Mortgage matters: why it’s time to act now

The majority of homeowners and prospective movers will have a mortgage as part of their property plans, therefore it’s important to keep tabs on both interest and mortgage rates. In August 2022, the Bank of England increased the interest rate by 0.5 percentage points to 1.75% – the biggest increase in 27 years. 

We may not have seen the last of rate rises either, with finance journalists claiming September will see a further rise of 0.5 percentage points, which would leave the interest rate at 2.25%. 

Although not one and the same thing, the Bank of England’s interest rate decisions directly influence the mortgage market – when the central interest rate rises, mortgage rates almost always follow suit. It’s worth noting that today’s interest rate is still historically low when compared to figures witnessed between January 1977 and September 2001, when the figure never dipped below 5%.

Despite this, those with existing home loans and buyers looking to take out a new mortgage will want to know how to secure the most affordable deal, especially as there is a degree of uncertainty in the financial markets.

It’s time to be swift and decisive

The changing economic landscape is altering the timeframe in which home movers and borrowers can act. In fact, some of the leisurely pace at which decisions can be made has already been removed. Mortgage products are being changed or removed from the home loan market on a daily basis – the deal you see in the morning may have been withdrawn by that afternoon.

If you’re looking for mortgage security moving forwards, here are three instances when it pays to plan ahead and act quickly:-

1.     Mortgage agreement in principle: this is usually valid for between 30 and 90 days, after which it expires. If a buyer hasn’t converted the agreement in principle into a mortgage offer in this timeframe, they may need to apply for another principle agreement and there is no guarantee that lenders will offer them the same terms and loan amount.

2.     Mortgage offer: once a property is found, the mortgage offer is generally valid for three months. If exchange hasn’t taken place in this period, the offer can expire and the borrower may have to start the mortgage application process again. Products may have been withdrawn and rates risen in this time, so a replica offer isn’t a certainty. Once your transaction is underway, you should do everything possible not to hold up the conveyancing process so your offer remains valid until completion.

3.     Remortgage six months in advance: rates and products will be different in the future but the home loan market is set up in a way that allows those remortgaging to secure a new rate six months before their current deal ends. This is a great way of futureproofing against forecast rate rises.

Is it time to fix your rate?

If you have an existing mortgage and want certainty around your monthly repayments, ask an IFA about a fixed rate product. These home loans have one rate for a set period – such as 2, 3, 5 or even 10 years – and the rate doesn’t go up, even if the Bank of England raises the interest rate. Borrowers with variable or tracker products, as well as those whose current fixed rate period is about to end, are those most likely to consider a fixed rate moving forwards.

Our strongest advice to any homeowner and mover is to speak with an independent financial adviser (IFA) now as they will provide you with a real-time snapshot of the mortgage market. 

They’ll work out if you can reduce your current monthly repayments, explain how to minimise the impact of further rate rises and establish whether a higher mortgage rate is actually better value than paying the different fees and penalties charged when taking out a new home loan, remortgaging or settling a mortgage early. Please contact us for IFA recommendations.