Time is running out for Shoshanna Davis and her boyfriend, who won an offer for their first home in July.
At the time, they were both relieved to have finally found a home, after an overheated market saw them repeatedly outbid other buyers.
But today, they have a new reason to worry: soaring mortgage rates.
Rates are skyrocketing: Mortgage rates hit their highest level in a decade, with the average of two- and five-year fixed rate transactions exceeding 6% for the first time since 2008
Transfer delays mean their purchase of a three-bedroom semi-detached house in Cheltenham, Gloucestershire, is not yet complete. But Shoshanna’s fixed-rate mortgage agreement expires in December.
If it ends before they buy their home, they’ll have to get a new mortgage offer – and that could ruin everything.
Their monthly repayments could soar so high that they might struggle to qualify for a loan. And even if they do, they might struggle to pay the bills.
Shoshanna says they locked in a 2.5% rate when they made their offer, but since then the average fixed-rate mortgage has doubled.
“I feel stressed,” says the 26-year-old. “I try to find creative ways to get the seller’s lawyer’s attention, like sending him cookies and small gifts.”
The UK property market has been hit by chaos this month as lenders, analysts and pundits scrambled to make sense of the fallout from the government’s mini budget in September.
Mortgage rates hit a decade high, with average two- and five-year fixed-rate transactions above 6% for the first time since 2008.
In just one week, spooked mortgage lenders withdrew nearly 2,000 products, before cautiously repricing them at inflated levels.
Since then, there have been signs that the market is cooling, as the two- and five-year average trades remained flat for four straight days on Monday and rose only slightly on Tuesday.
But it’s too late for some movers, as the chaos has already had a ripple effect on the market, which had been boiling for two years.
A report released last week by the Royal Institution of Chartered Surveyors (RICS) found home sales are plummeting as rising mortgage rates send a chill to buyers.
Experts estimate that real estate transactions are now at their lowest level since May 2020, when the country was in confinement.
Slowdown: Experts believe real estate transactions are now at their lowest level since May 2020 – when the country was in lockdown
According to the Rics report, the market is “losing momentum” as economic uncertainty discourages movers and first-time buyers.
Among those concerned is Jo Smith, 58, from Gloucestershire, who is selling her late mother’s four-bedroom house for £295,000.
His buyer’s buyer pulled out of the deal last week, sparking fears the chain could collapse. Jo says: “It wasn’t difficult to get an offer on the property originally, but we have concerns now that the market has become so volatile. We’re worried that we won’t get the same sale or be offered the same amount.
This is a concern shared by movers across the country.
Ian Wyn-Jones, a North Wales estate agent, said: ‘We’ve had up to 25 failed sales. “Although the market has calmed down, the chains are still collapsing.”
When applying for a mortgage, borrowers often accept an “agreement in principle” from a provider months before finalizing the purchase.
But these are time-limited and don’t guarantee a secure rate, which can mean they expire before buyers complete their purchase.
In recent weeks, these shoppers have found that rates are now almost double what they were originally offered. Last week, one lender, Aldermore, launched a five-year fixed rate deal at a jaw-dropping 9.28%.
And on Monday, TSB increased its two-year fixed-rate deals by 0.95 percentage points.
Home sales typically fall during a summer lull, but then rebound in September. This year they did not. For the fifth month in a row, the Rics report documented a drop in inquiries from new buyers.
Borrowing costs: A report by the Royal Institution of Chartered Surveyors found home sales are collapsing as rising mortgage rates scare buyers away before moving.
Neil Foster, of Hadrian Property Partners, commented: “There is a distinct feeling that buyer appetite is rapidly fading.
Experts also warn that when property prices stagnate, there is a gap between the price a buyer is willing to pay and the valuation of the property once the sale is complete.
This prompts some lenders to re-evaluate their mortgage offers, which can lead to the cancellation of the deal altogether.
Jane King, Mortgage Advisor at Ash Ridge, adds: “Most buyers will now be sitting around until after Christmas. Many were hesitant but now think the market is too uncertain.
Middle-class homeowners are set to be hardest hit by economic uncertainty, a think tank warned last week, with more people looking to downsize their properties rather than trade them in.
Paul Johnson, of the Institute for Fiscal Studies, told the Treasury Select Committee: “People who have bought more recently will be more affected, as they tend to have larger outstanding debts.”
“But anyone who owns a home will be affected in some sense.”
According to the Bank of England, more than two million households with fixed-term home loans will remortgage by the end of 2024.
They face far higher tariffs than they are accustomed to paying at a time when budgets are already strained by rising energy bills.
Lenders are already tightening affordability controls, raising fears that more potential buyers could be shut out of the market.
Last month, TSB became the first major bank to announce it was increasing its stress tests. Now it will ask borrowers to prove they can afford interest rates of 8% (or 7% for first-time buyers). Brokers say they’re noticing lenders getting stricter.
Chris Sykes of Private Finance said: “Recently we have noticed an abnormal decline in the credit rating of lenders.
“As interest rates rise, they may be more stringent with credit scores to ensure borrowers can repay their loans.”
Doomsday forecasters have in recent weeks predicted a fall in house prices of between 10% and 40%.
This could help make homes more affordable for first-time buyers, but it could deter others from selling until prices recover. It might even push people into negative equity.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “Owning property always means running the risk of your property going down in value, but [following the mini-Budget] it suddenly felt much more tangible.
But where will house prices fall the most? Aneisha Beveridge, head of research at Hamptons, says: ‘We will see house prices fall in the areas that have seen them rise the most over the past two years – so by the sea and in the countryside. ‘
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