The latest mortgage market changes and what you can do about them
After a frantic and unstable few months of changing conditions, increased rates and product withdrawals, Director of TaxAssist Financial Services, Matthew Tyerman, discusses the latest state of the mortgage market and what this means for residential and buy-to-let deals.
On 15th December 2022, the base rate rose from 3% to 3.5%*. For those looking to take a fixed rate mortgage, the only silver lining is that the base-rate rise was expected and was generally factored into lenders calculations already. For those on a tracker, this will have immediately impacted the amount you pay.
I’m looking to get a new mortgage deal - what is the best thing to do?
For those with at least 40% equity (at time of writing 19/01/2023) the cheapest two, five and 10-year fixed-rate deals now stand at 4.65%*, 4.33%* and 4.79%* respectively.
Despite the turmoil, we are now seeing mortgage rates settle down and more lenders come back to the market. On this basis, now could be the time to secure an interest rate up to 6 months before your current deal expires.
The good news is, if interest rates drop, we can help you to reassess your application and switch it to a cheaper rate with no further advice fees. However if rates rise further, you can sleep easy knowing that you have already banked an interest rate deal you can afford.
My current mortgage deal is coming up for renewal – should I get a fixed or a variable mortgage?
Right now, if you're unsure about what mortgage deal to get next, seeking advice from an independent, qualified mortgage broker is vital. A broker will search the market to find a deal that works for your situation and budget and will advise if you are best to choose a fixed or variable rate.
Fully independent brokers have whole of market access, allowing their advisers to select products from a comprehensive and established panel of lenders, including those not available through high street banks or providers. A broker will also have access to lenders acceptance criteria, elements of which have been changing as a result of the cost-of-living crisis.
The lowest discounted and tracker rates are currently 2.94%* (2 year) and 3.74%* (2 year, base rate plus 0.24%) respectively. A tracker mortgage has a variable interest rate based on a financial indicator. The Bank of England base rate is by far the most commonly used by UK lenders, but there are others.
With a tracker mortgage your payments go up or down each month, depending on what happens to the indicator your rate follows. When interest rates rise or fall because of changes to the indicator, your repayments increase or decrease to reflect this.
How often could my tracker rate mortgage change?
The Bank of England base rate is decided by the Monetary Policy Committee (MPC) eight times a year with occasional emergency meetings. The MPC has voted to change the base rate multiple times in 2022, rising to 3.5%* in December, the highest rate since 2008.
The base rate usually increases to combat inflation but will be cut during a recession. This means that staying aware of the UK’s financial climate can be useful if you have a tracker deal and can help you judge the point at which a fixed rate deal may become better.
Questions to consider when deciding the best course of action with your mortgage?
- Do you think interest rates will rise or fall over the next 2 or 5 years and by how much?
- Can you withstand an increase in your mortgage rate? If not, then a variable or tracker mortgage may be too risky for you?
- How do you think your own circumstances could change during the term of a mortgage? Is it likely you’d need to move house or location?
- How do you intend to repay the loan? Repayment mortgages are often the only option but sometimes it’s possible to consider an interest only mortgage subject to lenders criteria and having a realistic alternative way of paying it back.
Buy-to-let mortgages
If you’re a landlord looking for a new mortgage or needing to renew an existing deal, some positive news is a noticeable improvement in the availability of mortgage products for landlords.
The independent mortgage market monitor, Moneyfacts, published that since the beginning of October, the number of buy-to-let mortgages on the market (fixed and variable) has risen by over 700. However despite this increase, there still remains 300 fewer deals than at the start of September.
The cost of securing a new fixed rate mortgage has risen since October and the overall average buy-to-let fixed rates for both two and five-year deals are above 6%. So although the availability of deals is starting to return, landlords are still faced with higher interest rates than if they had taken out a deal just eight weeks previous.
It is expected that interest rates may reduce in the coming weeks, which may encourage landlords hold off re-financing a deal, particularly as we near the end of the year.
Buy-to-let stress test changes
As well as increased interest rates across the buy-to-let sector, landlords also face more stringent rental yield calculations and may find it difficult to secure new mortgage deals because of this. This is particularly the case with a sub-50% deposit.
The criteria that lenders use to judge buy-to-let affordability includes calculating the ratio of rental income to mortgage interest payable, with a higher ratio needed for higher-rate taxpayers than basic. This calculation provides headroom for rises in interest rates to ensure the loan is still repayable. However, some lenders have begun toughening up this calculation.
To pass the test, landlords may try to increase rents. However, the financial strains of soaring inflation, limit their ability to do so. Furthermore, rental income often needs to be evidenced to the prospective lender with an Assured Shorthold Tenancy (AST).
Existing landlords looking to re-mortgage with another provider may fail this test, though they would still be able to move on to a new loan with their existing lender, which is known as a product transfer.
What to do next?
Our team of independent and friendly advisers are here to discuss your situation and can provide impartial, expert recommendations to help you find a mortgage deal, tailored to your situation.
We offer a free, no obligation consultation and are available to discuss your initial enquiry by calling 0330 441 2244, completing our enquiry form or email [email protected]
*Please note your home may be repossessed if you do not keep up repayments on your mortgage.