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It's estimated that around 20% of all UK mortgage holders have a variable rate mortgage. As interest rates rise, so will what you pay for your mortgage if you have a variable rate. Often, your variable mortgage rate will be impacted almost immediately after the Bank of England (BoE) introduces the new rate.
Tracker mortgage rates will mirror the BoE rate. Your lender will define standard variable rates, and while they may not be exactly the same as the BoE rate, they will usually be similar.
For many mortgage holders on variable rates, the cost of their mortgage will be on the up. This is always something that can happen with a variable-rate mortgage. However, as rocketing inflation also impacts disposable income, the rate increases become more of a concern, especially in the context of recessionary fears.
Estate agents have reported that they continue to see high numbers of buyers, although motivations have now changed since the start of the pandemic. From mid-2020 onwards and throughout 2021, buyers were confident house prices would continue to rise, and many wanted to take advantage of increasing valuations as well as the historically low interest rates. Today, it’s rising interest rates that are creating demand: mortgages are now undeniably more expensive than they have been over the past few years. Buyers now want to buy property and lock in rates before they rise further, particularly as inflation continues to rise.
This means buyers are now far more discerning about what they will pay for property. Extreme competition between prospective buyers and offers far over the asking price are likely to be something of the past. Buyers will no longer outbid the competition just to secure a home if the property and value don't merit the additional spend. Cosmetic renovations to property also no longer hold as much ground – buyers are savvier when looking at getting advice on what they believe the right price is. More buyers seek advice for themselves as part of the buying process, rather than relying on what sellers and estate agents tell them.
For buyers, longer-term fixed mortgages are cheaper and more attractive as they look to lock in rates for longer. Variable rates are usually better options in low-interest rate environments, but as the base rate rises, fixed-rate mortgages are generally more affordable and give more financial certainty.
We suggest buyers take a long-term view of what property they will buy as a stepping stone to getting an advantageous mortgage - currently the best options are two and five-year fixed-term rates. This can mean rethinking what kind of primary residence you will buy to make a purchase that will fit your needs today and in the future. A dream property you can live in longer opens the door to you being able to stay put longer and opt for a longer-term fixed rate.
There are so many mortgage products on the market that it's impossible to offer a blanket statement about whether or not you should refinance. In some cases, the current environment will mean no more than a slightly frustrating increase to your monthly mortgage you need to absorb. In other cases, however, it will make a lot of sense to consider refinancing – usually when you can get a much cheaper rate by switching products or changing lender. Whether it makes sense to refinance will depend on how much you can save in the long-term once you have accounted for the fees that are part of remortgaging. Ultimately, the mortgage product you currently have, the length of your mortgage and the amount you've borrowed will influence how much rate rises will impact you. Generally, we suggest getting in touch to talk through your current package. We can look at how it affects you and compare it to other products on the market to identify if you will be better off switching. We can give you an overview of what refinancing will cost so you can assess if it makes sense to remortgage based on how much you will save and over how long.
Inflation continues to rise, which means that rates are likely to continue to rise, too. If you are on a variable rate mortgage, explore refinancing now rather than waiting and risk switching to higher rates if you start the process later. Just because you've explored refinancing, it doesn't mean you have to take the plunge and do it – but in today's interest rate rising environment, knowledge is power. Understand the products out there, what refinancing would mean in your situation, and make sure you have a firm grasp on what remortgaging would mean in terms of costs and how long it would take you to break even. We can talk you through all these details so you are empowered to make a decision regarding refinancing.
It’s also worth noting that lenders are removing mortgage products from the market with Moneyfacts reporting 104 products have been removed from the market between the end of August 2021 and July this year, reducing your choice of property financing products. The trend may well continue. The less choice there is available, the more brokering a deal will be beneficial. We have the ability to work with lenders to adapt and personalise mortgage offers for you, delivering a better-fit product than is available by shopping the market yourself.
Lenders are also updating their existing products more frequently, which means that what you’ve been offered can change before you get it over the line. Working with a broker is invaluable in this market, because we will help you get the best offers and then help you complete as quickly as possible, before you may have to adapt to lender’s changes.
For some prospective buyers, equity release can be an alternative route to taking out a mortgage or moving home. Releasing equity tied up in your present home to renovate or improve your property and add value will make more sense than trying to move or buy a new property. We can arrange equity release quickly, and the process is more straightforward than a mortgage, which is also an advantage.
Lots of mortgage holders are considering refinancing at the moment. The refinancing process can go quickly, but there is a 'supply chain' to consider: valuations must be carried out, and solicitors or legal experts must be involved. If different players in the process start to get burdened with work as lots of people look to refinance, bottlenecks occur, and getting remortgaging deals over the line takes longer.
We can help you keep the refinancing process as fast as possible – it is still possible to refinance within 4-8 weeks if you've got everything we need in terms of documents to make it happen. This puts you out ahead of further interest rate rises. Accessing all the lenders on the market via an independent broker is the best way to get things moving fast. We can go right to the lenders that will offer you the best deals, rather than you needing to shop the market and later get stuck in potential bottlenecks. We also have the advantage of accessing niche and alternative lenders, opening up the offers you can get beyond mainstream and high street lenders. The larger your mortgage, the more unusual your background and the more specialised your product, the more you will benefit from our speed and lender access.
It's also worth noting that lenders are becoming more risk averse and selective about the mortgages they will offer. This is natural in the current economic climate, but it means if you have an unusual or complex income structure, getting a mortgage is more challenging than usual. Some lenders will pull certain products off the market altogether, and others will be more hesitant to lend if you have a certain background. That said, there are still lenders with products to fit all requirements and scenarios. Working with Enness will get you in front of the lenders that can consider offering you a mortgage, saving you time and helping you access the most competitive deal, delivered as quickly as possible and personalised to your needs.
If you would like to understand more about interest rate rises, mortgages or remortgaging in the current market, get in touch. We are happy to chat through your options and explain more about what’s on offer, and the products that will be available to you.