For many considering or needing to arrange a mortgage, the last few weeks have been a worrying time. Banks have been withdrawing their mortgage rates with little or no notice and at times it may have seemed that they simply did not want to lend money.
So why did this happen? And what does the future hold. We have touched on a few of these hot topics below to help you through this turbulent time.
Why have banks withdrawn their mortgage rates?
Following the mini budget by the then chancellor of the exchequer, Kwasi Kwarteng. The markets reacted nervously showing little confidence in the announcements made. As a result, the value of the pound significantly declined, and it was assumed that the Bank of England would impose a more pronounced hike in the base rate. In anticipation of this happening, the cost of borrowing increased as a result.
With such a dramatic and quick impact from the markets, lenders simply had to withdraw their mortgage products to take stock of the situation and assess their borrowing rates accordingly.
Can I still get a cheap fixed rate mortgage?
Although virtually all lenders at some point withdrew some or all of their fixed rates from the market, we have seen some calm return and there are again a good number of products available. However, those products that are now available are higher than those that they replaced, and in some circumstances, they now also incur higher fees.
As such, the fixed rates available now are not as cheap as they were only a few weeks ago and certainly not as cheap as those arranged a few years ago. How you define cheap though this in relation to the market you are looking at the rates in. Whilst the current rates are not as low as those they replaced there are still plenty of reasons as to why you should still consider reviewing the rate you are to be charged. Many fixed rates could still provide a saving over the lender’s standard variable rate so they can still be regarded as cheap in comparison, and they can still provide stability in an uncertain market.
With the rise in the price of fixed rates, this has seen a bigger margin appear between the current pricing of fixed rates in comparison to variable rates such as trackers. Therefore, do ensure you take all of the available options into consideration when making a decision on what may be the most appropriate scheme for you. A good mortgage broker can be worth their weight in gold when assessing your options.
Can my lender withdraw my mortgage rate?
Once you have submitted your full mortgage application, the rate applicable at that time should be secured regardless of any changes thereafter. However, there are still certain circumstances where your rate may be withdrawn. These are:
Completion date/deadline – Some lenders have a latest completion date that your mortgage must be completed by to ensure the rate chosen is still available. Not to be confused with the expiry date of your formal offer, the completion date is set directly to the interest rate itself. If you do not complete by this date, you will likely have to choose a new rate as applicable at that time.
Offer expiry – Your mortgage offer will only be valid for a given period of time. This is typically anywhere between 3 to 6 months and can vary from one lender to another and also on occasion be dependent on your circumstances, i.e. a new build offer may be valid for 12 months. If you do not complete the offer within the offered date, the lender reserves the right to reassess your application, including the rate offered.
Change of circumstances – If at any time you experience a material change in your circumstances, even if your formal offer has been issued, you must advise your lender. For example, if you change your job or employment type. This could result in your proposed lender reassessing your application and withdrawing your offer if necessary. In certain circumstances you may be able to get an offer extension but this will be agreed on a case-by-case basis.
Non-disclosure – If you fail to disclose a material fact that is subsequently discovered prior to completion, a lender can reassess your application and withdraw any previous approval where necessary. Common occurrences of this are items of credit or historical credit issues.
Property related – A lender will typically assess a property at the time of your application to determine its suitability as security for your loan, including its value. These assessments are typically valid for 6 months, and if this time has passed, a lender may request a revaluation of the property in the current market. Should the value have fallen it may result in a new rate having to be chosen due to a change in the loan to value or for the whole loan to be withdrawn.
Extenuating circumstances – Lenders may on occasion use extenuating circumstances to change or withdraw your mortgage offer and/or rate. Whilst this happens in only very rare circumstances, it can and has been done in the past.
What will happen to mortgage rates in the future?
At this point in time this is a difficult if not impossible question to answer. The anticipation is that mortgage rates will continue to rise in the foreseeable future. However, with so much uncertainty surrounding our government policies and economic climate, the unknown entity is, should they rise, by how much.
What is certainly known is that there has never been a more important time to be proactive in your plans. If you have a mortgage scheme that is due to expire in the next 6 months, ensure you are looking into your options as early as possible during this time, and secure a rate at your earliest opportunity. Securing a rate does not necessarily mean you have committed to it.
It has also never been more prudent to seek advice. A good mortgage broker can be invaluable to you in such times of uncertainty as they will be in the best position to discuss all of your options available to you.