METRO - what now for mortgages?

Lenders have been increasing mortgage rates with little or no notice, given the rollercoaster of events last week. We will still see some lenders increasing rates in the coming weeks but I expect to see this happening less frequently and with a little more notice given this time round. There was a mainstream lender that gave notice on Sunday, confirming they are increasing rates from Monday morning. Not ideal to say the least. If your mortgage offer is cancelled, speak to your mortgage broker. Lenders don’t usually cancel mortgage offers as the rates are secured upon submitting an application to them. The main reason an offer is cancelled will be due to it expiring, not the fact that rates have increased. Rate increases apply to new applications. All lenders carry out a credit check, which is the main thing all customers are worried about, even if they have a clean credit history. It’s always nervous waiting for an answer to something you want. The unfortunate thing is that not all brokers have access to credit check systems, so they rely on you to send them your report or be honest about your credit history so they can provide the right recommendation. All lenders have a different credit criteria, so don’t be alarmed if one lender declines, as there may be another lender that accepts. I always get asked, what if my house property drops in value, and my response is always the same: it is only worth its value if you are selling it, refinancing it or insuring it. During your mortgage term, you may indeed experience house price drops, but it won’t affect you immediately. When it comes to remortgaging, this is when it may impact you, but your lender will be on hand to help, and more importantly, your mortgage broker will let you know what the best thing to do is. After all, they are there to give you advice, so use them. We came across several customers in the UK that were unable to pay their mortgage repayments when Covid hit and we entered lockdown. Redundancies were made and furlough kicked in. Lenders were on hand to help customers, even creating new departments purely to help with financial difficulties during this time. Your mortgage broker will have suggestions on how to ensure the payments are affordable, as will your lender. Speak to professionals who can advise you on what to do. It’s more important now than ever.

In a nutshell, lenders struggled to know how to price their mortgage deals last week with all the volatility caused by the fiscal statement. Unlike 2008, the Banks are well funded and DO want to lend and I am expecting many to return to the fold this week. The bad news is, fixed rates are likely to be far higher than those we have seen in recent years. If you have already applied for a mortgage, you do not need to worry because your rate is locked in, but if you have a current mortgage due for renewal in the coming months I would urge you not to leave it until the last minute to look for a new one.

Within the past week, most lenders have either temporarily withdrawn from the market or increased their pricing dramatically to reflect the changes in swap rates and the likelihood that the Bank of England may need to accelerate raising the base rate. For people needing to remortgage in the next 6 months, time really is not on your side and you should be taking action now to secure a new deal. If your remortgage is due between 6-12 months, it would still be beneficial to start seeking expert advice to put a plan in place for your circumstances. If you're needing to remortgage but fail the credit score or affordability, the majority of lenders will allow you to secure a new rate with the existing lender without additional checks. However, this doesn't nessiciarily mean it will be the best rate on the market. There is a lot of uncertainty around what will happen with house prices. Our view is it's not about timing the market, it's about time in the market. Previous generations have been through countless downturns but over the long term owning property has offered a fantastic return. For anyone who may be facing the risk of their repayments becoming unaffordable, please do not bury your head in the sand. Speak to your lender as soon as you identify there will be a payment problem and they will aim to work with you in these challenging times.

