First-time buyers and homeowners looking to remortgage once their fixed-rate period ends might be in for a rude shock. Inflation has crippled many vulnerable households, and the energy crisis isn’t making life any easier.
Lenders have noticed that many families might not be able to afford mortgages and are tightening their lending criteria rules. What does this mean for first-time buyers and those looking to remortgage?
Are mortgage interest rates rising?
Last year, the Bank of England’s Monetary Policy Committee (MPC) cut the base rate to 0.1%. This made it possible for buyers and those remortgaging to enjoy low mortgage rates. However, on 15 December 2021, the MPC voted to raise the base rate to 0.25%, owing to increasing inflation.
Currently, data from Moneyfacts indicates that mortgage rates are rising modestly. In fact, a two-year fixed-rate mortgage is currently averaging at 2.4%, up from 2.37% in December 2021.
What does this mean for first-time buyers and those looking to remortgage?
Mortgage lenders are worried that some borrowers might not afford mortgage repayments amid high living costs and rising energy and fuel costs. All buyers, including first-time buyers and those looking to remortgage, will face stricter income assessments from lenders in the coming months.
Unfortunately, vulnerable families may fail to qualify, meaning first-time buyers will have to wait longer to get onto the property ladder. Likewise, those remortgaging may get stuck on an expensive deal if they’re unable to qualify for another cheaper deal with stricter assessment criteria.
What is the way forward?
If you’re concerned that tighter mortgage rules could affect your chances of securing a new mortgage, there are steps you can take.
1. Don’t wait for too long
According to the ONS, the Consumer Prices Index (CPI) rose by 5.4% in the 12 months to December 2021. Worse still, various economists expect it to rise to as high as 7%, primarily when the energy price cap increases.
This has created so much uncertainty in the market that if you delay, there’s a high chance that you’ll miss out on cheaper mortgage deals. However, it’s important to talk to experts first before making any significant financial decisions.
2. Seek professional help
Since each person’s situation is unique, seeking the help of an independent financial adviser is prudent. Mortgage brokers can also help you identify the cheapest deals. Their knowledge and expertise could also help you make decisions that will benefit you in the long term.
3. Get your finances in order
It’s already clear that lenders will have stricter income assessment rules, so it helps to get your finances in order. You might need to review your savings strategies and spending habits. This will also help you tackle the high cost of living and increasing energy price hurdles, ensuring you don’t dip into your savings to cover unexpected expenses.
4. Find ways to save money on your mortgage
As mortgage rates increase gradually, seeking out ways to save money on your mortgage makes a lot of sense. Some tips include considering government incentives (especially for first-time buyers), comparing mortgage deals and overpaying on your mortgage if you can.
Was this article helpful?
YesNo
About the author
Victor is a freelance writer who loves to read and write about personal finance and related disciplines with the aim of educating people to make better financial and investment decisions.
Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.
