Current State of Mortgages: June 2023

In the mortgage market, lenders have recently withdrawn around 400 products, leading to a state of turbulence. However, it's important to note that there are still approximately 5,000 mortgage deals available. The withdrawals were mainly triggered by expectations of higher interest rates,causing lenders to reprice their offerings. Despite this situation, lenders are still providing mortgages for individuals with small deposits. The latest inflation figures have caused concerns in financial markets, prompting lenders to readjust their deals. If you are looking to remortgage, it is advisable to consult a mortgage broker who can assist you in finding the best available deals.

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Reason for Withdrawals

Mortgages can be divided into fixed rate and variable rate categories. Variable rate mortgages, such as tracker deals, are influenced by the Bank of England Bank Rate. As this rate increases, so does the cost of variable rate mortgages. The cost of fixed rate mortgages, on the other hand,is based on Swap rates. These rates rely on various factors, including government borrowing costs and predictions of future Bank Rate changes.Following the mini-Budget, Swap rates surged due to increased government borrowing costs and reduced market confidence. Currently, rising inflation is driving up Swap rates, resulting in lenders withdrawing fixed rate mortgage deals to reprice them according to their higher borrowing costs. It is recommended to consult a mortgage broker to find the best deals in the current market.

Withdrawn Mortgage Deals in June 2023

Since mid-May, the number of available mortgage deals has decreased by 387. Most of the withdrawn deals were fixed rate mortgages due to the recent increase in Swap rates. However, variable rate mortgages have seen an increase in availability for certain deposit bands. Withdrawals have occurred across all deposit ranges, but those with smaller deposits have been less affected. Lenders typically offer their most competitive deals to individuals with larger deposits or equity stakes, and they have been impacted the most by the withdrawals. Approximately 17% of all deals for people with a40% deposit have been withdrawn. Similar numbers of products have been withdrawn for those looking to borrow 75% and 80% of their home's value.Various types of lenders, including both major banks and smaller building societies, have withdrawn their products as they review the cost of their offerings.

Available Mortgage Deals

Although headlines may suggest a shrinking selection of mortgage options and complete withdrawal of some lenders' ranges, it is crucial to keep the situation in perspective. There are still almost 5,000 mortgage products available. Unlike during previous crises, mortgages remain accessible for all deposit levels, albeit with slightly less variety than before. The current withdrawals are a result of lenders facing higher borrowing costs,which is distinct from liquidity issues seen during the global financial crisis and reduced risk appetite at the start of the pandemic. Lenders who have withdrawn their products are likely to return to the market with slightly higher interest rates.

Availability of Fixed Rate Deals

Despite being most affected by the withdrawals, fixed rate mortgage deals are still widely available. Approximately two-thirds of the current mortgage market consists of fixed rate offerings. The number of fixed rate mortgages is expected to increase soon as lenders relaunch their products after repricing.

Mortgages with Small Deposits

Mortgages for individuals with small deposits have experienced less impact compared to other segments of the market. Currently,there are 612 available products for those with a 10% deposit, down from 682 a month ago, and 218 for those with a 5% deposit, compared to 242 in mid-May. It is worth noting that during the early stages of the pandemic, there were only16 mortgages available for individuals with a 5% deposit and 75 for those with a 10% deposit. Although lenders are becoming more cautious, they seem to be reducing lending to individuals with high income multiples rather than those with small deposits. Additionally, the number of mortgages available for small deposits has actually increased since the beginning of June.

Rise in Mortgage Rates

The average cost of a two-year fixed rate mortgage across all deposit levels has risen from 5.3% to 6.01% since the start of May,representing a 0.71% increase. Five-year fixed rate mortgages have seen a similar increase, rising from 4.97% to 5.67%. The steepest rate increases have been observed for those borrowing 75% of their home's value, with an average increase of 0.89% for two-year mortgages in this segment. While these rates are averages, there are still competitive deals available if one explores the market. Some two-year and five-year fixed rate mortgages are available with interest rates around 4.5% or even lower.

Future Mortgage Rate Outlook

Given the current turmoil in the market, it is uncertain how long this situation will persist. However, it is worth considering that after the previous surge in mortgage rates following the mini-Budget, it took a couple of months for the market to stabilize and rates to start falling again.If future inflation figures are positive, it may lead to a reconsideration of interest rate increases, potentially resulting in lower mortgage rates. Most economists currently anticipate that the Bank Rate will start decreasing again in 2024 after further increases to combat inflation.

Possibility of Offer Withdrawal

Homeowners who accepted mortgage offers before the current turmoil may be concerned about potential withdrawals. In practice, lenders tend to only withdraw offers if there are changes in the borrower's circumstances,inability to complete the mortgage within the offer period, or issues discovered with the property. Withdrawals due to increased financing costs are less common since fixed rate mortgage offers are usually based on pre-existing funding arrangements.

Remortgaging Recommendations

If you need to remortgage soon, the current state of the mortgage market may be stressful. Given the rapidly changing circumstances, it is advisable to seek assistance from a mortgage broker who can guide you through the market. Although five-year fixed rate mortgages currently have lower interest rates compared to two-year ones, it might still be worth considering the latter. Mortgage rates are currently high, but they are expected to decrease in the near future. By opting for a two-year deal, you will have the opportunity to remortgage in two years' time when rates are expected to have fallen. Considering that the average standard variable rate is currently above 7%, it is essential to plan ahead and secure your next mortgage before your existing one ends.

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Source: Zoopla