Mortgage Q&A with Trinity’s Aaron Strutt

What is happening to mortgage rates?

Banks and building societies have been steadily increasing their mortgage rates pushing up the cost of borrowing. Santander and Halifax recently raised their fixed rates twice in seven days, while other big lenders like NatWest and Nationwide Building Society have also increased their prices. So far this week, Virgin Money, Metro Bank, and HSBC have raised rates, while Barclays has lowered some fixes by 0.24% for those with 25% deposits.

Which lenders have the cheapest rates?

Homebuyers mostly need a 40% or 35% deposit to qualify for the cheapest deals. NatWest, HSBC, and Barclays have some of the most competitively priced two—and five-year fixed mortgages. With the recent rate hikes, the lowest two-year fixes for borrowers purchasing property with a 40% deposit now start from 4.77% and five-year fixes from 4.40%.

For those with a 25% deposit, Nationwide for Intermediaries has a 4.89% two-year fix and a 4.50% five-year fixed rate. Arrangement fees are generally around £999, and applicants will need a clear credit history to qualify. Bank of England tracker rates are still available and they are popular with those seeking more flexible mortgages without early repayment charges. They are an excellent alternative to sitting on an expensive standard variable rate.

Why are rates going up rather than down?

The cost of funding fixed rates has been rising, and these increases are being passed on to borrowers. Many experts in the mortgage industry see these price increases as a temporary blip and expect rates to come down again to roughly 4%. However, this could take some time, especially if the Bank of England does not lower the base rate. Most lenders use SWAP funding to finance their mortgages, although others use the money they bring in from savers. Despite lenders funding their mortgages differently, they often increase their rates almost simultaneously to manage the volume of applications.

Is it worth holding off buying until rates get cheaper?

Many people would prefer to own a property rather than rent while others want to move up the property ladder. Even if the Bank of England lowers the base rate this year, fixed rates are unlikely to come down significantly. Rents have been increasing, and there is still a significant shortage of properties. If you want to buy in an area with limited space for developers to build new homes, then house prices may well remain steady. With many landlords exiting the buy-to-sector, rents may also continue to go up.

If property prices continue to rise, then some of the high mortgage repayments may be offset by house price increases. One large estate agent has revised its forecast for non-new build house prices to grow 2.5% in 2024 after predicting they would fall by -3.0% in early November 2023. It says this is primarily due to falls in the cost of mortgage debt. It anticipates house prices will be 21.6% higher by the end of 2028 (revised from 17.9%).

Should you secure a fixed rate now?

If you have found a property to purchase and secured a mortgage offer, it is sensible to monitor the market to ensure you are getting the most competitive rate. Although rules vary, mortgage lenders typically allow borrowers to switch products before completion.

Is there help for first-time buyers struggling to borrow enough money?

Many schemes are available to help first-time buyers get on the property ladder. One of the most popular schemes is ‘Joint Borrower Sole Proprietor’ where parents go on the mortgage application, but not the title deeds. This means they do not usually have to pay the enhanced stamp duty, but their income boosts the amount they can borrow. More building societies are focusing on supporting first-time buyers with innovative products like Skipton Building Society’s Track Record mortgage and Yorkshire Building Society’s £5,000 deposit mortgage. There are numerous 5.5-times-salary mortgages and Leeds Building Society’s partnership with Experian are also helps boost consumers’ credit scores.