How the mortgage chaos drove home sales

The clock has turned on Shoshana Davis and her boyfriend, whose proposal was accepted at their first home in July.

It was then that they were both finally relieved to have somewhere to live, after the frantic market saw them outbid again and again by other buyers.

But today they have a new cause for concern: rising mortgage rates.

Rates soar: Mortgage rates are at a ten-year high, with the average two- and five-year fixed-rate deals hitting 6% for the first time since 2008

Relocation delays mean that the purchase of a three bedroom semi-detached house in Cheltenham, Gloucestershire, is not yet complete. But Shoshanna’s fixed-rate mortgage deal expires in December.

If it ends before the home purchase is completed, they’ll have to get a new mortgage offer – and that could spoil everything.

Their monthly payments may escalate so dramatically that they may find it difficult to qualify for a loan. And even if they do, they may have a hard time paying the bills.

Shoshana says they kept the 2.5 percent rate when they put up their offer, but since then the average fixed-rate mortgage deal has doubled.

“I get nervous,” says the 26-year-old. “I try to come up with creative ways to get the seller’s attorney’s attention, like sending them cookies and small gifts.”

Britain’s property market has been thrown into disarray this month, as lenders, analysts and experts frantically scrambled to make sense of the fallout from the government’s mini-budget in September.

Mortgage rates are at a ten-year high, with the two- and five-year average fixed interest rate at 6 percent for the first time since 2008.

In just one week, the dreaded mortgage lenders pulled nearly 2,000 products, before cautiously re-priced them at inflated levels.

Since then, there have been some signs that the market is cooling, with the average of two-year and five-year positions holding flat for four straight days by Monday, and creeping up a bit by Tuesday.

But it’s too late for some home movers, as the chaos is already having a negative impact on the market — which has been extremely hot over the past couple of years.

Last week’s report from the Royal Institution of Chartered Surveyors (RICS) found that home sales are falling as rising home loan rates give buyers cold feet.

Experts estimate that real estate transactions are now at their lowest levels since May 2020, when the country was in lockdown.

Slowing down: Experts estimate real estate transactions are now at their lowest levels since May 2020 - when the country was in lockdown

Slowing down: Experts estimate real estate transactions are now at their lowest levels since May 2020 – when the country was in lockdown

According to a Rics report, the market is “losing momentum” as economic uncertainty discourages home movers and first-time buyers.

Among those concerned is Jo Smith, 58, from Gloucestershire, who is selling her late mother’s four-bedroom home for £295,000.

Buyer Buyer pulled out of the deal last week, sparking fears the chain could collapse. ‘It wasn’t difficult to get an offer for the property originally,’ says Joe, ‘but now we have concerns that the market has become very volatile. We are concerned that we will not get the same sale or be offered the same amount.

It’s a concern shared by homeowners across the country.

“As many as 25 sales have been made,” says Ian Wyn-Jones, a North Wales estate agent. “Although the market has calmed down, the chains are still falling apart.”

When applying for a mortgage, borrowers often accept an “agreement in principle” from the provider months before completing the purchase.

But they are time-bound and do not guarantee a guaranteed price, which may mean that they expire before buyers complete their purchase.

In recent weeks, these buyers have found that prices are now almost double what they were originally offering. Last week, one lender, Aldermore, launched a five-year fixed-rate deal with a rate of 9.28 percent.

On Monday, TSB increased its two-year fixed-rate deals by 0.95 percentage points.

Home sales typically decline during the summer lull — but then recover in September. This year they don’t. For the fifth consecutive month, the Rics report has documented a decrease in new buyer inquiries.

Borrowing costs: A report from the Royal Institute of Chartered Surveyors finds that home sales are falling as rising mortgage rates give buyers a calm attitude about moving

Borrowing costs: A report from the Royal Institute of Chartered Surveyors finds that home sales are falling as rising mortgage rates give buyers a calm attitude about moving

“There is a clear sense that the appetite among buyers is fading fast,” commented Neil Foster, of Hadrian Property Partners.

Experts also warn that as home prices stall, there is a discrepancy between the price a buyer is willing to pay and the property’s appraisal when the transfer is complete.

This causes some lenders to re-evaluate their mortgage offers, which can cause the deal to be pulled out completely.

Jane King, Mortgage Adviser at Ash Ridge, adds: “Most buyers will now be holding out until after Christmas. Many have been hesitating but now feel the market is very uncertain.

A think tank warned last week that middle-class property owners will be hardest hit by economic uncertainty, as more people look to downsize rather than trade in real estate.

Paul Johnson, of the Institute for Fiscal Studies, told the Treasury Select Committee: “People who have bought recently will be hit hardest, because they tend to have larger outstanding debt.

“But anyone who owns a home is going to be affected in some way.”

According to the Bank of England, more than two million households with term mortgages will remortgage between now and the end of 2024.

They are facing much higher rates than they used to pay at a time when budgets are already being hit by soaring energy bills.

Lenders are already tightening affordability checks – sparking fears that more potential buyers will be shut out of the market.

Last month, TSB became the first major bank to announce that it would increase stress testing. Going forward, borrowers will be required to prove they can afford interest rates of 8 percent (or 7 percent for first-time buyers). Brokers say they are noticing lenders are getting tougher.

Chris Sykes, from Private Finance, says: “We’ve recently seen an abnormal amount of credit scores from lenders drop.

“With interest rates going up, it may be that they are getting stricter with credit scores to ensure that borrowers can repay their loans.”

Doomsday forecasters have predicted, in recent weeks, house prices to drop between 10 and 40 percent.

This helps make homes more affordable for first-time buyers, but may keep others from selling until prices recover. It can drive people into negative equity.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: ‘Owning a property always means taking the risk that your property will go down in value, but [following the mini-Budget] I suddenly felt this much more tangible.

‘We’re going to see house prices fall in areas that have skyrocketed in the last couple of years – by the sea and in the country,’ says Anisha Beveridge, head of research at the Hamptons. “

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