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.
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.
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.
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.
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