Published On: Sun, Dec 3rd, 2023

Low mortgage interest rates aren’t always the answer, expert says | Personal Finance | Finance


Stuart Cheetham

‘I’m a mortgage expert – here’s why low interest rates are not always the answer’ (Image: MPowered Mortgages)

interest rates have recently been falling by the day, but opting for the lowest rate on offer may not always be “the right answer”, an expert has said.

Stuart Cheetham, CEO of MPowered Mortgages said: “Buying a home at the current moment in time will be somewhat challenging for many, especially at a time when mortgage rates are as high as they are. Higher mortgage rates mean aspiring homeowners can borrow less with average loan sizes reducing by over 20 percent since March 2021.”

However, he noted: “Fixed rates are now falling and aspiring homeowners may even be able to pick up a property at a significant discount. But if you’re looking to buy a home, you need to remember that low rates are not always the right answer.

Mr Cheetham explained: “Consumers are sometimes drawn in by the rate, but this shouldn’t be the driving factor. What they should be looking at is the overall cost of comparison when considering all the other fees. The lowest rate isn’t necessarily the cheapest deal.

“It’s also worth noting that data released from Moneyfacts this week has shown that the average fee currently charged on a fixed rate mortgage deal (not including no-fee products) has risen by £21 since the start of November.”

Mr Cheetham added: “There are tools out there which can show you the overall cost of comparison. These are more important than the best buy tables on the comparison sites.”

Couple calculating bills at home

Mortgage interest rates have been falling by the day (Image: Getty)

The suitability of a mortgage deal relies on the individual circumstances of the person involved. Factors such as the remaining term of the mortgage and the loan size are crucial, not just the being offered.

Mr Cheetham said: “People with smaller mortgages that are at the end of their term will be paying small amounts of interest on their outstanding loan, so it may make sense for them to take a product with a lower fee and higher rate.”

However, he noted: “People with more capital to put down on a mortgage (namely the high net worth or buy-to-let investors) may have very different product needs to those only looking to borrow smaller sums.

“The combination of fees and rates works very differently depending on what you are looking to borrow. For example, they may be more drawn to a lower rate and higher up-front fee if they have other financial investments, such as stocks and shares that they are investing in alongside property.”

Average mortgage rates in the UK

After a challenging period in the housing market, there are “subtle signs” suggesting the country may be gradually moving past the worst of the turmoil, Quilter mortgage expert Karen Noye has said.

This comes as mortgage approvals increased by more than eight percent in October, according to the Bank of England’s Money and Credit report. Analysts have attributed this to the Bank’s decision to leave the Base Rate unchanged at 5.25 percent since September.

However, she noted: “It’s clear that we’re not completely out of the woods yet. The latest data reflects that while net mortgage approvals for house purchases have ticked upwards to 47,400 in October from the low of 43,300 in September, the market remains cautious.

“This uptick, though modest, hints at a resilient segment of buyers gradually adapting to the new normal of higher interest rates and navigating an uncertain economic landscape.”

Despite this, Ms Noye said: “The overall mortgage landscape remains subdued. Gross lending has declined, suggesting that the high-interest environment continues to dampen the enthusiasm for new mortgages. This trend aligns with the cautious optimism in the market – people are still wary, potentially waiting for more favourable house prices and easing mortgage costs.

Become an Express Premium member
  • Support fearless journalism
  • Read The Daily Express online, advert free
  • Get super-fast page loading

“While mortgage rates show signs of stabilising, they remain significantly higher than in previous years.”

According to Moneyfactscompare.co.uk , the average two-year fixed residential mortgage rate as of Thursday, November 30, was 6.05 percent. This is down from an average rate of 6.06 percent on the previous working day. The average five-year fixed residential mortgage rate dropped to 5.66.

For buy-to-let landlords, the average two-year residential mortgage dropped to 6.05 percent from 6.08 percent the previous day. Five-year fixes fell from 6.02 percent to six percent.

Ms Noye said: “What we’re witnessing is a delicate balancing act. On one side, there’s a persistent demand for housing driven by limited stock and rising rental costs, nudging potential buyers towards purchasing despite the high costs.

“On the other, the deterrent of expensive mortgages and economic uncertainty is leading many to adopt a wait-and-see approach. This push-and-pull dynamic is likely to keep the market in a state of flux.”

For the estate agent Savills, the high-interest environment has seen an influx of cash buyers. Frances McDonald, director of research said: “October’s mortgage approvals data highlights that some confidence is beginning to return to the mortgage markets, as rates have continued their downward trend since the summer. But buyers are still adjusting their budgets to the higher interest rate environment.

“As a result, Savills has forecast that cash buyers will make up 43 percent of the transactions in 2023 – far higher than the 35 percent seen pre-pandemic.

“TwentyCi data for November also shows that net agreed sales were only minus five percent below their 2017-19 average for the month. An improvement on the -16 percent and -14 percent seen in October and September, respectively.

“However, this activity continues to be enabled by a 27 percent increase in the number of price changes over the same period.

“Next year transactions are forecast to improve to 1,040,000, once we see a more meaningful decrease in mortgage rates, before increasing to 1,160,000 by 2026 as mortgaged buyers begin to take a greater share of the market again.”



Source link

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>