What you need to know as a first-time buyer

Uncertainty around the U.K. housing and mortgage market has spread among first-time buyers.

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Mortgage products have been pulled, payments are doubling and lenders are backing out of agreed deals; concern and uncertainty among Brits trying to buy a home skyrocketed last month after Finance Minister Kwasi Kwarteng announced his “mini-budget.”

His controversial plan foresees swooping tax cuts and more relaxed rules and regulations for businesses. While the cost-of-living crisis in the U.K. continues, Kwarteng argues his budget will boost growth. Critics say that it will mostly help the rich and make the U.K. more unequal.

The mini-budget did have one positive for those trying to buy a home: Stamp duty, a tax many buyers have to pay when purchasing property, was reduced.

Stamp duty cuts

So, what about mortgage rates?

The housing and mortgage sector has been especially affected, with lenders pulling hundreds of mortgage deals or pricing them at a much higher level after sovereign bond yields and Bank of England rate expectations both surged. This pushed up costs for borrowers as the BOE’s base rate helps price all sorts of loans and mortgages in Britain.

According to Moneyfacts data, the average rate for a 2-year fixed mortgage surpassed 6% this week — up from 2.25% just a year ago. This could go up even further, Nicholas Mendes, a technical mortgage manager at mortgage broker and advisor John Charcol, believes.

“With lenders costs increasing, volatile economic outlook, and factoring in service levels and future rate rises expect, we could be seeing average rate of 7% in the new year,” he said.

Many borrowers and soon-to-be borrowers are already concerned that they will not be able to afford their mortgage payments, which are set to more than double in thousands of cases. Research and expert advice are therefore key for anyone looking for a mortgage deal right now, Gill explains.

“Make sure your credit score is accurately reflected, make sure they speak to an independent broker, consider fixing for a period {…] and consider any Early Repayment Charges,” he suggests.

“Speaking to someone who can expertly analyse their situation is key. Really, really consider if the rates are this high in 2/3 years, (however long they may be considering fixing for) whether the mortgage is affordable,” he adds.

The market is pointing to a difficult 12 months

Nicholas Mendes

Technical mortgage manager at John Charcol

What’s next for the housing market?

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