All posts by Holley Samuel

Are Mortgage Rates Coming Down?

On 15 December, it was announced the interest rates would rise by 0.5% to 3.5%; this is the highest level since 2008 and the ninth time that the Monetary Policy Committee (MPC) has increased the bank rate to tackle rising inflation.

In the UK today, there are around 850,000 people with a tracker mortgage and 1.1 million on the lender’s standard variable rate. Tracker rates move in line with the Bank of England Base Rate and the lenders set Standard Variable Rates.

This latest raise adds approximately £60 per month to the repayments for people with a £200,000 variable rate mortgage, and since December last year, it’s gone up by around £380 per month. However, despite this rate rise, there is some good news as the increase was lower than the November rate rise of 0.75%.

The MPC put up borrowing costs to try and bring inflation down. In November, the rate stood at 10.7%, which was down on the October figure of 11.1%, so the likelihood is that it has peaked.

The predictions from economists are that the rate will be between 4% to 4.25% next year, which is lower than the previous figure of 5% anticipated, and inflation will fall rapidly from next summer. Although the rate has gone up again, the good news is that fixed-rate mortgages have come down by 0.5%- 1% due to the reductions in the cost of government borrowing. This affects the rate at which lenders borrow for their fixed-rate mortgages. This is due to reductions in the cost of government borrowing – which influences the rate at which lenders borrow money for fixed-rate mortgages.

If you’re currently on a fixed-rate mortgage, you don’t need to do anything, and your repayments won’t change. If your deal is due to end by June, it’s worth securing it now, as some lenders enable you to book a new rate six months before your existing deal ends.

Mortgage rates are changing constantly so here at the mortgage hub we would secure a new deal and continue to review your options until the new deal is due to start to ensure you have the very best option available to you.

If you’re on a lenders standard variable rate, there are options to secure a lower rate that is still variable and would have no penalties to leave. This ensures you’re on a lower rate for now while monitoring the fixed rate options.

If you would like to discuss the mortgage market and your circumstances with a team member, please don’t hesitate to get in touch.

What’s Happening in the Property Market December 2022

Demand and supply

This month we have seen that buyer demand has fallen to pre-Christmas levels earlier than in recent years, and sellers are starting to offer more significant discounts to secure a buyer for their home. However, according to Zoopla, there isn’t a significant reset in house prices as was anticipated after the mini-budget. Buyers are accepting offers at 3% below the asking price, but the market is transitioning from unsustainable demand to something much more balanced after the spike in mortgage rates in September.

Buyers appear to be waiting on the sidelines to see what will happen with house prices and mortgage rates and to see what the economic situation is regarding jobs and income.

Demand is half the level in November 2021, when mortgage rates were still historically low, and there was less pressure on household finances. This drop in demand has meant that sales volumes are down 28% and are level with pre-pandemic levels.

At the same time that demand levels are falling, sellers are offering more significant discounts to buyers to secure a sale. Figures from Hometrack show that the difference between the first asking price and the agreed sale price is widening. During the pandemic and in the year afterwards, sellers were achieving either the full asking price or offers over. Here in Scotland, this was sometimes as much as 25% in some cases.

But the market is in a period of correction, with the average seller now offering a discount on their property to achieve a sale – especially as they can see interest rates continue to rise.

According to Zoopla, the supply and demand indicators show a rapid slowdown from the extreme market conditions since the pandemic’s start. However, even though higher mortgage rates are reducing, homes coming to the market are fewer, and it is becoming harder to negotiate and hold together over the buying cycle.

Fall-through rates are increasing, and data shows that around 6% of homes formerly sold are returning to the market after the original sale has fallen through.

Are house prices falling?

There is no evidence of an increase in forced sales or a requirement for a significant, double-digit reset in UK house prices next year. Data shows that buyers’ offers need to be between 5% and 7% below the asking price for it to be considered an annual price fall. The discount is expected to widen further as we move to a buyers’ market as opposed to the seller’s market of recent years. The prospects for next year will depend on how willing sellers are to reduce the asking prices in line with what buyers are prepared to pay.

