Would-be first time buyers may have to settle for renting for longer and putting their ownership aspirations on ice, following the latest Bank of England base rate rise.
Yesterday the Bank increased the rate by 0.5 per cent to 3.5 per cent - the ninth consecutive rate rise, meaning that over the past year the average tracker mortgage cost has become £333 per month higher.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, says: “For first-time homebuyers, the rate rises are having an immediate impact as the higher cost of a mortgage, alongside the rising cost of living, will affect their overall affordability.
“Those taking their first step onto the housing ladder should therefore seek advice from a lender or mortgage broker, as they may need to lower their ambitions as they’re unlikely to be able to borrow at the level they might have achieved 12 months ago.
“Whilst we have not yet seen an increase in borrowers with mortgage arrears, we remain alert to the economic conditions, which are rapidly changing.
“It’s worth noting that lenders are sensitive to the rising number of people facing a squeezed household budget and have teams who are well trained and experienced in providing tailored support to those who are struggling.”
Rachel Springall of the independent mortgage monitor service Moneyfacts says: “Moving into 2023, it will be interesting to see how demand for mortgages will be impacted as further base rate rises are expected and house prices are predicted to fall.
“If borrowers are looking to refinance next year, they may want to start building a savings pot to pay for any associated costs and be conscious that mortgage rates are much higher than they might expect.
“First-time buyers may feel disheartened about their chances of finding an affordable property considering the cost-of-living crisis, but when it comes down to applying for a mortgage, it’s always worth seeking advice to go through the options first, particularly if borrowers have a limited 5.0 per cent deposit.”
And Lawrence Bowles, director of research at Savills, adds: “We’re likely to see a slowdown in transaction activity from mortgaged buyers over the next few months, with cash buyers gaining a relative advantage. However, with the pace of interest rate hikes slowing and the possibility of rate cuts on the horizon, the picture looks like it will improve for mortgaged buyers in 2024 and beyond.”
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Not my adult children who are still at home, they are saving like mad, NOT renting, and I am selling one of my properties to split between them…. Evicting the tenants of course. God help those without parents like us, they are in deep trouble. A total failure of this, and previous governments.
No one should be even thinking of taking on a mortgage with only a 5% deposit , madness
I did so in the early 70's for my first home and then in the 90's for the first flat bought for my son.
I left a potentially high flying career in London because the typical 3 bed semi went up by around £3k in the year that I earned £2.5k, so working there cost me £500 in addition to all my food, rent etc.
I haven't regretted any of these decisions and am probably now better off than if I had stayed in the London rat race until retirement or death if earlier.
I've endured mortgage rates of around 15% and overdraft rates much higher over the last 40 odd years.
My view is always to buy as early as you can and borrow as much as you need, prioritising mortgage payments over everything else which can always be done cheaper if necessary.
There are 168 hours in every week, so no need to limit earning to 35 or 40 of them.
"We’re likely to see a slowdown in transaction activity from mortgaged buyers over the next few months". Understatement of the year. Pretty much the only transactions that are proceeding are those with mortgage offers agreed prior to 23 Sept (where lender hasn't withdrawn the offer). So max another 3 months before the last of those deals expire, then we will see the true state of things.
We're probably at least 2 or 3 years away from a good time to buy. If the 1988 and 2008 crashes are anything to go by now is a very good time to sit tight and do nothing.
Mortgage rates need to stabilise, lenders need to fine-tune policies on arrears, extending mortgage terms, affordability criteria, repossessions, etc, estate agents need to correlate more closely with mortgage valuers.
Everyone needs to reassess their housing budget. Renting offers significantly more flexibility in a falling market. It also gives access to LHA and Discretionary Housing Payments if you have a significant cut in income. Buying a house that rapidly became too small was a major problem in previous downturns. Living in a shoebox with negative equity when you were desperate to start a family was standard throughout the 1990s.
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