What is happening with mortgage interest rates?
Mortgage chaos in the form of interest rate hikes has dominated the headlines for the last few weeks. Lenders have scrambled to keep up with the rising cost of borrowing as the ECB have raised rates from 0 per cent just a year ago to 4 per cent currently and they have indicated that they’re not finished yet.
Yet this crisis falls on relatively few shoulders as not everyone has a mortgage. Many rent or own their house outright, and of those with mortgages, most are still on fixed rates. However, many of these are expected to have a shock coming as they roll off a fixed term deal over the course of the next year or two.
Many First Time Buyers are growing more anxious about how high their bills could climb even if already approved for a mortgage, as the rate is not fixed until the mortgage is drawn down. They were prepared for some pain, but not this much. Older generations talk about rates in their time being around 15pc, but the ratio between wages and house prices doesn’t work out the same now and many feel much worse off and with less disposable income.
It is true that buyers have rarely been so stretched with many having to cut corners to keep up with mortgage payments and increasing costs elsewhere. So where to from here?
I don’t see any immediate change and believe interest rates will remain high for the next few years. Many experts predict rates will rise at least once more and then hopefully settle into a holding pattern until at least 2025.
Sticky inflation this year means that bills are rising faster than pay. It then becomes all too easy to put long-term pensions and savings on the back burner, but this is a problem as most workers are already failing to put enough money aside for retirement.
Markets are pricing in a gradual decline into recession and this is becoming more likely as people slow or stop discretionary spending (as intended by the ECB). I see property prices are levelling off and have even dropped slightly in some areas but the lack of new houses and rising population, especially in the age cohorts likely to be active in the sales market will keep an upward pressure on prices.
Remember, just because interest rates are rising doesn’t mean there’s no point in shopping around. Get market based advice from a broker and you will at least confirm you have the best rate available to you.