Mortgage rates

The average cost of fixed-rate mortgages has fallen from 5.5% to 4.1% since early October – with actual mortgage rates higher than this. The average fixed-rate mortgage will likely settle between 4.5% and 5% by the middle of next year. In addition, the housing market’s reliance on high LTV value mortgage finance will continue to encourage people to move in 2023. The rise in mortgage rates since September has been the main reason the market has slowed down, but as we move towards 2023, the market looks more positive. A slight fall in house prices by up to 5%, more affordable mortgage rates and a buyer’s market will encourage more people to move next year.

If you are considering selling your home and would like advice on the property or mortgage market, The Mortgage Hub is here to help.

What the Rate Rise Means for Your Mortgage

Recently, the Bank of England announced an interest rate rise of 0.75%, taking the current rate to 3%, the highest level since 2008. This rate rise was no surprise as inflation has remained high, and this is the course of action the Bank of England takes to try and bring inflation down.
 
The Bank of England must ensure that inflation is low and stable because high inflation means that our goods and services cost more and money is put into the economy. High-interest rates mean it’s more expensive to borrow money, and we all have less to spend. This results in money being drawn out of the economy with borrowing spent on borrowing such as mortgages. The Government has set the Bank of England an inflation target of 2%, but the current level is 10.1%.
 
Even though last week’s rise is the highest we have seen for many years, it is lower than the rise forecasted after the government’s mini-budget announcement. In fact, mortgage rates have fallen over the last few weeks. This reflected the view that interest rates would rise to 3% this month – and so most lenders have already factored this rate rise into their fixed-rate deals.
 
Immediately after the midi-budget, the financial markets were in turmoil, but we now see much more stability. There have been more mortgage deals made available in the last few weeks, and the cost of fixed-price mortgages has started to fall – and could fall further as we head into 2023.
Although it’s unlikely that the interest rate increase last week will result in higher fixed-rate mortgages, lenders have tightened their affordability criteria to ensure people can afford their mortgages.
 
First-time buyers who are already struggling to get onto the property ladder may find it difficult still to get a mortgage, so they must explore all the options available to them.
 
If you are on a tracker rate mortgage, you are likely to see your repayments increase as you will pay according to the current interest rate plus a set percentage. If you’re on a fixed rate, you won’t see your repayments change until you reach the end of your fixed rate term when you are automatically switched onto a Standard Variable Rate (SVR) (unless you lock in a new fixed rate deal). Lenders determine the SVR as it’s not directly linked to the BofE interest rate.
Talk to us at The Mortgage Hub if you would like help and advice whether you’re remortgaging, buying your first home or looking to invest in a buy-to-let property.

The Mini-Budget Reversal

The mini-budget announced in September had a host of changes that would affect the housing market.

Before the mini-budget, mortgage rates were expected to rise to around 4-5% between now and the New Year, and this, along with the rise in the cost of living, could mean that demand for homes will start to cool.

However, after the announcement from Chancellor Kwasi Kwatrteng, interest rates were predicted to rise to around 6-7%, which represents a 25-30% fall in home buying power for those looking to buy a mortgaged home.

In the budget, the Chancellor announced that stamp duty would not be charged on the first £250,000 of a property purchase for people moving home, up from the current level of £125,000. In addition, to help people purchase their first home, no stamp duty would be paid on the first £425,000 of a property worth up to £625,000 bought by first-time buyers. This tax cut only applied to properties in England and Northern Ireland. However, Wales has since brought in similar measures whilst we still wait to see if Scotland will follow suit.

Since Jeremy Hunt was brought in as Chancellor to replace Kwasi Kwatrteng, many of the previous tax cuts have been axed, but how does this affect the UK housing market?

So, what’s changed and what’s staying the same?

  • The basic rate of income tax will no longer be cut from 20% to 19%
  • The energy price guarantee will still be implemented, but instead of lasting for two years, it will be reviewed again in April 2023
  • The one-year freeze on duty-free shopping for tourists has been scrapped
  • The one-year freeze on alcohol duty has been scrapped
  • The cut to the dividend tax rate has been scrapped
  • The 45p tax rate has been abolished – this change remains
  • The corporation tax rise to 25% remains
  • The stamp duty tax cut in England, Wales and Northern Ireland remains
  • The reduction to National Insurance contributions will remain

How have the financial markets reacted to the budget reversal?

