First-time homebuyers shouldn’t panic about rising mortgage rates, says HELEN CRANE

Buying your first home is never easy, but in recent years those hoping to get their foot on the housing ladder have faced an especially difficult time.

During the early days of the pandemic, banks wrested low-deposit “risky” mortgages off the market, before reviving them months later with higher interest rates.

When things returned to normal, house prices shot up into the stratosphere. Increases of £26,000 a year are great for many existing homeowners, but first-time buyer savings have struggled to keep up.

And now, paying off a mortgage will become more expensive for many as interest rates rise thanks to rising inflation.

Difficult: Those looking to buy their first home have faced setbacks in recent years

So I was shocked to see a major mortgage lender send out a press release today telling first-time homebuyers to “BUY NOW” (your equity, not mine).

A public relations agency working for Metro Bank sent the email, including the line: “Tony Davis, Metro Bank’s director of mortgages, has issued advice to first-time homebuyers, with the important message to act now, before even more changes are made.”

He continued: “Our advice to all buyers is that now is the time to act before rates rise again.”

To say that this bothered me is an understatement. It’s not as simple as that, and the decision makers at Metro Bank know it.

I know most personal finance journalists will have had the good sense to send the email straight to the trash, but posting such a scary message is staggeringly irresponsible.

I sincerely hope this is not the same advice given to inexperienced first-time buyers who walk into a Metro Bank branch to discuss a mortgage.

It’s important to say that I don’t want to discourage anyone from buying their first home, as long as they are in a financial position to do so and are aware of the potential risks.

But I am concerned that a bank would pressure them into making decisions that might not be right for them, in an attempt to increase their own profits.

Think carefully: banks should not pressure buyers into making big decisions, as they have a vested interest in getting them on the ladder as soon as possible.

Think carefully: banks should not pressure buyers into making big decisions, as they have a vested interest in getting them on the ladder as soon as possible.

It is true that average mortgage interest rates have been rising and may well continue to do so.

Deposit mortgages at 5 and 10 percent of the rate preferred by first-time buyers, however, are seeing the smallest increases of all.

A recent report from financial information service Moneyfacts said: “It’s interesting to note that it’s only the 90 percent and 95 percent loan-to-value levels (so often favored by first-time homebuyers) where the average of two and five Annual fixed rates are still lower now than they were at this time last year, which may give hope to those looking to take a step up the property ladder.

You can find out what the typical rates are for the mortgage you need here.

Older homeowners with more equity have seen much faster increases and have more to worry about when it comes to rate increases.

And the same rising average mortgage rates that Metro Bank is using to try to rush first-time homebuyers could be responsible for a drop in home prices in the coming months or years.

This week, analysts at Capital Economics have said that house prices could fall by as much as 10 percent ‘soon’, as rising interest rates send property markets crashing around the world.

That’s the most extreme forecast I’ve seen, with other experts predicting more moderate drops or small increases.

But house price declines are a particular risk for first-time homebuyers, as they typically put down only a small deposit, meaning they could have negative equity if values ​​fall.

As home prices become more out of balance with wages (more on that later), banks have made it easier for first-time homebuyers to get mortgages with smaller down payments.

Negative equity is a particular danger for those buying new construction homes, a requirement of the Help to Buy program, which remains very popular.

These can lose some of their value in the first few years because they are less attractive to later buyers when they are no longer new.

What should first-time buyers do?

What should a first time buyer do? I’m in my early 30s and it’s something my friends ask me all the time.

Because home prices have risen rapidly, those who are about to save enough for a deposit have asked me if now is a good time to buy their first home or if they should wait until prices start to rise. fall and can pay something. better.

I told them I didn’t know. First of all, I don’t have a crystal ball and anyone who tells you that they know exactly when and how much home prices are going to go up or down is lying.

And secondly, encouraging a friend to buy a house he lost money on would make some trips to the pub very uncomfortable.

I don’t have a crystal ball and anyone who tells you they know exactly when and how much home prices are going to go up or down is lying.

But under pressure to say something useful, and usually after a couple of drinks, I’d say you should ask yourself two things.

First of all, is this the right move for them at this point in their life? Once you own a home, things like deciding on a big career change or moving to another city suddenly come with a lot more strings attached.

If the value of your home falls, it becomes difficult to re-mortgage or sell it and you face being stuck in it, and possibly paying a higher mortgage rate, until you once again exceed your mortgage amount.

That becomes even more of a problem if you want to start a family and live in a one-bedroom apartment, for example.

But on the other hand, buying a home gives you security and an asset that will hopefully increase in value moderately over the long term, even if it fluctuates over the next few years, giving you some money to move into your next property. .

Pros and Cons: Buying a home gives you security and an asset that will hopefully increase moderately in value in the long run, but there are risks as well.

Pros and Cons: Buying a home gives you security and an asset that will hopefully increase moderately in value in the long run, but there are risks as well.

Except in the most drastic scenarios, you will still have those benefits regardless of whether the line on the UK house price chart goes up or down from month to month.

The second thing to ask yourself is if you can afford it, and that doesn’t mean just having a big enough deposit.

When I write about raising mortgage rates to 3 or 4 percent, many of our readers often point out that they paid a 15 percent interest rate on their first home in the 1980s.

That’s true, but the cost of a home relative to median income has risen steadily in recent years.

Metro Bank’s response

I asked Metro Bank to respond to my concerns about the press release.

A spokesperson said: ‘We agree that first-time buyers should take the time to consider their decision carefully. Our advice is aimed specifically at those who are ready to call a home home, emphasizing the importance of taking advice and doing your research and due diligence before making a decision.

“For those consumers who are ready to proceed, we say now is a good time to do so, rather than delay, as rates have risen sharply in the last 6 months and are expected to rise further with more expensive mortgages. as a result”. .’

It recently reached 7.1, the least affordable ever recorded. And since the start of the pandemic, property prices have risen 16.8%, while median income has only risen 2.7%, according to Halifax.

So while the interest element is several times lower than it was decades ago, first-time homebuyers are taking on much larger debt, and their mortgage payments will absorb more of their income.

All the more reason not to rush into anything.

I can’t tell you if it’s a good time to buy a house, and neither can Metro Bank’s Mortgage Manager, although one of us is much more interested in your doing so.

It’s your life. Do your research, but don’t rush into panic buying over interest rates.

Be aware of short-term ups and downs in home prices, but whenever you’re buying a home that you’re sure someone will eventually want to buy from you, don’t let them dominate your decision-making.

And remember that you are buying a home first and foremost as a place to live and enjoy, not as an investment.

The best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.

If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.

To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.

Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.

You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.

Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.

> Compare the best mortgage deals available now

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