Will mortgage rates hit 10%? Brokers say Question Time clip will ‘needlessly scare’ people

Mortgage rates continue to fill the headlines as the effects of the Chancellor’s mini-budget weigh on borrowing costs.

While the government has now reversed its decision to cut the top income tax rate of 45p for high earners, last week’s announcement has plunged the mortgage market into chaos.

Some lenders have taken rates off the market, while others have increased them.

Amid the chaos, an anecdote that caught the public eye came from a spectator on last Thursday’s episode of Question Time.

She said the 4.5 percent mortgage rate she was offered was withdrawn while she was finalizing her decision, and then she was offered a new one at 10.4 percent.

The studio audience gasped. In cash, this would mean that on a £150,000 mortgage, payments would go from £834 per month to £1,406 per month, a whopping £572 increase.

But while interest rates are undoubtedly rising, brokers want to reassure borrowers that the rates quoted on Question Time are not representative of the market as a whole.

Lewis Shaw, mortgage advisor at Shaw Financial Services, said of the clip: “It will unnecessarily scare people if many are already feeling vulnerable and concerned about their mortgages and energy.”

On Monday, Oct. 3, the average two-year fixed-rate mortgage across all loan-to-value tranches was 5.75 percent, according to analysts at Moneyfacts. The average for the five-year fixed rate was 5.48 percent.

Why would someone get a 10% mortgage interest?

Currently, there are only a few lenders that list mortgage products in double digits. Many are “specialized” lenders that offer loans to customers with bad credit histories or with abnormal circumstances, such as the self-employed.

This is not to say that this is necessarily the case for the audience member. Another scenario is that the property was of non-standard construction, for example made of concrete instead of brick. But even in that case, rates above 10 percent would still be rare.

Alternatively, the advice the potential borrower received may have been incorrect or rushed.

Ashley Thomas, director at Magni Finance, advises that if your rate sounds “drasically higher” than you expected, it may be worth getting a second opinion or turning to an independent broker.

Chris Sykes, technical director at mortgage broker Private Finance, said: “I have not had a single client quote a 10 percent or more mortgage on a home mortgage.

“Most fixed rates for a home mortgage now fall in the 5 percent, with a few peaks in the 4s and 6s.”

Will mortgages go into double digits in the near future?

The short answer is that no one knows, but currently these levels are unlikely to be reached unless there are special circumstances surrounding your credit history or property.

However, interest rates are rising and if you want to buy for the first time or transfer a fixed rate within a year or so, you’ll probably pay more than you expected.

The Bank of England raised its key rate from 0.1 percent in December to 2.25 percent in September in a bid to curb rising inflation.

It is the first time since December 2008 that the rate has risen above 2 percent. Most experts predict it will continue to rise, reaching anywhere between 3 and 6 percent in the next 12 months.

Although they are not directly linked to the base rate, interest rates on new fixed mortgages usually rise when the base rate rises because banks have to pay more to lend money.

Last week, the initial market reaction to the mini-budget saw forecasts for the ultimate base rate peak above 6 percent, but these have now fallen below 6 percent after the government reversed its plan to scrap the 45p tax rate. . .

However, a base rate of 5 percent is still on the way. Mortgage experts say the market would see “significant stress” at 5 percent.

According to broker L&C’s calculations, an increase in the base rate to this level would raise the average standard floating rate to 8.49 percent, or £1206.83 per month on a £150,000 mortgage – an increase of £294.83 based on the current levels.

“An increase to a 5 percent bank rate would make life very difficult for many borrowers when their fixed interest rates expire,” said Raymond Boulger, senior technical mortgage manager at brokerage firm John Charcol.

What should I do if I have to transfer?

After last week, when lenders pulled rates amid price chaos, the situation has changed.

Some lenders that have withdrawn mortgages are coming back with new prices, while others are suspending lending for a few more days while things cool down.

If you have a fixed rate or other mortgage agreement term, it’s worth thinking at least six to nine months ahead and exploring your options.

While things move fast, most product transfer deals remain on the market – so consider both what your existing lender can offer you, and consult with a good mortgage broker about the rates that may be offered to you by a new bank or mortgage broker.

> Read our guide to transferring and what you need to know to understand more

As rates have steadily risen, some lenders have extended the time frame in which existing customers can close a new deal before their current mortgage expires — sometimes they can do so up to six months in advance. This allows borrowers to get a more favorable rate in anticipation of future increases.

If you have a rate that’s approved rather than just offered, it’s usually valid for six months, meaning if you took out one in April, when the average two-year fixed-rate agreement was 2.86 percent, it would still be valid. can be.

It is incredibly rare to see lenders pull approved offers and there are currently no reports of this happening for homeowners.