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The clock is ticking for Shoshanna Davis and her boyfriend, who received an offer on their first home in July.
At the time, they were both relieved to finally find a place to live, after an overheated market saw them repeatedly outbid by other buyers.
But today they have a new reason to worry: rising mortgage rates.
Rates skyrocket: Mortgage rates hit a 10-year high, with average two- and five-year fixed-rate deals above 6% for the first time since 2008
Due to the delays, their purchase of a three bedroom semi-detached house in Cheltenham, Gloucestershire has yet to be completed. But Shoshanna’s fixed-rate mortgage agreement expires in December.
If it ends before their home purchase is complete, they’ll have to get a new mortgage offer — and that could undermine everything.
Their monthly repayments can be so high that they may find it difficult to qualify for a loan. And even if they do, they may struggle to pay the bills.
Shoshanna says they kept a rate of 2.5 percent when they put down their offer, but the average fixed-rate mortgage has doubled since then.
“I feel stressed,” the 26-year-old says. “I try to come up with creative ways to get the seller’s attorney’s attention, like sending cookies and presents.”
The UK property market was hit by chaos this month as lenders, analysts and experts frantically scrambled to understand the fallout from the government’s mini-budget from September.
Mortgage rates hit a 10-year high, with average two- and five-year fixed-rate deals exceeding 6 percent for the first time since 2008.
In just a week, terrifying mortgage lenders withdrew nearly 2,000 products before cautiously re-pricing them at high levels.
Since then, there have been some signs of the market cooling off, as the average two-year and five-year deals had held steady for four days in a row on Monday and rose only slightly on Tuesday.
But for some home movers, it’s too late, as the chaos has already had a knock-on effect on the market — which has been red-hot for the past two years.
A report from the Royal Institution of Chartered Surveyors (RICS) last week found that home sales are plummeting as rising mortgage rates are chilling buyers.
Experts estimate that real estate transactions are now at the lowest level since May 2020, when the country was in lockdown.
Delay: Experts estimate real estate transactions are now at their lowest level since May 2020 – when the country was in lockdown
According to the Rics report, the market is “losing momentum” as economic uncertainty deters home movers and first-time buyers.
Among those concerned is Jo Smith, 58, of Gloucestershire, who is selling her late mother’s four-bedroom house for £295,000.
Its buyer’s buyer pulled out of the deal last week, raising fears that the chain could collapse. Jo says: “It wasn’t difficult to get an offer on the property originally, but we are concerned now that the market has become so volatile. We are afraid that we will not get the same sale or be offered the same amount.
It’s a concern shared by movers across the country.
Ian Wyn-Jones, a real estate agent in North Wales, says: ‘Up to 25 sales have failed. “Although the market has calmed down, chains are still collapsing.”
When applying for a mortgage, borrowers often accept a “principle agreement” from a provider months before finalizing the purchase.
But these are time-limited and don’t guarantee a secured rate, which can mean they expire before buyers complete their purchase.
In recent weeks, such buyers have found that rates are now almost double what they were originally offered. Last week, a lender, Aldermore, launched a five-year fixed-income deal for an eye-watering 9.28 percent.
And on Monday, TSB increased its two-year fixed-rate deals by 0.95 percentage point.
Home sales usually fall during a summer lull, but then bounce back in September. This year they didn’t. For the fifth straight month, the Rics report documented a decline in new buyer inquiries.
Financing costs: A report by the Royal Institution of Chartered Surveyors shows that home sales are falling sharply as rising mortgage rates are giving buyers cold feet about moving
Neil Foster, of Hadrian Property Partners, commented: ‘There is a clear sense that buyers’ appetites are rapidly declining.’
Experts also warn that if house prices stagnate, there is a mismatch between the price a buyer is willing to pay and the valuation of the property when the transfer is complete.
This prompts some lenders to re-evaluate their mortgage offers, which could lead to the deal being withdrawn altogether.
Jane King, Mortgage Adviser at Ash Ridge, adds: “Most buyers are now sitting idle until after Christmas. Many were hesitant, but now feel that the market is too uncertain.’
Middle-class real estate owners will be hardest hit by economic uncertainty, a think tank warned last week, with more people looking to downsize rather than trade in real estate.
Paul Johnson, of the Institute for Fiscal Studies, told the Treasury Select Committee, “People who have bought more recently will be more affected, as they tend to have larger outstanding debts.
“But everyone who is a homeowner is affected in some way.”
According to the Bank of England, more than two million households with a fixed-term home loan will close between now and the end of 2024.
They are faced with fares much higher than they are used to paying at a time when budgets are already battered by rising utility bills.
Lenders are already tightening affordability controls, raising fears that more potential buyers will be locked out of the market.
Last month, TSB was the first major bank to announce raising its stress tests. From now on, it will ask borrowers to prove that they can pay an interest rate of 8 percent (or 7 percent for first-time buyers). Brokers say they notice that lenders are getting stricter.
Chris Sykes, of Private Finance, says: ‘Recently we have noticed an abnormal number of credit score drops from lenders.
“With interest rates rising, they may be stricter with credit scores to ensure borrowers can repay their loans.”
Doomsday forecasters predicted house price declines of 10 to 40 percent in recent weeks.
This can help make homes more affordable for first-time buyers, but it can deter others from selling until prices recover. It could even push people into a negative position.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “Owning real estate always means risking the value of your real estate falling, but [following the mini-Budget] this suddenly felt much more tangible.’
But where will house prices fall the most? Aneisha Beveridge, head of research at Hamptons, says: ‘We will see house prices fall in the areas where they have risen the most in the past two years – ie seaside and land. ‘
a.cooke@dailymail.co.uk
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