The advice comes from UK Finance as it reported lending to movers and first-time buyers had plunged to its lowest level since the closure of the housing market during the start of the pandemic.
And it also confirmed how 19% of-time buyers have taken out a mortgage with a term of over 35-years in March – a record high. As many as 8% of home movers were also arranging their mortgage over this longer term in a bid to reduce monthly repayments.
Meanwhile, UK Finance said mortgage arrears had increased in the first three months of 2023. Whilst it said this was from a ‘very low base’ it said it was still of concern and the industry was focused on helping customers navigate periods of increased financial stress.
In its quarterly Household Finance Review, the body which represents UK banks said this was all a consequence of the cost-of-living crisis and increasing mortgage rates making it tougher for people to afford their mortgages.
Mortgage rates continue rising this week
After the inflation figures were released last month, mortgage rates began increasing again and lenders started pulling products from sale. This trend appears to be continuing this week but products being withdrawn are those aimed at borrowers with adverse credit.
Data from Moneyfactscompare.co.uk shows the average two-year fixed rate on 6 June was 5.75% – which compares to 5.38% on 30 May. Meanwhile, five-year fixed rates were averaging 5.44% on 6 June which a big leap from 5.05% on 30 May.
But these are still far more attractive than the average standard variable rate (SVR) – the rate your mortgage will revert to if you don’t remortgage. Moneyfactscompare revealed the average SVR this month was 7.52%.
Eric Leenders, of UK Finance, said it was vital anyone remortgaging obtained advice – particularly at the moment.
“Uncertainty around the inflation outlook has led to another bout of elevated volatility in swap markets, leading to some repricing by lenders. While this persists, we expect near term mortgage market activity to remain relatively fragile.
“Borrowers coming to the end of their fixed-rate deal are encouraged to seek advice from a whole-of-market broker.
“As always, it’s crucial that customers worried about their finances speak to their lender as soon as possible, so that they can discuss the options available for help.”
First annual fall in house prices since 2012
Today’s data comes as Halifax reported house prices fell by 1% over the last year – the first annual decrease in property prices since December 2012.
But the average house price, according to Halifax, is still £286,532 – which will be high for many first-time buyers.
Alice Haine, personal finance analyst at Bestinvest said: “Prices may be easing but they are still far from affordable when you consider that the average two-year fixed mortgage rate is now 5.75% – the highest level since January – while a five-year fix is now 5.44% with rates jumping dramatically over the past two weeks following the worse-than-expected inflation data for April.
“For first-time buyers this means their money simply does not stretch as far, which is why demand for longer term 30 or 35-year mortgages is now on the rise as new buyers look to lower monthly payments in a bid to boost their affordability level.
“Meanwhile, those looking to refinance face a significant rise in repayments that can run in to thousands over the course of a year.
This particularly affects the roughly half a million homeowners whose cheap two-year fixes taken out in 2021, some as low as sub 1%, are ending this year, with more than three million people coming off fixed-rate deals across this year and next.”
She added: “As lenders frantically reprice products to reflect current market expectations that interest rates still have some way to go before they peak, buyers need a strong stomach if they want to plough into the market right now.”