What is going on with mortgage rates? Currently we are seeing lenders withdraw mortgage rates and replace them with higher ones. We are also seeing lenders leaving gaps between withdrawing rates and replacing them. This is unusual but the reason is lenders swap rates' (rates that banks buy and sell money from each other) are fluctuating so much that the lenders don't really know how to price their products at the moment. Lenders are keen to lend so this is not a repeat of the credit crunch when the cause of the problem was lack of funds to lend. What do you do if your mortgage offer is cancelled? I'm seeing lots of articles in the media using mortgage products and mortgage offers as interchangeable terms, however they are significantly different. The mortgage products are the rates that the lenders offer and until we have submitted the application the lender can withdraw their rates at any time. This has always been the case. The difference now is that lots of lenders are withdrawing at the same time and many are leaving gaps between withdrawing and replacing rates. The mortgage offer is a legally binding contract between the lender and the individual to lend the funds requested in the mortgage application. Whilst the lenders all put a caveat in there that they can withdraw the offer at any time, it's very very rare that this would happen. So far, there is only one lender that I know that has withdrawn mortgage offers and this is a very niche specialist lender. Specialist lenders tend to get the most nervous first when markets are uncertain like this but I very much doubt that high street banks and building societies will follow suit. If it does happen to you with a specialist lender then talk to your mortgage adviser about your options. What if you need to remortgage? If you need to remortgage, the single best piece of advise I can give is to sort it out as soon as you can. If you are within 6 months of your deal expiring then speak to your adviser. If you are outside of 6 months then you might still have options or may want to start putting a plan together with your adviser. What if you can't afford to or you don't pass the credit tests? Most lenders will allow you to do what we call a product transfer. This is where your existing mortgage lender offers you a product. The advantage of doing this is that you don't have to reapply for the mortgage and they don't reassess your affordability and therefore it can be used to avoid you falling onto the lender's standard variable rate. It not the right thing for everyone, however, so make sure you speak to your mortgage adviser to discuss all your options before considering this. What if you can't afford your repayments? In some cases, you can restructure your loan in order to make the payments more affordable. You might be able to extend your mortgage term or switch some of your mortgage balance over to interest-only. If this isn't the case and you risk missing mortgage payments, the key is to keep an open dialogue with your mortgage lender. They want to help you and resolve this with you. It costs the lenders a lot of money and reflects badly on them if they have to consider a legal process so work together with them to avoid this at all costs.

Keep calm and seek advice has been our message all of last week and will continue as the situation continues to unfold. Thankfully we have been able to answer many clients' questions and concerns after a surge of calls day and night. Two things to clear up: firstly, lenders haven't been 'withdrawing' but rather 're-pricing' their rates, unfortunately upwards. In 2008, lenders withdrew from the market, but this is not what is happening now. Lenders aren't exiting the market, they are simply changing rates. Secondly, lenders have NOT been withdrawing mortgage offers. If your application is currently going through, you have secured your interest rate. Importantly, if your application is going through, please return paperwork promptly to speed up your transaction and avoid any mortgage offer expiring. Why have lenders increased interest rates? Off the back of Kwasi Kwarteng's mini-Budget announcement last week, the financial markets responded with a lack of confidence in Liz Truss' plan. This sent the value of the Pound down against both the Dollar and Euro. A weak Pound makes goods more expensive for both businesses and us as consumers creating increased pressure on inflation, which is already sitting at near 10%. As the Bank of England's job is to keep inflation at 2%, it needs to respond when inflation increases. Their way to do this is to increase the base rate, which in turn, for some mortgage products, increases the mortgage rates people pay. In addition, SWAP rates, which most banks use to determine their mortgage rates, are at a fourteen-year high. What does this mean for borrowers? Well depending on your personal situation, this may not affect you at all. Should you be in a fixed-rate mortgage now, any market interest rate changes won't be affecting you. It is important to speak with a broker to find out when your fixed rate is ending. Remember, if you have taken further borrowing on your mortgage, you may have 'two parts' to your mortgage, each with a fixed rate ending at different times, so please seek advice. We can secure you a new mortgage up to six months prior to the end of your fixed rate, but right now, we are simply encouraging clients to contact us at any point in their mortgage term to ask questions. Planning ahead for when your rate will be expiring is essential so please reach out. Thinking of moving? The majority of mortgages we recommend are 'portable'. A porting option allows you to take your existing mortgage over to a new property when you move. If your mortgage is portable, it will say so in your mortgage offer. For example, if you have a mortgage of £250,000 on a fixed rate of 1.5% until 2025, we can port this mortgage over to your new property so you don't need to make any early repayment charges or, importantly, lose this rate. If your move required a new mortgage of £300,000, then £250,000 will be ported over on your existing rate as above with the remaining £50,000 being offered at current interest rates. First-time buyers The mortgage market is still stable and despite reports that lenders have withdrawn from the market, they are simply re-pricing and haven't disappeared. Lenders are 're-pricing' their products, which is a common business practice, albeit the speed at which this happened has caused a media frenzy. There is no way of getting away from the fact that interest rates have increased as a result. We are in a new interest rate environment. We are encouraging all first-time buyers to speak with us to find out what the changes mean for them and let us calculate what they can afford. Please don't rely on hear-say, get the facts from the experts. The rental market has seen an increase of 20% plus over the last year so exploring your options of buying and understanding the new cost of borrowing is highly recommended. Time to remortgage? If you are approaching the end of a fixed rate or need to borrow further funds, these interest rate movements will have the most impact on you. Please note that if you are paying your mortgage on a capital and interest basis, a doubling in interest rates DOESN'T equate to a doubling in your monthly payment, a concern many clients had this week. Our advisors are supporting clients with all available options such as temporarily increasing the mortgage term, something that can be shortened at a later date. Offset mortgages are also becoming more popular for clients with unearmarked savings.

