How the mortgage chaos has sent a wrecking ball to home sales

The clock is ticking for Shoshanna Davis and her boyfriend, who were accepted for an offer on their first home in July.

At the time, both were relieved to have finally found a place to live, after an overheated market saw them repeatedly outbid by other buyers.

But today they have a new reason to worry: sky-high mortgage rates.

Rates soar: Mortgage rates have reached a ten-year high, with the average of two- and five-year fixed-rate agreements topping 6% for the first time since 2008

Conveyance delays mean the purchase of a three-bedroom semi-detached house in Cheltenham, Gloucestershire, has not yet been completed. But Shoshanna’s fixed-rate mortgage contract expires in December.

If it ends before your home purchase is complete, they’ll have to get a new mortgage offer, and that could undo everything.

Your monthly payments could increase so much that you may have a hard time qualifying for a loan. And even if they do, they might have a hard time paying the bills.

Shoshanna says they locked in a 2.5 percent rate when they made their offer, but since then the average fixed-rate mortgage deal has doubled.

“I feel stressed,” says the 26-year-old. “I’m trying to find creative ways to get the seller’s lawyer’s attention, like sending cookies and small gifts.”

Britain’s property market was hit with chaos this month as lenders, analysts and pundits frantically scrambled to make sense of the fallout from the government’s September mini-budget.

Mortgage rates hit a 10-year high, with the average for two-year and five-year fixed-rate agreements topping 6 percent for the first time since 2008.

In just one week, frightened mortgage lenders withdrew nearly 2,000 products, before cautiously re-pricing them at inflated levels.

Since then, there have been some signs that the market is cooling off, as two-year and five-year average offers were flat for four days in a row on Monday and rose only a little on Tuesday.

But it’s too late for some moving companies, as the chaos has already had a ripple effect on the market, which had been red hot for the past two years.

A report last week from the Royal Institution of Chartered Surveyors (RICS) found that home sales are plummeting as rising rates on home loans scare buyers.

Experts estimate that property transactions are now at their lowest levels since May 2020, when the country was in lockdown.

Slowdown: Experts estimate that property transactions are now at their lowest levels since May 2020, when the country was in lockdown

Slowdown: Experts estimate that property transactions are now at their lowest levels 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 homebuyers.

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 backed out of the deal last week, raising fears the chain could collapse. Jo says: ‘Originally it wasn’t difficult to get an offer on the property, but we have concerns now that the market has become so volatile. We worry that we won’t get the same sale or be offered the same amount.

It’s a concern shared by moving companies across the country.

Ian Wyn-Jones, an estate agent in North Wales, says: ‘We’ve had up to 25 failed sales. “Although the market has calmed down, the chains continue to collapse.”

When applying for a mortgage, borrowers often agree to an “agreement in principle” from a provider months in advance of completing the purchase.

But these are time-restricted and don’t guarantee a locked-in rate, which can mean they expire before buyers complete their purchase.

In recent weeks, these buyers have discovered that the rates are now nearly double what they were originally offered. Last week, one lender, Aldermore, released a five-year fixed-rate deal at an astonishing 9.28 percent.

And on Monday, TSB increased its two-year fixed-rate operations by 0.95 percentage points.

Home sales typically dip during a summer lull but then pick up in September. This year they have not. For the fifth consecutive month, the Rics report documented a drop in inquiries from new buyers.

Borrowing costs: A report from the Royal Institution of Chartered Surveyors found that home sales are plummeting as rising mortgage rates make buyers scared to move.

Borrowing costs: A report from the Royal Institution of Chartered Surveyors found that home sales are plummeting as rising mortgage rates make buyers scared to move.

Neil Foster of Hadrian Property Partners commented: “There is a clear feeling that appetite among buyers is fading fast.”

Experts also warn that as home prices stagnate, there is a discrepancy between the price a buyer is willing to pay and the property’s valuation when the move is complete.

This is prompting some lenders to reevaluate their mortgage offers, which may cause the deal to be pulled altogether.

Jane King, Ash Ridge Mortgage Consultant, adds: “Most buyers will now sit tight until after Christmas. Many were hesitant, but now feel the market is too uncertain.’

Middle-class property owners will bear the brunt of economic uncertainty, a group of experts warned last week, with more people looking to downsize properties, rather than change them.

Paul Johnson of the Institute for Fiscal Studies told the Treasury Select Committee: ‘People who have bought more recently will be hit harder, because they tend to have bigger outstanding debts.

“But anyone who owns a home is going to be affected in some way.”

According to the Bank of England, more than two million homes with fixed-term mortgage loans will re-mortgage between now and the end of 2024.

They are facing far higher rates than they are used to paying at a time when budgets are already being hit by rising energy bills.

Lenders are already tightening affordability controls, raising fears that more potential buyers will be locked out of the market.

Last month, TSB became the first major bank to announce that it was increasing its stress tests. From now on, it will ask borrowers to show they can afford interest rates of 8 percent (or 7 percent for first-time buyers). Brokers say they are noticing lenders getting tougher.

Chris Sykes, of Private Finance, says: ‘Recently we’ve noticed an abnormal amount of declines in lenders’ credit scores.

“With interest rates rising, it could be the case that they are being tougher on credit scores to ensure borrowers can repay their loans.”

Doomsday forecasters have predicted, in recent weeks, house price drops of anywhere from 10 to 40 percent.

This could help make homes more affordable for first-time buyers, but could put others off selling until prices recover. It could even push people into negative equity.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “Owning a property always means taking the risk that the value of your property will fall, but [following the mini-Budget] this suddenly felt a lot more tangible.

But where will house prices fall the sharpest? Aneisha Beveridge, Hamptons’ head of research, says: “We will see house prices fall in areas that have seen the steepest rise over the past two years, for example, by the sea and in the countryside.” ‘

a.cooke@dailymail.co.uk

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