The reaction from the financial markets was positive; the pound strengthened against the US dollar after it fell to its lowest-ever value straight after the mini-budget announcement, and gilt yields fell to their lowest level for ten days.

In terms of the cost of living, the end of the energy price guarantee in April 2023 rather than October 2024 means that we all face a rise in our energy bill sooner than anticipated. However, the government may review the help available in the spring.

The housing market

Although the gilt yields don’t affect the general public directly, it does affect swap rates which is the interest rate that lenders are subject to when borrowing money for fixed-rate mortgages. Therefore, it was the rise in gilt yields which caused the withdrawal and reprice of mortgages from many lenders.

Now that gilt yields have fallen again, fixed-rate mortgages should stabilise or even fall. Although this will make lenders feel more confident in pricing their mortgage deals, the energy price guarantee will end earlier, which means that inflation could stay higher for longer. This, in turn, means that interest rates could keep rising as the Bank of England tries to bring this down.

Higher taxes, rising costs and higher mortgage rates could cause a slowdown in the property market. However, after two years of unprecedented growth, this would be a price correction, typical after house prices have risen quickly.

Households today have less debt than they did during the last housing market price correction. There is still an imbalance between supply and demand which underpins house prices, so it is not anticipated that repossessions will rise significantly.

 

The Scottish Housing Market, Autumn 2022

It has been a challenging year for people across the UK. Mortgage rates rose from 0.1% in December to 2.25% today, with another rise on the horizon. Meanwhile, the level of mortgage choice has fallen as the market adjusts to the higher interest rates.

This is against a backdrop of record high inflation and energy cap rises. However, the property market appears to remain strong as Scottish average house prices went up by 9.7% to a record average of £224,035 in the year to July, according to the Walker Fraser Steele Acadata House Price Index. This makes the average house price £18,600 higher than the same period in 2021. The monthly climb from June to July this year was £1,725, or 0.8%.

This month there has been a fall in transactions, but this is typical for June and July as schools shut for the summer and people go on holiday. This year is the first time we have seen unrestricted overseas travel, which means that people have been delaying any plans of buying or selling homes until the autumn. In addition, the ‘race for space’ has eased as many people look toward returning to the office or working part-time from home to mitigate the cost of energy.

The Index reported that a third of all local authorities recorded average prices in July. Regionally, Argyll and Bute saw the highest annual growth rate at 18.1%, taking the average cost to £228,938.

The highest growth was seen in semi-detached properties, which went up in value by 10.5%; by contrast, semi-detached properties saw the second lowest growth rising by 9.1%. This represents lifestyle changes of people in the UK.

Meanwhile, according to ONS data based on Land Registry final sale prices, house prices in the UK went up at a rate not seen since 2003, a rise of 15.5% from July 2021 to July 2022. In June 2022, it was 7.7%.

The ONS data shows that average UK house prices went up by £6,000 between June and July this year compared with a fall of £13,000 between June and July in 2021. In July 2022, the average UK house price was £292,000 – this is £39,000 higher than the same month last year.

On a regional basis, average house prices increased over the year in England by 16.4%, in Wales by 17.6%, in Scotland by 9.9 and Northern Ireland by 9.6%.

We are now seeing pressure on homeowners from rising interest rates and a high cost of living. Purchases agreed upon in April would have been completed in July, and would not have known what was ahead. However, the house price growth at the same rate is unsustainable due to mortgage affordability. This could have a dampening effect on house prices.

If the Bank of England raises rates again in the coming weeks, property could be even more unaffordable. High employment levels are a crucial factor when looking at the property market, and at present, jobs are secure, which makes the property market stable.

First-time buyers struggle with rising property prices, rising rents and high living costs, making it even harder to save a deposit. Those who can’t rely on the Bank of Mum and Dad can still turn to guarantee mortgages or the First Homes Scheme. Getting advice from a mortgage broker should be the first step.

In July, there was a clear uplift in property viewings and people registering their interest with estate agents. With impending rate rises, people were perhaps looking to move sooner rather than later.

