Mortgage Market Update (November 2022)

How does the current Mortgage Market look and what’s happening?

It’s the end of November 2022 and December is fast approaching. This would normally be a relatively quiet month. But the quiet period has come a little early this time around and there’s lots of reasons for that.

All this year, the Bank of England has been steadily increasing the base rate. At the start of 2022 it was 0.1% and it’s crept all the way up to 3% as of today.

That’s had quite a large impact on borrowing across the board. Mortgage rates are much more expensive than they were at the beginning of the year – which has come as something of a shock for existing borrowers, First Time Buyers and home movers. We’re battling with that at the moment. 

What caused the rate rises?

We had a ‘mini budget’ in September where Kwasi Kwarteng and Liz Truss put together an array of updates which had quite a bad impact on the market in general. Fixed rate mortgage rates went through the roof off the back of that. 

At the start of the year the cheapest fixed rates were close to 1% – not even a percentage difference between the bank rate and fixed rates. At the point of the mini budget, the base rate was 2.25% and we were dealing with fixed rates at over 6%. So there was a 4% jump in the space of nine months.

One of the reasons for that is because fixed rates are predominantly based on something called swap rates. Without getting too technical, swap rates are led by what banks anticipate the cost of money will be in the future. Because confidence across the market was down,  those swap rates increased, which led the banks to increase fixed rate mortgages. 

So it suddenly became very expensive. Because of that, many borrowers decided it was no longer affordable for them to move or commit to a transaction. 

What’s happened since?

Since then we’ve had a U-turn on most of the things in that mini-budget. Some market confidence has been restored and swap rates have come back down. As a result of that, mortgage rates and fixed rates are creeping back down, closer to the base. 

Even though the base rate has increased from 2.25% to 3%, fixed rates have come down from 6% to around 5% so that gap has closed. That’s positive, and I think we’re going to see even further reductions as we go into Christmas and January. Everything is looking better than it did two months ago. 

Obviously as a result of all this, though, we’ve had less enquiries, there are fewer property transactions and in general the market has quietened down.

What will happen if I’ve already submitted my mortgage application? Can my lender change the rate?

The answer should be quite easy – it should be no. We haven’t submitted any mortgage applications that have been changed later on. But there are probably lots of caveats to this, and I believe there was one lender that did pull some rates after applications were submitted. I think they’ve backtracked on that, though. 

The general answer is that the minute that your case is submitted, your rate should be secure. That’s when you’ve agreed the illustration, which includes the rate and costs, and you’re happy to submit the full mortgage application to the lender. Once you’ve submitted the case, which will include things like the solicitor details and property details, that rate should be confirmed. 

You do have to get that case through to offer within a certain period of time. That will depend on which lender you’re with. Once you’ve got a formal offer from your lender that will have a timestamp on it – the norm is that you need to respond within six months. 

The second that you submit it, you go through the application process and go to offer. As long as you complete within that time frame, there’s no reason why that mortgage rate will be pulled. The whole point of the offer is that it is a formal agreement of your mortgage deal.

These questions probably aren’t as common now that rates have levelled out a bit. It’s only when rates were continuously on the rise that people were feeling anxious about what would happen if they didn’t secure their rate. 

We had a client the other day that submitted at 2.25% six months ago and were approaching the end of their six month window to complete. They asked for a two-week extension, which the lender was kind enough to allow. But if they hadn’t, that rate would have gone to 6.2%. So they were rightly very anxious about the whole thing.

I’m about to move – could the lender pull my mortgage?

If you’re about to move, we would assume that you’ve got an offer and the legal process has been carried out. As long as you’re going to complete within that time period, you shouldn’t have any issues. 

I haven’t heard of any mortgages being pulled at that stage, unless they’ve gone past their offer date. There could be a pre-exchange credit check and if your credit situation has changed, making the mortgage unaffordable, that could cause a problem. You shouldn’t do anything else from a credit perspective whilst you’re waiting to complete. 

Don’t put your new sofa on 0% finance for when you move in – wait until you’re in before you make any applications. If banks are looking to pull certain rates, credit issues give them the easiest way to do that.

Should I remortgage early? What are my options?

This is a question we’ve come across a lot. People have been coming to us, they might be currently on 1%, and are worried about rates going up. They want to know if it’s worth paying their early repayment charge of 1% or 2% to get a lower rate now, rather than waiting another six months and finding their mortgage payments are that much higher. 

There’s no simple answer, unfortunately – we need to look at it on a case-by-case basis. I have recommended that some clients exit early, but most of the time it’s not worth it – especially now versus a few weeks ago with rates creeping down.

Let’s say that you have a mortgage of £200,000 and you’re in the last 12 months of your deal. Your early repayment charge is 1% or 1.5%? So you stump up £2,000 or £3,000 to secure a rate now, then in a few months’ time the rates are slightly less. That’s obviously a bad decision. 

But each individual case needs to be assessed on its own merit. There’s nothing stopping you calling your broker and seeing how it would pan out either way. Plus, in most cases you can remortgage as early as six months before your deal ends. Some lenders will let you do a product switch – so that’s the sort of timeframe when you should chat with your broker. 

Anything longer than that, things are so uncertain that it’s really difficult to give advice. It’s never been so volatile. There’s a risk that clients ultimately are going to be very upset later on.

How long should I fix my mortgage?

Conventionally the fixed rate options are two years, three years and five years. There are some seven and ten year options too. How long you should fix your mortgage is a really layered question and it can depend on your life stage, your career situation, the ages of your children and more.

From a rate perspective at the moment, the predictions are that rates are going to be a little bit higher for the next couple of years, then they should go down slightly. When they reduce, they’re probably going to stay level for the foreseeable future. 

I don’t want to put numbers on this, because I can’t provide advice on a podcast, but let’s say that a two year or five year fixed might cost you 5% now. In two or three years there may be deals at 3.5% or 4% and that could be the new normal for a long time. 

Gone are the days of 1% and 2% rates. The Bank of England base rate should level out at about 2.5% and then lenders want to add some profit to that. But for the next couple of years it’s probably going to be higher than that.

What other thoughts do you have on the mortgage market?

I’m really happy to help people in this situation because it’s an awful position to be in. As brokers we are obviously giving the best advice we can based on what we know about the market at the moment. 

Any figures or facts I’ve mentioned today are based on the situation right now – but we’ve never been in a more volatile market. We could fast forward a month or two and everything I’ve just said might turn out to be wrong. So do be mindful of that. The key factor is to get in touch with your broker and look at your specific situation.

We’ll look at your budget. People have been in a position where borrowing has been really cheap for such a long time. It’s very likely that there are a few things that we can all cut back on. So start looking at that early. 

Go on to a mortgage calculator, put your mortgage loan amount in with 5% as the rate. See what it’s going to ultimately cost you at the end of your fixed rate, and start doing things about it sooner rather than later.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Think carefully before securing other debts against your home. 

Your home may be repossessed if you do not keep up repayments on your mortgage.