What is going on with mortgage rates? The money markets that lenders use to access the funds they lend to you and I are in turmoil at the moment, with large movements happening almost daily. This makes it incredibly difficult for lenders to price products to launch onto the market. Almost as soon as they are released, they are already out-of-date and would need to be withdrawn. This has led many lenders to step back and reduce or remove their new business deals for new customers. If you already have an application, or mortgage offer, from these lenders you will be unaffected, as it only impacts brand new customers. What do you do if your mortgage offer is cancelled? Your mortgage offer can't be cancelled. A residential mortgage offer is a binding contract on the lender, meaning they cannot withdraw it unless there is a "material change" to the application, for example, if you lost your job, or the house flooded, for example. What if you need to remortgage? If you are within six months of the end date of your current mortgage, or are on your lender's standard variable rate (SVR) then speak to a professional mortgage broker ASAP and work out what your best options are going to be. What if you can't afford to or you don't pass the credit tests? The mortgage market is an incredibly diverse place; just because you fail an affordability or credit with one lender does not mean you will fail with them all. Mortgage brokers know which lenders are more generous in certain situations and which are more tolerant in terms of their credit checks, so they can help guide your application towards the lenders most likely to help you. What if your house value drops? At present we are not seeing houses dropping in value. What we are seeing is more "downvaluations", which is when the estimated value (be that from the customer or from the estate agent) is not supported by the professional valuer that is working for the lender. It is sometimes possible to challenge a downvaluation, but you have to have very robust reasoning and solid evidence in the form of other property that have recently sold in the area to support your valuation. What if you can't afford your repayments? If you are struggling with your mortgage repayments, speak to your lender ASAP. They do not want to see you lose your home and will have a range of measures to assist you. They will, however, expect you to work just as hard, so expect to have to cut out luxuries like Sky TV and Amazon. Which lenders will help you if your circumstances have got worse since you got your mortgage? There are a huge range of lenders and each has a slightly different view of the world. This means a mortgage broker can often find a solution, even if your situation has deteriorated since you originally applied for your mortgage. It all depends on what sort of "worse" we are talking about; is is poor credit repayment history, a change in employment, taking on more debt? There are lots of different versions of "worse" and each will have a slightly different set of lenders offering solutions.

There is a lot of uncertainty at the moment but one thing that is for sure is rates are still only heading one way. For existing borrowers the advice is to assess your options as soon as possible and if your current deal expires further than 6 months away, consider if it is worth paying any early repayment charges to switch rates sooner. For anyone who already has a mortgage offer, this should remain valid and if, for some reason, an offer is revoked you should look closely into why. It is not the same for applications in process whereby an offer has yet to be made and the lender can back out on these cases unfortunately. Those that are struggling with affordability should firstly review all of their outgoings to strip back to essentials only and secondly discuss options to extend the mortgage term if suitable. It is very possible that property values could drop in the mon the ahead but this will only affect you if you plan to sell the property or need to remortgage whilst the value is lower. If this happens, the advice would be to only sell the property if necessary and assess both options with new lenders and your existing lender when remortgaging.