Mortgages
Steve Easter
Welcome to the Mortgage Monthly column for March.
This month we’re looking at the changing state of the UK housing market.
February is projected to achieve the highest monthly volume of new listings in the past decade, indicating increased seller confidence and a strong motivation to move home.
Additionally, average earnings have outpaced house prices over the last three years.
Lower mortgage rates – notwithstanding the effect of recent events in the Middle East – and relaxed affordability assessments have further contributed to improved housing affordability, supporting higher sales volumes.
A significant development has been the adjustment in how mortgage lenders evaluate affordability.
In particular, a change in how a borrower’s capacity to manage potential future increases in mortgage rates has altered calculations.
Lenders assess whether someone can afford a home using what is known as a mortgage stress rate – if interest rates reach this particular level, can a borrower still afford to make their repayments?
A year ago, lenders assessed whether someone could afford a home using a mortgage stress rate of 8.5%.
Now, lenders are assessing affordability using a 6.5% mortgage stress rate.
As a result of this fall in the mortgage stress rate, 40% of homes are now less expensive to purchase with a mortgage than to rent, according to the Zoopla House Price Index.
This compares with just 25% when assessed against the previous, higher stress rate.
These changes represent the most notable improvement in first-time buyer affordability since 2022, when mortgage rates began rising.
Sustained market activity has been supported by declining base rates and heightened competition among mortgage lenders.
As a result, at the start of this year, the average mortgage rate for new loans reached its lowest level in four years.
In addition, both 2-year and 5-year fixed-rate deals dropped below 4% for the first time since 2022.
Further reductions in the base rate were anticipated this year before the recent rise in Middle East tensions.
This has complicated the picture for mortgage rates, making anticipating the future challenging.
Nevertheless, buyers can still find some favourable rates available, particularly those able to make larger deposits.
A professional mortgage adviser can not only help you to find the best deal, they will also ensure that a mortgage fits in with your financial circumstances and helps you towards your overall financial goals.
They can also guide you through every step of the process so that you know what to expect and when.
For help on buying a home – whether you’re a first time buyer or someone looking to move house – get in touch with one of our mortgage advisers today.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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