market.
We have also heard from a host of borrowers who have a year or two left of an existing deal and are debating whether they would be better off leaving that deal and remortgaging early.
The thinking goes that if rates continue to rise, as has been suggested, then they will face far higher repayment shock by waiting to the end of their current fixed rate period than if they switch deals today.
The big downside, of course, is that doing so will likely incur an early repayment charge (ERC), which could run into the thousands of pounds.
There’s no easy answer to this – the possible savings and costs of leaving your current mortgage rate early will vary based on the individual and their circumstances. So, it’s important that any borrower even considering it speaks to their adviser first.
Brokers are perfectly placed to help you manage the process. They may suggest maximising time on the current mortgage if the rate is much lower, and then determining whether to go ahead with the remortgage if rates do continue to rise or cancelling the application should the market settle down.
It’s also important to bear in mind that you may be able to book a new product in by as much as nine months before your current deal ends, without then having to pay an exit fee. Again, this varies by lender and a quality broker can help you find the right path through the current rockiness.
Richard Campo is founder of Rose Capital Partners
