Would-be first time buyers may have to settle for renting for longer and putting their ownership aspirations on ice, following the latest Bank of England base rate rise.
Yesterday the Bank increased the rate by 0.5 per cent to 3.5 per cent - the ninth consecutive rate rise, meaning that over the past year the average tracker mortgage cost has become £333 per month higher.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, says: “For first-time homebuyers, the rate rises are having an immediate impact as the higher cost of a mortgage, alongside the rising cost of living, will affect their overall affordability.
“Those taking their first step onto the housing ladder should therefore seek advice from a lender or mortgage broker, as they may need to lower their ambitions as they’re unlikely to be able to borrow at the level they might have achieved 12 months ago.
“Whilst we have not yet seen an increase in borrowers with mortgage arrears, we remain alert to the economic conditions, which are rapidly changing.
“It’s worth noting that lenders are sensitive to the rising number of people facing a squeezed household budget and have teams who are well trained and experienced in providing tailored support to those who are struggling.”
Rachel Springall of the independent mortgage monitor service Moneyfacts says: “Moving into 2023, it will be interesting to see how demand for mortgages will be impacted as further base rate rises are expected and house prices are predicted to fall.
“If borrowers are looking to refinance next year, they may want to start building a savings pot to pay for any associated costs and be conscious that mortgage rates are much higher than they might expect.
“First-time buyers may feel disheartened about their chances of finding an affordable property considering the cost-of-living crisis, but when it comes down to applying for a mortgage, it’s always worth seeking advice to go through the options first, particularly if borrowers have a limited 5.0 per cent deposit.”
And Lawrence Bowles, director of research at Savills, adds: “We’re likely to see a slowdown in transaction activity from mortgaged buyers over the next few months, with cash buyers gaining a relative advantage. However, with the pace of interest rate hikes slowing and the possibility of rate cuts on the horizon, the picture looks like it will improve for mortgaged buyers in 2024 and beyond.”
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