Rental growth

Looking at the rental sector, there has been a 12.3% rise in rent over the last year to an average of £1,051 a month, according to Zoopla, with tenants looking for smaller properties to save on running costs.

In the latest Rental Market Report, tenants are shifting their focus to two-bedroom flats from two and three-bedroom homes last year. The report says that the cost-of-living crisis significantly increasing energy bills is pushing tenants towards energy-efficient, smaller homes.

With a chronic undersupply of rental homes, there is no immediate sign that prices will change – at present, the stock of rentals is 46% below the 5-year average and 7% below the long-term average as people stay put to avoid rent increases. Landlords are increasingly selling stock to avoid tax and mortgage rises.

Rental growth is highest in urban areas such as Manchester at 15.5%, Glasgow at 14.4% and Bristol at 12.9%.

Will Mortgage Rates Rise Again?

The Bank of England will make another announcement about interest rates on September 15th. This gives homeowners looking to remortgage or purchase a new home one month to apply.

Following inflation hitting 10.1% in July, it is expected that rates will rise again as the Bank of England tries to slow the UK economy and force inflation back down. The current rate of inflation is higher than previously predicted by economists and the Bank of England.

It is likely that the Bank’s Monetary Committee will put rates up by 0.5% as inflation remains high due to the Ukraine conflict, rising fuel prices, and the disruption to the supply chain following the pandemic. Ideally, inflation should stay at around 2%.

If you are a homeowner and on a fixed rate term, you don’t need to do anything as your monthly repayment won’t change. However, if you are close to the end of your mortgage term (with up to six months left on your current deal) we strongly advise that you should start looking for a new deal now. Here at The Mortgage Hub, we can help to find the best available deal before the rate rise and will ensure it is suitable for your circumstances. Lenders can start to reprice their mortgage deals ahead of the next Bank of England meeting following the latest inflation news so it’s important to act now.

If you are on a standard variable rate, your repayments will increase when the rates rise, so you should also consider remortgaging. At present, according to Zoopla, the average standard variable rate is currently 5.17%. The average two-year fixed rate is significantly lower.

It’s important to check whether you have any penalties to pay for moving from a variable rate or tracker mortgage to a fixed rate. If you have a high fee, it may not be worth switching.

If you are considering a remortgage, we advise that you do this as soon as possible as mortgage deals are typically available for around 2-3 weeks before they are withdrawn.

Talk to us at The Mortgage Hub for advice on the best mortgage for your circumstances.

Thinking of selling? Improve Your EPC Rating

Energy bills are on the rise, and we are facing unprecedented times with another energy price cap rise due in October. With this in mind, now could be a good time to improve your EPC rating. Buildings with higher EPC ratings are more popular with those buying or renting.

Rising energy costs

In April this year, the energy price cap increased by 54%, meaning a typical household’s energy bills went up by around £700 a year from £1,300 to £2,000. In October that price cap is set to rise again, taking the average household’s energy bills to just under £3,000. After October, Ofgem is set to change the price cap every three months and bills are expected to remain high until October 2023. Ensuring your home is as energy efficient as possible is now more important than ever, whether you’re looking sell, rent or stay put. A few improvements now could save you hundreds of pounds in the long run.

What is an EPC certificate?

The Energy Performance Certificate (or EPC) rating on your home shows how efficiently your property uses energy. When a property is being sold or rented, this certificate is required and must be made available. It’s valid for ten years.

The EPC certificate is graded from A (the highest) through to G (the lowest) and all properties should aim for a C or higher rating. New build homes usually have the highest rating and are around 60% more efficient than older homes. The average EPC rating in the UK is D.

As well as a property costing less money to run, homes with a higher EPC rating command higher asking prices and sell quicker.

From 2026, landlords must make sure the property they are renting out to tenants has an EPC rating no lower than A, B or C.

Understanding and Improving Your EPC Rating 

The EPC rating of a property is assessed and set by a government-approved energy assessor.  They look at the amount of energy a property uses per square metre and its carbon dioxide output. They look at the heating system, lighting, hot water and the current running cost of the home. It also assesses the savings that could be made when energy-saving improvements are implemented.

