The UK mortgage market – how it works, and is it really as challenging as the papers say?

Mortgages

In this blog we share our thoughts on the outlook for the UK mortgage market in the months ahead. We also explain how getting a mortgage works – what are the steps you can expect, what you can do to make the process smoother, and what help is available to get the best deal for you.

The mortgage market is a constantly changing landscape, with daily fluctuations and uncertainties. How do you know when it’s going to settle down or even get a bit better, and if you are thinking about taking on a mortgage what do you need to know?

Difficult times for some but not for all

On the 22nd June the Bank of England raised the base rate to 5%, causing mortgage rates for five-year fixed deals to rise above 6%. While media headlines tend to focus on the worst case (dare we say disaster) scenario, when it comes to the impact of increases in mortgage rates it’s not helpful or accurate to generalise. Let’s look at the facts. For a start, more people in England now own their homes outright (32.6%) than have a mortgage (28%) – the remainder of the market being made up of privately rented homes and social housing. Next, of the people who have mortgages, 86% are on fixed rate deals, so they are cushioned from the impact of the rate rise, at least until the end of their current deal. Of course, it is the case that when those fixed rate deals need to be renewed they will see an increase in their mortgage payments. However, while the impact of increased mortgage rates will definitely be felt by many, it is not quite the picture which is being painted by the media.

That said, things are undoubtedly challenging for some, and this is not likely to improve in the immediate future. It is likely that house prices will remain steady for the next few months, and we may even see some increase in the rate of repossessions. Once again though some context is useful. These days lenders are significantly more likely to support people through difficult times by working with them long before they move to the last resort of repossession; and if repossession is the final option this now takes up to 2 years to complete. In the first quarter of 2023 750 homes were repossessed in the UK – compared with a full year number of 75,500 in 1991.

So, despite the very real challenges being faced by some, it's not all doom and gloom. Although the mini-budget initially resulted in a reduction in the number of mortgage products available, there are signs of a slow recovery. Average rates are experiencing a slight decline, and tracker rates and discounted variable rates are becoming more accessible. Despite the recent base rate increase, it appears that the mortgage market may be approaching a turning point, with indications that rates should stabilize around the 4-5% range by next year.

In the meantime seeking advice from knowledgeable professionals can help individuals navigate these uncertain times and make informed decisions that will stand the test of time. Speaking to a mortgage advisor at Heywoods is without obligation, so please do get in touch here if you need any help or advice.

Understanding the Mortgage Process

If you are considering securing a mortgage in the near future, here’s some advice on the steps you will need to go through, and how you can make the process smoother by being well prepared.

  • Before you jump in, take time to assess your finances: go through your financial situation, including income, expenses, and credit history, to determine how much you can afford to borrow and repay comfortably. Using a mortgage repayment calculator is a quick and easy way to see what your repayments might be.
  • Next, do a bit of research to find out what the options are: explore different mortgage products, such as fixed-rate mortgages, interest only mortgages, or variable-rate mortgages. Compare interest rates, terms, and fees from various lenders. Speak to a mortgage advisor as they will already understand the choices available.
  • Once you’ve got to grips with the options open to you, it’s time to get a mortgage agreement in principle. This gives you a solid indication of the amount a lender may be willing to lend you, based on an initial assessment.
  • You’ve probably already got a property in your sights, but if not then now’s the time to start looking in earnest. Begin your property search within your budget and make an offer once you find the right place. Ensure you have a solicitor or conveyancer who will handle the legal aspects of the purchase. Your friendly local estate agent and mortgage advisor will almost certainly have some recommendations.
  • Next, it’s time to fill in the mortgage application for your chosen lender. This involves providing detailed financial information, supporting documentation, and details about the property. It is vital that you complete every part of this with total honesty. The information being requested is not only for your lender, it is also designed to protect you by making sure that you are able to afford the repayments.
  • Now comes the mortgage valuation and survey conducted by the lender to assess the property's worth and its suitability as security for the loan. You might want to consider obtaining a more comprehensive survey to identify any potential issues, particularly if you are buying an older or more unusual property.
  • Almost there! Once the lender is happy with everything they will make you a formal mortgage offer. You will already have appointed your solicitor by this point, and they will get straight onto the legal aspects, including property searches, title checks, and exchange of contracts.
  • Finally, the last step is completion. Once all legal processes are done, you will proceed to completion, where the funds are transferred, and ownership of the property is transferred to you. From this point, you begin repaying your mortgage as per the agreed terms.

We are often asked how long it takes from offer to completion. We would usually say that, on average, it takes around about three months for the whole process. It can sometimes be a bit quicker, but if you are unlucky it can occasionally take as long as six months if there are complications along the way. And while there are many things outside your control, there are some things you can do to help things keep moving:

  • Get your records in order – for your mortgage application you will need to provide proof of earnings, so gathering things like bank statements and payslips ahead of time will help. Also you will need to prove your identity for money laundering regulations, so doing things like making sure your driving license has your current address, and your passport is up to date will all help.
  • Choose a solicitor based on recommendations either from other clients or your estate agent or mortgage advisor. While of course all solicitors will do a professional job for you, some will go the extra mile when it comes to keeping things moving, and they really can make all the difference.
  • Choose an estate agent who will keep things moving on your behalf. Some, but not all, estate agents employ Sales Progressors – people whose role it is to keep a deal moving as quickly as possible. As the buyer this may not be in your control, but if your seller has chosen wisely it will almost certainly benefit you too.

There’s a lot to think about when it comes to the mortgage market and the process itself. While there are some significant challenges for some in the current mortgage market the situation is not as disastrous as a lot of the media would have us believe. There is a shared expectation that things will calm down and improve as we get into 2024 as inflation comes under control and interest rates start to fall.

To talk to our mortgage advisors, or for any property advice at all you can contact us here. We look forward to hearing from you.