Martin Lewis warns of 'ticking time bomb' with mortgages
Last week, HSBC withdraw all new residential and buy-to-let products after being swamped by demand from borrowers desperate to lock in before rates rise higher.
Lloyds – which owns the UK’s biggest lender Halifax – and the country’s largest building society Nationwide quickly followed suit.
Yesterday, it was the turn of NatWest, which culled its entire buy-to-let mortgage range then re-priced them all at much higher rates.
Its two-year fixes rocketed from 5.22 percent to 6.79 percent, a move one broker called “the death knell for buy-to-let, at least with NatWest”.
Mortgage brokers are normally an upbeat bunch, who understand that part of their role is to talk up the property market.
Speaking to them today, I can sense the panic.
That will no doubt communicate itself to clients, who will be racing to get a mortgage at any price before rates are hiked again.
Worried borrowers should cast their minds back to last October, when mortgage rates rocketed towards seven percent after former Chancellor Kwasi Kwarteng’s backfiring mini-Budget.
They didn’t stay high for long.
After Kwarteng and former PM Liz Truss were ousted and new Chancellor Jeremy Hunt restored order, mortgage rates plunged back to four percent.
Anybody who acted in haste to fix their mortgage at the peak of the panic has two or five years to repent their decision at leisure.
I’m worried that borrowers risk making the same mistake today.
Buying a property isn’t just a big financial decision, it’s highly emotional. If you’ve found the home of your dreams, you don’t want to see it slip away.
You’ll be willing to lock into anything, if it bags you that property.
Yet there is a huge difference between borrowing, say, £200,000 at five percent and seven percent.
Over a 25-year term, the first mortgage will cost £1,754 a month, while the pricier deal costs £2,120.
That’s a difference of £366 a month. Which adds up to £4,392 over one year and a thumping £21,960 over the term of a five-year fixed rate.
So I’m asking borrowers to take a deep breath and pause if they possibly can.
The main reasons why interest rates are rocketing today is that April’s inflation figure came in higher than expected at 8.7 percent.
That shattered hopes that the Bank of England could bring 18 months of rising interest rates to a close.
Markets now expect interest rates to rise by another full percentage point this year, from today’s 4.5 percent to 5.5 percent.
Banks and building societies are hiking their rates in preparation.
Yet there’s a chance markets are overdoing the doom. May’s consumer price index is published next Monday, and if that brings better news, the outlook may brighten overnight.
Inflation could plunge back to two percent and sooner than people think.
While everybody expects the Bank of England to hike rates by yet another quarter percentage point on June 22, there’s a chance it won’t.
In the US, the Federal Reserve is expected to freeze interest rates at its next meeting on June 14, and recent history has shown that BoE Governor Andrew Bailey hates to be out of lockstep with the States.
Even if the BoE does act this month, there is no guarantee that we’ll get three more rate hikes.
Big lenders are covering their backs with their rate hikes and smaller, nimbler lenders may take advantage.
The number of mortgage deals has actually started to climb, from 4,597 last Wednesday to 4,952 on Monday. TSB has just cut its residential and buy-to-let rates by 0.4 percent.
The death knell for the mortgage market may have been sounded too soon.
There are no guarantees, of course. Interest rates could rise and rise, proving me wrong.
Just take your time. Think things through. Don’t be rushed. Today’s panic may pass.
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