Young, in good jobs, and after five years of saving hard to pay bail, Kathryn Yabsley and her husband David were all ready to buy their first home.
Last summer the couple looked for an affordable mortgage and maybe even after Christmas in the new apartment.
Then mortgage rates went up. Now they had to rethink their plans.
“We had this excitement and this thrill. To just be shot down I was torn to pieces and my husband was disappointed too. It burst our bubble,” said Ms Yabsley, 29, an NHS therapy assistant from Pembrokeshire.
“We’re waiting to see if prices go down and will rent instead.”
Mortgage repayments would have been £300 more a month than their original, principled deal had suggested. With all the expense of raising a young boy, they knew they would be spending every penny of their wages on bills.
“Not only do I want to survive, I want to live,” she said.
They are far from alone in their wait-and-see attitude. On Friday, Halifax – part of Lloyds Banking Group, the UK’s largest mortgage lender – said it expects buyers and sellers to “remain cautious” in the year ahead.
As a result, Halifax said house prices would fall by as much as 8% this year. While that may be good news for first-time buyers like Ms Yabsley, it would need to be coupled with falling mortgage rates to make their plans affordable again.
The cost of a new fixed rate mortgage has been rising for a year as lenders predicted the Bank of England would raise its reference rate. This rise was accelerated by the mini-budget when Liz Truss was Prime Minister.
The plan in this budget, which promised billions of dollars in tax cuts without explaining how they would be paid, caused turmoil in the markets and a sudden withdrawal and repricing of mortgages.
When these proposals were dampened and then reversed, mortgage rates began falling again. The interest rate on a typical new two-year fixed rate home loan peaked at 6.65% in October but has now fallen to 5.78%. Five-year contracts, which were also above 6%, now typically have a rate of 5.61%.
“Fortunately, mortgage rates are slowly coming down, with big expectations for further declines in the coming months. However, both buyers and mortgage customers could put their plans on hold for now as they struggle with the cost of living,” said Rachel Springall, of financial information service Moneyfacts, which compiled the figures.
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In short, that has been the problem for many prospective buyers and existing homeowners. While fixed-rate mortgage rates could go down, they’re still higher than many people would have expected and budgeted for, and certainly more expensive than they’ve been used to over the past decade. At the same time, their finances are being stretched by rising energy and food bills.
As many as two million homeowners will have a fixed-rate contract that expires this year and face a new contract that costs more in repayments each month. Those with variable rates are also likely to pay more as the benchmark rate is expected to continue to rise in the near future.
So everyone is hoping that mortgage rates will come down as the year progresses, and many are delaying any decision as a result. This has already been recorded in Bank of England data on declining mortgage approvals and buyer interest leading to lower house prices.
Mortgage brokers scouring the market for the best deals agree somewhat that the picture will improve.
“We expect interest rates to continue falling and mortgage and buying activity to increase in the coming months,” said Jed Newton, a director at Trinity Financial, noting that many customers have been delaying their mortgage applications.
London and Country Mortgages’ David Hollingworth said better deals are already available.
“Quieter funding conditions mean lenders have been able to scale back their fixed rate operations and five-year fixed rates are now available below 4.5%,” he said.
“We could see further improvements as competition between lenders intensifies. In a slower market [mortgage providers] will seek to attract larger volumes and the competition should benefit borrowers looking for new business.”
He suggested that there are some pitfalls with a wait-and-see approach, as variable and tracker deals — which may seem cheap now — are likely to get more expensive.
Some homeowners might also consider extending their mortgage terms to deal with the upcoming payment shock.
“It comes at a price, as it can add significantly to the overall interest burden,” he said.
As for Ms Yabsley, the prospect of her own home will have to remain wishful thinking for a while.
“We accepted it, but if I could win the lottery tomorrow, I would buy a house,” she said.
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