The following will be assessed:

  • Windows – are they double or triple glazed?
  • How old is the boiler?
  • Is the boiler energy efficient
  • What thermostat is used?
  • Which fuel source is required for fires – coal, wood or gas
  • Is the property insulated sufficiently?
  • Are pipes and the water tank insulated?
  • Does the property have a renewable energy source or air/ground source heat pumps?
  • Are there water saving systems in place?
  • Are the light bulbs energy efficient?

Improve your rating

  • There are several things you can do to improve the EPC rating of your home.
  • Insulate your loft to prevent 25% of heat escaping.
  • Cavity wall insulation to prevent 35% of heat escaping.
  • Replace your boiler with an energy efficient one and consider using a renewable energy system such as a ground or air source heat pump.
  • Install energy efficient lightbulbs
  • Replace windows with double or triple glazing
  • Seal any draughts.
  • Replace original floorboards with a wood, vinyl or carpet with good quality underlay.

Some energy companies and local authorities will provide funding for insulation, glazing or new boilers depending on your income and the age and efficiency of your current heating system. Contact your local authority to see if you are eligible for a grant under the Green Homes Grant Local Authority Delivery Scheme.

Changing your EPC rating

If you believe your rating is incorrect, talk to the assessor – their name will be on the certificate issued. You can ask them to reassess the property based on why you think there are errors and, as a last resort, you can appeal to the assessor’s accreditation scheme – details will be on your EPC certificate.

 

A Lifeline for First-Time Buyers?

The UK Government recently pledged to turn ‘Generation Rent’ into ‘Generation Buy’ with a review of the mortgage market. The aim is to help people to buy their first property against a backdrop of rising house prices and interest rates, a sharp spike in the cost of living and high deposit requirements – all of which are preventing many buyers fulfilling their dream of home ownership.

The current Prime Minister recently made a speech in which he announced that the government is looking at ways to help first-time buyers access low-cost finance including low deposit mortgages.

As part of his speech, Boris Johnson stated “First-time buyers are trying to hit a continually moving target. By the time they’ve put aside money to secure their mortgage, prices have risen and it’s no longer enough.

“And of course, the global rise in the cost of living is only making life harder for savers. So, we want it to be easier to get a mortgage. Reporting back this Autumn [the review] will look at how we can give our nation of aspiring homeowners better access to low-deposit mortgages.”

He also mentioned that over 50% of those who are renting a property in the UK can also afford their repayment mortgage, especially given the high cost of renting. However, out of that number only 6% could secure a typical mortgage as a first-time buyer due to lending constraints.

According to the recent House Price Index from Zoopla, monthly rental payments have gone up by 40% compared to a decade ago, whilst at the same time the average monthly mortgage payment has increased by just 11%. In addition, the average asking price of a starter home is currently £223,117 – this is 56% higher than a decade ago.

The review could take some time to complete so this isn’t a short-term lifeline for those looking to buy their first home now, but it does point towards a more positive outlook. If you are currently saving for a deposit and thinking of buying your first home, talk to us about the budget you’ll need and how things may change in the long-term should affordability rules change. Being able to confirm your budget can really help you to focus.

Every lender in the UK has a different way of calculating how much they are willing to lend their customers. This includes things like your expenditure, mortgage term, your debts, income, size of deposit, whether you are buying alone or in a couple and credit rating.

Call our team to get the latest advice on securing a first-time buyer mortgage on 01698 200050.

Preparing for the Mortgage Rate Rise

This week, the Bank of England once more raised interest rates in a bid to combat inflation, warning inflation could reach 11% by October. Members of the Bank’s monetary policy committee voted to increase the base rate by 0.25%, taking it to 1.25%.

Mortgage costs and interest rates are rising and if you are one of the 1.3 million mortgage holders due to see their deals end in 2022, it’s important to be prepared and take action now.

Although the ultra-cheap fixed rate mortgage deals have all but disappeared, they are still historically low.

What the rate rise means for mortgages

An increase in the interest rate means that borrowing is more expensive, resulting in less borrowing and more saving. The reason for these rate rises is that with less demand for goods and services, prices fall and inflation will cool.

This latest increase in the Bank of England’s base rate means that over 850,000 people on tracker mortgages and 1.1million on variable deals will see their mortgage rate go up. This accounts for around a quarter of all UK homeowners.

