When do lenders draw mortgage rates? And can you apply for a cheaper rate?

There is a glimmer of hope on the horizon for homebuyers and those hoping to move up the housing ladder.

Lenders including HSBC and Virgin Money have started to lower mortgage rates initially, as two- and five-year government bonds have seen yields fall, driving down the cost of government borrowing.

The news is a welcome reprieve after mortgage rates have risen at an alarming pace over the past few weeks since then-Chancellor Kwasi Quarting’s ill-fated micro-budget.

The average two-year fixed interest rate across all deposit sizes is now 6.50 percent, down from 6.65 percent a week ago, according to Moneyfacts.

The five-year average for repairs also fell to 6.36 percent from 6.51 percent over a few days.

Deal Broken: If there is a material change in the circumstances of the property or your finances, lenders reserve the right to withdraw a mortgage offer - even if it is approved.

Deal Broken: If there is a material change in the circumstances of the property or your finances, lenders reserve the right to withdraw a mortgage offer – even if it is approved.

On Sept. 23 (Mini Budget Day), the average two-year fixed rate mortgage rate across all deposit sizes was 4.74 percent.

Less than a month later on Oct. 28, it settled at 6.53 percent. That much higher would add £134 to the monthly payments on a £200,000 mortgage over 25 years, or an extra £1,608 per annum.

Things change quickly, and those who are currently buying a home may wonder where they stand if prices change during the process.

Normally, the lender can’t withdraw a mortgage rate that’s been approved—rates remain fixed for six months after acceptance.

For those who had a mortgage offer approved earlier in the year but have not yet replaced their property, lenders will likely honor that rate. This means that if you secure a fixed-price offer in May, it will likely still be valid.

However, in some circumstances lenders can withdraw offers even though they have been approved. We look at when and why this is happening.

When can a lender withdraw a mortgage transaction?

Under normal circumstances this cannot be done. An accepted offer is legally binding and usually lasts for six months, giving you time to complete and exchange your home.

Jane’s mortgage story

Jane is a trained paramedic living in Sussex. After working tirelessly for years to save up for a deposit, she was offered a mortgage in June by Nationwide of £188,000 at an interest rate of 2.7 per cent and a deposit of £90,000.

Due to an error by the estate agency in reducing the property’s maintenance fee, it must reduce its offer of the property by £5,000. This change resulted in the bank recalculating cost-of-living figures released by the Office for National Statistics today and finding that she was no longer eligible for the loan. The most she could borrow was £18,000 less than the original offer.

This left her in a precarious position as her landlord increased her rent and she could no longer afford a home with higher interest rates, despite a strong credit score.

Jane was fortunate that her broker had a good working relationship with Nationwide and was able to convince the lender to reconsider and requote the numbers because there was no change in her personal finances.

She told This is Money, “I truly believe that had I not used a broker with Nationwide business connections and a good business relationship, they would have stood firm in denying my application.”

However, mortgage lenders can usually withdraw the rate they agreed to if there is a “material change” in the terms of the mortgage.

The most common example of this is if the value of the property is written down.

The lender may also withdraw a rate if you announce a material change in circumstances, such as new income, or find evidence of fraud on the application.

Most mortgage offers include a requirement for the borrower to disclose to the lender a material change that occurs prior to completion.

They may also consider withdrawing an offer if legal issues about that property have come up, such as property restrictions or rights-of-way that buyers did not know about until legal due diligence was completed.

If any of these issues arise, it’s a good idea to speak to a mortgage broker for professional advice – as the case study (right) shows.

If you want a new rate with them under the new circumstances, they will likely ask for updated documents, such as payment statements, and run a credit check again.

Moreover, since you applied for your mortgage loan, mortgage lenders may have tightened their stress testing on potential borrowers which can make it difficult for you to access credit.

Although the Bank of England canceled mandatory stress tests for mortgages in the summer, the ongoing cost-of-living crisis and rising borrowing means lenders are tightening the terms under which they will approve mortgages.

However, Matt Coulson, a mortgage expert at Heron Financial, says there haven’t been many reports of lenders pulling offers.

“There are niche examples of non-mainstream lenders doing this whenever you have volatility of this scale in the market,” he says.

But they often serve people with very bad credit. Those are the ones who initiate the transfer of target functions, but for the major lenders, we haven’t seen that happen.

Can I switch to a better deal if prices drop?

The other side of the coin is the question of what happens when mortgage rates go down, but the borrower has already got an acceptable mortgage offer at a higher rate.

This has been happening at many lenders recently, with some taking deep discounts that could save buyers hundreds of pounds a year.

You can check the latest mortgage rates offered using the This is Money calculator.

Accord Mortgages, for example, has announced that it will lower many of its rates, including those for low-deposit products aimed at first-time buyers.

In an email to brokers, the lender confirmed that it was reducing 5 percent deposit rates by up to 0.52 percent, and 10 percent deposit product rates by up to 0.53 percent.

It's still time: Homebuyers don't have to accept a mortgage offer until they've sent the money in to complete it — but switching a lender could complicate things if they've gone too far in the process.

It’s still time: Homebuyers don’t have to accept a mortgage offer until they’ve sent the money in to complete it — but switching a lender could complicate things if they’ve gone too far in the process.

Higher deposit products are set to drop slightly by 15 percent and 25 percent by as much as 0.35 percent.

You can apply for a lower rate with the same lender as long as you haven’t completed the purchase, says John Charcol’s Ray Boulger.

“You are under no obligation to accept a mortgage offer until your attorney requests funds to complete it,” he says.

Some lenders will allow you to switch to a cheaper rate at no cost and others may allow you to switch but charge a fee.

If rates drop enough and you have enough time, you can switch to a new lender and not accept the original offer

These fees are usually around £100, Coulson warns, although if the new one is significantly lower, it’s probably worth the price.

“Alternatively, if rates go down low enough and you have enough time, you can switch to a new lender and not accept the original offer,” he adds.

The overarching guidance is that unless you have completed the mortgage, you have options. The point of no return for changing your rate is once you withdraw the money to pay for the property.

“You can search the market for better rates,” advises Ashley Thomas, director of mortgage broker Magni Finance. “But if you’ve gone too far, the best option is to stick with your current lender.”

In the best case, you have a lender that has a simple process, where the broker can only adjust the price for the product you choose.

Alternatively, they may ask you to withdraw your original order and resubmit an order at the lower price.

In both scenarios, the mortgage provider may run another credit and affordability check, so you’ll need to have the documents ready.

You also need to make sure you have time to change the rate before completion, as some lenders may be slow depending on the level of demand.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..

Banks and building societies are still lending and mortgages are still being accepted with applications accepted.

However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.

This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.

What if I need to re-travel?

Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.

Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.

Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I’m buying a house?

Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.

Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.

How to compare mortgage costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.

Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check out the best fixed rate mortgages you can apply for

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