Mortgage interest rates are on the rise. It is imperative to act now to make sure you are not paying more interest than necessary. Understanding the impact increased rates will have on monthly mortgage payments and your budget is very important and should not be ignored.
The last four months have seen mortgage rates increase month on month. The average Two Year fixed rate for borrowers at 85% now sits at over 3% (3.12% according to the latest data from Moneyfacts UK).
This is an increase of 1.01% since July 2020 (when the average was 2.11%) The 5 Year Fixed rate deals have also been impacted with rate rises and are sitting at an average of 3.25% up from 2.34% in July 2020.
The situation for buyers with a 10% deposit has also seen increases to the interest rates as well as a significantly reduced pool of lenders offering 90% products. If you have a 10% deposit you are now looking at an average interest rate of 3.76% for a 2 Year Fixed Rate and 3.98% average for a 5 Year Fixed Rate.
There is no sign that the rates have reached their peak. As we have not seen the conclusion of the external factors assisting the property market. Once we move into 2021 we will know more about how the housing market will react and therefore will either see lenders be open to lending at higher loan to values or not as well as where the interest rate levels will be.
There are many factors contributing to these rate rises but in essence Mortgage Lenders are concerned about the level of risk they are undertaking at higher LTV (Loan to Value) mortgages. Ultimately the lenders are protecting themselves and their customers from fluctuations in the market and mitigating risk against a situation when a customer could find themselves in negative equity. No lender wants to repossess properties from their clients who have found themselves in circumstances meaning they are unable to pay their mortgage.
Concerns over unemployment is one of the main points lenders are worried about. Most lenders will not include furlough income in affordability calculations already. There will undoubtedly be an increase in job loses when the furlough scheme comes to an end and the lenders need to lend responsibly and make sure they are not putting their customers in bad financial situations.
The current Stamp Duty holiday (due to end in March 2021) could also have an impact on property prices and be propping up the high prices we are still seeing across the UK. Lenders will be worried that when this comes to an end housing prices may be affected negatively and therefore houses selling for less.
If you are planning on getting onto the property ladder then now is a great time, before we see rates go up any higher. Take advice, discuss what your options are and take advice to find out what is best for you.