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Is it safe to start looking for a mortgage again?

If you have been hoping either to get on the property ladder or to sell your existing home and move to a new one, the last few months have probably not been the best for you. Rising interest rates have led to more expensive mortgages, which have caused many people to rethink their plans to move home.

But what is the situation now? Is it a good time to start looking for a mortgage again or would it be better to hang on and see what happens to the economy over the next few months?

On the one hand the answer is that no-one knows. Whilst experts can predict what is likely to happen, there are no guarantees. So, bearing that in mind, in this article we take a quick look at some of the current trends in the property market and mortgages to help you decide whether it is safe to start looking for a mortgage again.

We will look at:

  • What is likely to happen with house prices.
  • What is likely to happen with mortgages.
  • What kind of mortgage might be best for you.


What is likely to happen with house prices?

Interest rates have risen sharply since 2022. One of the main reasons for this is policymakers trying to curb a surge in prices caused by increasing energy costs. As part of this in Mayrch, the Bank of England announced its latest base rate increase to 4.5025%, its highest level in 14 years. Some experts are predicting another further rises rise in May, to 4.5%, before interest rates stabilise and inflation begins to fall.

As interest rates have been rising, so has the cost of mortgages. This has had a major impact on people’s ability to buy homes and, as a result, house prices have been falling. In the year to February 2023, house prices saw their biggest annual fall in more than ten years, according to Nationwide. Prices have fallen 4% since autumn 2022, and the Office for Budget Responsibility predicts that there will be a further 10% drop over the next two years.

So what happens when house prices fall? It can lead to less property on the market, as some sellers may decide to stay put until things improve. Balanced against this is that those people who do still want to move are likely to have their spending power reduced due to the high cost of lending. 

So even if house prices are lower, it does not necessarily mean that you will be able to get more for your money.


What is likely to happen with mortgages?

Rising mortgage rates have led to a huge fall in mortgage applications. Mortgage rates had already begun to rise during 2022, but spiked in September after the mini-budget announced by Liz Truss and Kwasi KartengKwarteng caused panic in financial markets. According to the Bank of England, by February 2023, mortgage lending was at its lowest level since 2016, excluding the pandemic.

The number of mortgages being approved by lenders is now beginning to rise slightly, and mortgage deals are starting to improve. Rates being offered for fixed-rate mortgages have now come down from their peak, and hopefully this will soon also be reflected in the cost of variable rate mortgages. Overall, it is predicted that mortgage rates will gradually decrease throughout the year, possibly falling below 4% by early 2024, even if interest rates do go up further.

At the end of April 2023, the best 2 year fixed rate mortgage was 4.74% and the average around 5.35%. Best and average rates for a 5 year fixed mortgage are around 4.39% and 4.74%.

Variable mortgage rates tend to be a little cheaper, with deals from 3.74% for 2 years and 4.1% for 5 years.

However, if you are a first timefirst-time buyer, you may find rates a little more expensive than the above – typically around 5.24% for a 2 year fixed rate, and 4.84% for a 5 year fix. One of the reasons for this disparity is the LTV (Loan-To-Value) rate. If you are a first timefirst-time buyer with a cash deposit, this is likely to be a relatively small percentage of the overall value of the home, so is more of a risk for the mortgage lender.

However, be aware that until the end of 2023 the government mortgage guarantee scheme is available to lenders, which gives potential homeowners access to 95% mortgages – i.e. you only need 5% deposit. The mortgage guarantee scheme is similar to the previous Help to Buy scheme. It requires participating lenders to offer 5 year fixed mortgages with a 5% deposit, and the government will provide security to the lender in case at any stage the borrower is unable to make their mortgage repayments.

So, if you are ready to move, and have at least a 5% deposit if you are a first timefirst-time buyer, what is the best kind of mortgage to look for?

What kind of mortgage might be best for you?

The two main types of mortgage available are fixed rate and variable rate. But which is best?

  • Fixed rate mortgages

With a fixed rate mortgage, the interest rate remains the same throughout the term of the mortgage, which is usually 2, 5 or 10 years. After this time, you will automatically move onto the lender’s standard variable rate mortgage unless you find another suitable mortgage product. 

The main advantage of a fixed rate mortgage is that you know exactly what you will have to pay each month for the duration of the fixed term. As long as you can afford to pay this amount, your mortgage is secure and there are no nasty surprises. 

However, the main disadvantage is that if interest rates fall during the term of your mortgage, you will still be paying a higher rate of interest than you could potentially be paying.

  • Variable rate mortgages

With a variable rate mortgage, your payments can increase or decrease according to interest rates. Most variable rate mortgages are also usually known as trackers, because the interest rate you pay tracks the Bank of England base rate, plus or minus a certain percentage. 

So for example, if your tracker mortgage is set at the base rate plus 1% and the base rate at the time is 4.25%, the amount of interest you need to pay on your monthly repayment will be 5.25%.

The main advantage of a variable rate mortgage is that if interest rates come down, your mortgage repayments will reduce correspondingly. However, the opposite also applies in that if interest rates rise, your repayments will go up.

The key to making the best mortgage decision for you is affordability. If you are on a very fixed budget and need certainty about how much your mortgage repayments will be for the foreseeable future, then a fixed rate may be the best way forward. But if you have a little more flexibility in your finances, and are prepared to risk repayments going higher in the hope that they may then go lower, it could be worth considering a variable rate.

We hope that the above information helps you to decide whether now is a good time for you to start looking for a mortgage again, and how to decide on the best product for you. And if you need some extra cash for your moving expenses, remember that Munzee offers 24 month loans that may be able to help.

Check back here soon for more financial and lifestyle tips from Munzee Loans.