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Interest Rates are Changing Housing Market Dynamics

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Interest rates are in the news right now and for good reason.

After 13 successive increases the Bank of England base rate – on which mortgage interest rates are closely based – is now 5.0 per cent, and few would bet against further increases this year or maybe even next.

Homeowners with a tracker or a variable-rate mortgage will see monthly payments increase soon, probably within a few weeks. While those on fixed-rate mortgages won’t notice this latest rise immediately, they will face much higher costs when the ‘fix’ ends. Hundreds of thousands will be in this position later this year or in 2024.

What does this mean for the housing market?

Self-evidently buyers will now be thinking hard and there’s already evidence that some are putting their plans on hold. Government figures for May this year (the latest available) show a big decline in property sales of 27 per cent compared to the same month in 2022.

On the other hand, prices are not yet moving – at least not significantly. The Nationwide’s data for June shows a small rise in average prices of 0.1 per cent, although over the past year, they have dropped 3.5 per cent. Given the economic and political upheaval scale since last summer, that relatively stable housing market is a surprise.

So, there’s no panic amongst buyers and sellers and no sign at all of a housing market crash. However, there is a significant difference to be seen ‘under the radar’.

The Impact of Rising Interest Rates

That difference is that buyers who do not need a mortgage at all – or if they do have one, have a copper-bottomed guarantee from a lender – are now in pole position to buy.

The reason is simple: the fewer pieces of the housing market jigsaw that a buyer has to put in place, the more likely it is that the deal will complete without complications.

Recent analysis has found that on average each month sees about 25,000 property deals fall through mid-transaction – that’s about one sale in three.

Each costs a buyer an average of £3,400 in abortive fees and on top there is frustration and heartache for the buyer and seller alike.

Easily the biggest cause of a collapse is a mortgage problem, usually because the buyer has miscalculated and cannot get a mortgage loan at all, or if they can secure a loan they can no longer afford it because payments have suddenly outpaced their budget as a result of the interest rate rises.

Use a mortgage broker

The expertise of a mortgage broker can be invaluable in ensuring you get the most favourable mortgage terms amidst a climate of rising interest rates.

As interest rates increase, it becomes even more critical to secure the most favourable mortgage terms and rates.

Mortgage brokers, with their extensive knowledge and access to multiple lenders, help you navigate this challenging environment. They will also help you assess the impact of rising rates on your individual financial situation and guide you towards suitable loan options that align with your budget.

In addition, they provide valuable insights and advice on locking in rates at opportune moments.

Our preferred mortgage advisors have access to an extensive range of mortgage products and are on hand to help. Get a mortgage quote here.

Find Your Mortgage

So, if you are paying cash – perhaps because you are downsizing, or have sold a home in an expensive area of the country and are moving somewhere cheaper – then you avoid the risk which anyone requiring a mortgage has to endure. Buyers have an easier time and sellers, of course, prefer any purchaser who is uncomplicated and ‘hot to trot’.

Not a Cash Buyer

Even if you are not a cash buyer, you can still impress a seller that your offer is solid if you present as a ‘Proceedable Buyer’. That is when you have a copper-bottomed mortgage offer from a lender, which is highly unlikely to fall through.

If you have a substantial deposit, of 25 per cent or more, and your mortgage is agreed in principle, then most estate agents advising sellers will be satisfied.

A Tough Market for First-Time Buyers

It won’t come as a surprise that the current mortgage changes are bad news for first-time buyers. Higher mortgage rates mean higher monthly payments, and some lenders now require even larger deposits – hard to achieve if you are saving and paying rent at the same time, for example.

It’s easier said than done, but the closer you are to looking like a cash buyer the easier the process will be. This is first-timers drawing on the Bank of Mum and Dad or existing homeowners selecting a property which costs less than the one they sell.

It’s tough out there right now – but it’s not impossible.

Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.

Last Updated: January 3rd, 2024

Phil Spencer

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