The UK mortgage market entered a state of flux on Friday with lenders forced to withdraw fixed rate products in the face of economic uncertainty.
According to Moneyfacts over 350 mortgage products were withdrawn from the market as of this morning.
Earlier today (27th September), there were a total of 3,569 residential mortgage products, significantly less than the 3,880 total recorded yesterday morning.
Mortgage rates now look certain to push above 6% in the near term and interest rates look set to rise too with the Pound struggling against both the US Dollar and Euro.
But despite the constant barrage of bad news Michael O’Brien, managing director at mortgage advisers Home of Mortgages, pointed to the fact that the current market is in a better place than during the financial crisis.
He said: “The market is not in the position it was back in 2008 yet, as, for now at least, first-time buyers can still purchase with a 5% deposit.
“There’s no doubt that the cost of borrowing is increasing, however, faced with the alternative, namely the ever-increasing cost of renting, a mortgage is still a more comfortable alternative.
“The cost of exiting a fixed rate deal is very rarely the best advice. Lenders generally apply early repayment charges of between 3% and 5% of the loan, which would need to be paid when exiting a mortgage deal during a fixed rate period.
“On a mortgage loan of £250,000, the early repayment charge will generally be £7,500 to £12,500.
“Borrowers coming out of fixed rates now will be paying circa 4%, so why would someone exit a 2% fixed rate, pay an early repayment charge to jump onto a 4% rate, in order to avoid the ‘potential’ of paying a 6% rate in two years’ time? For example, a £250,000 mortgage over 25 years at 4% is £1,319.59pm, at 6% it would be £1,610.75, a difference of £3,493.92 a year. Any benefit is usually eaten up with the fees paid on early exit.
“As the past couple of years have shown, a lot can change between now and then, so keeping your current fixed rate will often be the best advice. But be sure to review your situation six months before the end of your deal.”
Rob Peters, principal at Simple Fast Mortgage, agreed and reminded brokers that now is not the time for knee jerk reactions.
Peters said: “The tug or war between tax cuts and the higher interest rates has resulted in pandemonium. The pound has flopped and gilt rates have dropped through the floor.
“This leaves borrowers and brokers in a period of uncertainty not experienced in this decade. The best advice is ‘keep calm and carry on’.
“Whether to fix and for how long should always be based on customers circumstances, attitude to risk, need for flexibility, and ability to accept variable payments.
“Whilst we cannot control the economic shambles were currently amidst, we can control how we react to it, and make decisions based on known fundamentals, not knee jerk emotional reactions, which we might later regret.”
Meanwhile, Mark Robinson, managing director of Southampton-based Albion Forest Mortgages, questioned if lenders would honour existing offers, however with the current economic picture he was unsure.
“You would imagine that most lenders would honour existing offers and rates secured already, but this market is seriously volatile and who knows what will happen?”, said Robinson. “We are incredibly busy currently with many people still wanting to move ahead with purchases and remortgages.
“At the end of the day people still need homes. If you’re six months away from the end of your current product, you should speak to a broker ASAP. Remortgage rates may be able to be secured at this point rather than waiting.”
Rob Gill, managing director at mortgage broker Altura Mortgage Finance, concluded that brokers can prove their worth in the current environment, providing they are prepared.
Gill said: “We’ve seen smaller lenders withdraw from the market fairly regularly in recent months as they struggle to cope with rising interest rates.
“The shift, however, to larger lenders such as Virgin Money and Halifax withdrawing rates is significant and a huge concern to mortgage borrowers. With borrowers already set to be hit by significantly higher mortgage costs, the reduction in choice caused by larger lenders withdrawing from the market will only make the situation worse.
“The starting point for any mortgage adviser in the current environment is “be prepared”. Work closely with your adviser to ensure you’re ready to apply asap once they find the right deal for you.
“A mortgage rate is typically secured once an application has been submitted so, in an environment where rates are being withdrawn with little or no notice, being ready to move quickly is crucial.”
