Mortgage rates: how to rise above the panic
Tue 16 Aug 2022
Paul Bennett, Director
Although the Bank of England’s interest rate and mortgage rates are not the same thing, they are inextricably linked. So it came as no surprise to the Behr & Butchoff team in St. John’s Wood that lenders moved to quickly hike their mortgage rates when the interest rate rose by 0.5 percentage points to 1.75% on 3rd August.
It can take mere hours after a Bank of England (BoE) decision for banks and building societies to make changes to products, withdraw deals, and adjust the monthly repayments attached to tracker and variable-rate home loans. Some lenders will even change their mortgage rates in anticipation of a BoE announcement to capitalise on the uncertainty.
This deft delivery of increases is now a hot topic in home loan circles, as no one can rule out further BoE interest rate rises. For borrowers, speed and timing are now of the essence, especially if you want to lock into today’s mortgage rates before lenders start tinkering.
First-time buyers should note that a mortgage agreement in principle lasts an average of 60 and 90 days. Once a property has been found, a subsequent mortgage offer will be valid for between three and six months. Any delays that take a transaction outside of these timeframes may mean going back to the drawing board with lenders and losing out on more favourable rates.
Those re-mortgaging have the advantage of being able to lock into a new mortgage rate up to six months before their current deal expires. Fixing early allows homeowners to obtain a rate that may not be around in the future – an invaluable option in today’s market.
There is a warning for those who are thinking of moving home soon but are tempted to switch or remortgage to a fixed-rate product. Although fixing feels like a good ‘belt and braces’ approach if you’re in panic mode, a flexible, variable-rate deal may be a better short-term option as they tend to have lower rates of interest and no early exit fees – perfect for those intending to buy a property in the near future.
How to secure a quicker, cheaper mortgage
Despite rising rates, the estate agents at Behr & Butchoff have a number of top tips for those looking to borrow money or switch home loans:-
· Take professional advice: it’s easy to become fixated by the lowest interest rate on offer or the longest fixed term but an independent mortgage adviser will explain the true cost of each product. They’ll weigh up your monthly repayments against arrangement fees and early-exit penalties, working out the true cost and identifying the best overall value-for-money.
· Use a mortgage broker: brokers will have access to the whole of the mortgage market, for the widest choice of rates and terms, and are usually given exclusive ‘intermediary’ deals that can work out cheaper than going directly to a bank or building society. A broker will also advise on the lenders who have a habit of pulling deals at the last minute, therefore the ones to avoid.
· Always obtain a mortgage agreement in principle: if you’re worrying that the rock-bottom rate you’ve seen will disappear before you’ve completed your purchase, get a mortgage agreement in principle before you start your property search. This will ensure your full mortgage application moves through the system without delay, as the lender will already hold critical details about you, such as deposit proof, credit history and income.
· Have all your paperwork prepared: delays in finalising a mortgage often stem from a lack of essential documents, so it pays to be prepared before the application process even starts. Gather together original photo ID, payslips, bank account statements, proof of address and evidence of your deposit. It will also help if all these documents are available as paper and digital copies.
The Behr & Butchoff team would be delighted to recommend an independent financial adviser to help with your mortgage plans. Please call our St. John’s Wood office for details.