This month, it was reported by Nationwide that UK house prices had seen their sharpest fall for 14 years, dropping by 3.8 per cent.
The decline was attributed to high mortgage interest rates caused by the Bank of England raising its ‘Base Rate’ to tackle inflation, therefore making affordability challenging for potential house-buyers.
Miles Robinson, Founder of Home Group Financial, a recently-formed mortgage broker based in Corsham, gives us his thoughts…
What is your take on the current mortgage rates situation?
The increase in Bank of England Base Rate is a direct action to manage the rate of inflation (costs of goods and services) which has been rising for the last few years. Our rate of inflation needs to get under control and the main way to do that is increase interest rates to stop people spending money on other goods. However, the cost of mortgage rates isn’t necessarily directly linked to the BoE base rate, the cost of mortgage lending is based on SWAP rates which are the rates the banks borrow money and in-turn set their rates for consumers.
The SWAP rates started to increase in July last year well before the September ‘truss crash’ and therefore the increase in mortgage rates has been a long time coming. Our inflation rate is still floating around 7-8 percent, the UK Government set a target at 2 per cent; therefore until we start to see dramatic drops in inflation it’s likely the base rate will continue to marginally rise or certainly be held at this level. Therefore, it’s my view that this is the new normal for the next few years.
How are you working with clients at the moment? Are you working with them on less traditional mortgages/ products?
Our role as Advisers is to provide informative guidance on what options are available and what is suitable. We steer away from discussing ‘the market’ and guessing what might happen to interest rates and focus more on what is important to them i.e. are they moving in the next few years and is a long-term tie-in on a fixed rate sensible? If opting for a tracker or variable rate, is there an affordability buffer to support a rate increase and will it keep you up at night wondering what will happen to the base rate? These are the important questions, from there we can then discuss what might be the most suitable mortgage product.
What can be done to help?
Get Advice! Speak to an Adviser that can help navigate the ‘new normal’ and have a discussion around affordability, suitability, etc. to help you make the right decision for you. Our role is not ‘sending a quote’ or ‘finding the lowest rate’ – our role is finding the most suitable mortgage at the most cost-effective level, that’s a big difference from ‘searching the lowest rate.’
What is your take on the fall in house prices?
Since the recovery of the 2008 recession, we’ve seen a continuous rise in house prices, in some areas this has made purchasing homes for first-time buyers almost unaffordable. We’ve also seen tax rises for landlords which has meant a number of landlords are selling up, Covid prompted lots of people to move home in a short period of time, and mortgage rates have increased dramatically hindering affordability or even the desire to get onto the housing ladder – therefore we’ve had numerous changes happening in the market in the space of a few years and this has now (after the dust has settled) started to have an impact on the cost of homes.
Our ‘market-dip’ in my view, is well overdue and a positive thing for people getting onto the housing ladder making homes more affordable, home-movers should have already built up some equity over the past few years and older homeowners that have been sat in a mortgage-free home for a number of years should be able to afford a market dip.
Pictured above: Miles Robinson, Mortgage & Protection Adviser and Director, Home Group Financial