However, most homeowners are currently on a fixed-rate mortgage and won’t notice any changes to their mortgage payments. Those who have a fixed rate deal ending this year, or those with a variable-rate mortgage, are probably wondering if now is the time to remortgage.

If your deal is due to end before December 31st, we would recommend that you start looking now. You can often remortgage within 6 months of your deal ending, but check whether you have any exit fees and determine if these can be offset by any rate rises between now and December.

If you are on your lender’s standard variable rate, you will typically be paying much more than if you were on a fixed rate deal. If you do remortgage, you won’t have any exit fees so it’s worth looking to lock into a fixed deal. According to Moneyfacts a two-year fixed deal is typically 1.66 percentage points cheaper than the average variable rate. Although many lenders have pushed up their variable rate with an average rise of 0.5% percentage points since 2021, not all providers have passed on the rise to their customers.

Moving to a fixed-rate mortgage

At present, the most popular fixed-rate mortgage term is five years, especially as the margin between the average two- and five‑year deal is the narrowest it’s been for nearly ten years.

Ten-year fixed-rate deals are also competitive with rates as low as 2.73 per cent. However, we would advising considering very carefully if you want to be tied in for ten years as you could face large financial penalties if you need to end your mortgage term early. Ten years is a huge commitment.

It’s important when considering whether to end your variable rate deal early to consider how much more you will pay as rates go up again, how much longer your mortgage has left to run and any penalties for leaving.  Mortgages that are linked to a lender’s standard variable rate and tracker mortgages can incur early repayment charges.

Overpaying

If you can, overpaying on your mortgage can make a big difference. An extra £30 a month would reduce the interest bill on a £150,000 mortgage taken over 25 years by over £4,500 based on a 3.25% rate. It will also help you to clear your mortgage early and access better rates in the future. You could also consider an offset mortgage whereby your savings are held in an account linked to your mortgage. Rather than earning interest, it is used to reduce what you owe on your home loan.

Get advice

There are four more Bank of England base-rate announcements this year. The next one is in August, then September, November and December. We can help you check that you’re on the best possible deal and if not, compare the whole market for the most suitable mortgage. Talk to us at The Mortgage Hub for more information and advice.

New Record High for House Prices

According to the latest House Price Index from Zoopla, house prices in April of this year hit a record high with the average cost of a UK property exceeding £250,000 for the first time, reaching £250,200.

During the year to the end of April 2022, the average cost of a UK home went up 8.4% compared to the annual rate of 9% recorded in March – showing that market could be finally slowing down. The time taken to sell a home in the UK has increased and even though the market is stabilising, it is not anticipated that house prices will fall.

Average UK property values went up by only 0.2% in April compared to monthly gains of 0.7% at the beginning of 2022. Wales saw the strongest house price increase at an annual rate of 11.6% in April – in February it was 13%. In Scotland, house prices went up by nearly 7%.  Growth in London was the lowest in the UK at just 3.6%.

Although the market is showing signs of slowing, demand is still outweighing the current supply of properties for sale. The number of buyers is still 61% higher than the five-year average. In contrast, the number of homes for sale is currently 37% lower than normal. However, this is starting to increase – the number of new property listings in the month to 22nd May were 7% higher than the give-year average. In addition, homes took longer to sell than they did in the previous month – and this applies to all property types.

There has also been an increase in the number of properties that have been reduced in price by at least 5%.

The latest House Price Index shows that the market is calming down and as a result, sellers are more realistic about how much their property is worth. The number of properties for sale is increasing which is providing more choice.

For those looking to trade up the property ladder it’s also good news as there is more choice and more willingness for sellers to reduce their price.  Similarly, if you are selling first, you may have to reduce your price if your home is not getting much interest.

It is expected that during the second half of this year, higher interest rates and rising living costs will act as a break on the property market. Mortgage rates are currently higher than they were at the end of last year and the average income required to secure a mortgage on a property worth £250,000 has increased by £4,500 when putting down a 30% deposit and borrowing 4.5 times your salary.

The time taken to sell a property is rising and this is expected to increase further.

With mortgage rates going up, now could be the time to talk to us about your options. Give us a call on 01698 200050.