Mortgage Interest Rates – is now really the time to buy?

We speak to Emilia Hunt, Sales Director at Metro Finance about current mortgage interest rates and ask the dreaded question ‘Is now a good time to buy a house?’

Q. When is the interest hike going to end?

A. There’s no doubt it’s a scary world at the moment. The Bank of England has again confirmed that they are lifting the base interest rate by 0.75% to 3%. In reality, it’s not a huge surprise that the rates are increasing -  this was always on the horizon although circumstances may have forced it a little sooner than expected. And ultimately what is the norm for Bank of England base rate? The long-term average for the Bank of England isn’t where it has been since 2008, so we could now be going back to the norm. 

If you listen to the economists, the expectation is that you will continue to see the Bank of England base rate drive upwards into next year – to at least 4.8% by summer 2023.

Q. What is the benefit of using a Shared Ownership mortgage, and how does it work?

For many people, the idea of buying a property in London is a pipe dream. This is either because of the deposit required or the income needed, and shared ownership addresses both issues. You only need 5% of the share value, rather than the property value, and because you are taking a smaller mortgage it becomes more affordable. 

The average house price in UK as of June 2022 was £305000, and you can see how the open market and shared ownership compares below:

 Q. What interest rates do first-time buyers get?

A. Fixed rate – for a first-time buyer is probably the most common type of rate. A fixed rate means the interest rate will not change for a number of years, be it 2-year, 5-year etc. The benefits of a fixed rate mortgage are simple – you know what your payments are. Irrelevant of what happens in the world, you have that rate secured for a period of time. The disadvantage – you could end up paying a little more for that extra security, but for many people, especially during times like this, that cost is worth it for the security. Interestingly many lenders are offering a lower 5-year fixed than a 2-year fixed – so if you feel that you’re going to stay in that property long term, with no real plans to staircase immediately – this could be an option for you to get an even longer term security option.

B. Tracker/discount rates – these rates can be far riskier as they follow the Bank of England base rate. The benefit of these is that currently they are sitting around 3.89% at 95% for shared ownership, which is much lower than a fixed rate. But beware – they are not for everyone. These rates will likely increase, and when this happens your mortgage payments will likely go up. So you are best budgeting for a higher payment, and just thinking of the lower payment as a short-term gain. If your affordability is tight, it might be best to go for something you know you can afford, rather than running a risk with something you simply don’t know where it will go too

Q. My friend just got a mortgage. Should I get the same rate as them?

A. Mortgages are very much based on an individual’s circumstances so I suggest having an in-depth conversation with your mortgage advisor about what is the most suitable option for you and your circumstances.

Ultimately, the great thing about a mortgage and owning your own house is that each payment is going into the equity of your pocket, rather than someone else’s. If you’re waiting for interest rates to reduce, it could be a long wait, and in the meantime, you could miss the opportunity to own the property that is right for you. Shared Ownership is ‘the’ most flexible affordable home product ever!

Q. Should the increases in interest rates put me off buying?

A. My simple answer – if you can afford it then no. And there is no scheme more affordable than shared ownership. 

Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice of up to 1% of the amount borrowed. A typical fee is £449, but this will depend upon your circumstances.

Meridian Mortgages is a trading name of Meridian (Leicester) Limited which is an appointed representative of Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) Limited which are authorised and regulated by the Financial Conduct Authority. Meridian (Leicester) Limited. Registered of Office: Registered office: 68 Pullman Road, Wigston, Leicester, LE18 2DB. Registered in England No. 09366710

This article does not constitute mortgage advice and should not be used in that way.