Ask the experts on … mortgages

Marcus gunn owner of carbon funding consultants headerMarcus Gunn, owner of Carbon Funding Consultants

The Bank of England has announced its largest interest rate rise for 27 years, taking the base rate from 1.25 per cent to 1.75 per cent – but what does this mean for Surrey homeowners looking to apply for a mortgage and buy a new property? We’ve invited Marcus Gunn, owner of Carbon Funding Consultants, our mortgage broker partner, to offer his view. Here he explains why the summer season has been overtaken by mortgage madness.

The mortgage market is currently in a highly unusual period.

Not only does it feel more aligned with the pre-financial crisis days of 2008, where the average mortgage rates where around 6 per cent (although we’re still a long way from that), but we’re also seeing mortgage deals pulled from the market merely hours after they were launched.

As someone who has worked in mortgages for many years, I’m familiar with high interest rates. However, for many first-time buyers – and even mortgage brokers that entered the profession post-2008 – this is unchartered territory.

Lenders typically don’t give any notice when it comes to withdrawing mortgage deals from the market, the result of which means that mortgage brokers are working incredibly hard to locate and secure a mortgage deal on a daily basis.

Traditionally, those with higher deposits tend to gain access to more competitive deals. Regardless of whether you have a 20 per cent or 50 per cent deposit, there is a strange parity among the rates, which means that there’s no real advantage of putting additional capital down. Likewise, it’s generally accepted that buy to let mortgage rates are higher than standard mortgage rates. At the moment, this isn’t the case. Whilst I’m sure the gap between residential and buy to let mortgages will recalibrate in the coming weeks, it will be interesting to see when and how lenders correct residential rates.

Now that the Bank of England has increased its base rate by 0.5 per cent, will the average mortgage rate increase by the same amount? It’s too early to say. Maybe it’s time for lenders to reduce the gap between the base rate and the rates they’re passing on to homeowners. My view is that the gap is too big at the moment, and that lenders may need to forego some of their margin in order to ensure that the market keeps moving.

On the back of a pandemic, we’re now seeing a cost-of-living crisis that’s starting to bite. A growing energy crisis in itself has the potential to wreak havoc on the economy. Add to it the fact that mortgage rates of over 3.5 per cent will be hard to conceive for many first-time buyers, and it’s no wonder that there’s concern.

However, it’s times like these when mortgage brokers demonstrate their real value. Yes, getting a mortgage deal is trickier today than it was even as little as two weeks ago. However, for those going direct to the lender it’s even trickier. There are still many deals out there, and brokers are experienced in navigating them in a short period of time – and time really is of the essence at the moment.

It’s an interesting period, for sure. But it’s also important to remember that rates have been much higher than what they are now at various points over the last three decades. People are still moving home and we’re still getting our clients good mortgage deals. I would just advise against putting the process off, as the deal you’ll secure today is highly likely to be better than one you’ll be able to lock in as little as a fortnight from now.

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