You saved your deposit, spoken to your independent mortgage broker, established how much you can borrow and how much you can afford. Surely it must be time to search for and secure that dream house?
Not so fast.
Just when you thought the opportunity was right, chaos ensued with the UK government’s damaging mini budget last year and ever since there’s been a stream of fairly negative economic news.
Interest rates keep rising, and mortgage rates have followed the same course. Inflation also went up (albeit at a slower rate – and has since come down a little) so all of your calculations on affordability are probably a little out of date.
You could be forgiven for thinking – when, if ever, will we return to a time when things look normal?
Well, there may be a few green shoots of positivity beginning to emerge, particularly when it comes to the mortgage market.
Of course, the Bank of England did continue to raise the base rate in August – on this occasion to 5.25%. The last time it was this high was April 2008.
With any increase in the base rate, anyone with a tracker mortgage will likely have seen their mortgage rate increase. Not great.
However, there is another side to this story which gives us a reason for at least a little optimism.
Firstly, there are huge numbers of borrowers with fixed rate mortgages. And it is not the base rate that directly influences fixed rates.
Without getting too deep, it is the SONIA swap rate (a subject for another day!) which is an indicator of fixed rates and market behaviour, and this has fallen. This has a positive impact on mortgage rates.
Swaps can be volatile but there is wider feeling among experts that they will drop- although we cannot know for certain!
In the last week we have seen some lenders reduce rates with the likes of TSB and HSBC hacking prices back by either 0.4% or 0.5% – and other lenders in the last few days following suit. And this has certainly made a difference.
According to Moneyfactscompare.co.uk the average two-year fixed rate mortgage is today (Tuesday 15 August) 6.79%. This compares to 6.84% one week ago.
Ok, it may not be as big a reduction as we might want or hope for, but it is still good news for those looking to purchase for the first time or move home.
And, whilst prices in the shops remain high due to inflation, we have seen a gradual fall in house prices – it goes without saying that this is a major factor in a decision to buy.
When will rates return to ‘normal’?
Will we return to the ‘normal’ rates we became used to?
This seems unlikely, certainly over the next couple of years. There is definitely a growing consensus that the very low mortgage rates of 1.5% or 2% which became ‘the norm’ in the period around the pandemic were the exception. In fact, more normal mortgage rates are around 4% or 5%.
That said, if you can now base your affordability on those higher rates, then at the very least any fall in rates can be
seen more as a bonus than a necessary requirement.
So, is this a good time to get a mortgage or to buy?
As ever it depends on your individual circumstances but the best place to start is speaking to a mortgage broker.
Darren Polson is head of mortgage operations at Aberdein Considine
