Safe as Houses? – The Post-Covid Property Boom

Following the property boom through the post-Covid period, homes have significantly increased in value and the average mortgage of homeowners in the UK is larger than ever. Made worse, when compared to salary, the average mortgage is currently 3.5 times annual income, compared to 1990 when people were borrowing about 2.3 times their income. This puts us in a precarious position as interest rates continue to rise.  

Understanding the Recent Changes 

While interest rates remained historically low for an extended period, recent economic factors and market dynamics have prompted increases. Central banks and financial institutions have responded to sky-high inflation by increasing base rates and consequently mortgage interest rates have experienced a considerable upward trajectory. This potentially has a delayed reaction on homeowners depending on the type of mortgage product you have.  

Existing Fixed-Rate Mortgages: If you have a fixed-rate mortgage, the recent changes will not have an immediate impact on your monthly payments. Fixed-rate mortgages offer stability by locking in an interest rate for a predetermined period. However, the key point is that they are generally only fixed for 2 or 5 years, so when your fixed term expires you will be subject to the prevailing rates which are now much higher.  

Variable-Rate Mortgages: Homeowners with variable-rate mortgages are directly affected by interest rate fluctuations. Rising interest rates will increase your mortgage repayments immediately. 

Practical Advice for Homeowners – Top 5 Tips 

1. Review Your Mortgage Terms: Take the time to review the terms and conditions of your mortgage. Understand whether you have a fixed-rate or variable-rate mortgage and how changes in interest rates will impact your monthly payments. Consider consulting with your mortgage provider or a financial advisor to gain clarity on your specific situation. 
2. Plan Early: mortgage offers tend to have a 3 or 6-month validity, which means you should be planning to secure your next mortgage product 4 to 7 months ahead of the renewal date to allow time for the process to happen. There is also the potential of getting the best of both worlds, as mortgage offers are generally non-binding on you until you complete on them, so you are able to negotiate a deal in advance and check again in a few months’ time if that deal is still the best deal available or not.  
3. Budget for Change: Evaluate your current financial situation and consider how changes in interest rates will affect your overall budget. Analyse your income, expenses, and savings to determine if you can comfortably accommodate potential increases in mortgage repayments. Planning ahead and being prepared for adjustments can mitigate financial stress, and if possible you can consider if saving or overpaying now would be the right thing to do to minimise impacts later.  
4. Explore Ways of Reducing Payments: If mortgage renewals are looking expensive, consider methods of reducing your monthly payments. These could relate to extending the loan term or applying for interest-only periods. The most important thing is to speak with your lender and keep them informed.  
5. Seek Professional Advice: Given the complexities of the mortgage market and its impact on your finances, seeking advice from professionals, such as mortgage brokers or financial advisors, can provide valuable insights. They can help you navigate the changing landscape, analyse various mortgage options, and recommend strategies tailored to your specific circumstances. 

What to do next? 

Change is inevitable, and the recent shift in mortgage interest rates serves as a reminder of the dynamic nature of the financial world. As homeowners, it is crucial to approach these changes head-on and plan to mitigate their effects. By staying informed, seeking expert guidance, and embracing opportunities amidst change, we can navigate the impact of shifting rates while staying focused on our long-term financial goals.  

If you would like to find out how we can help please contact Ben Powell Corporate Partner, at ben.powell@ballardsllp.com or on 01905 794 504.

Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.