2022 so far

In December 2021, Cameron thought ahead to what 2022 would bring;

1. Increase in “green” mortgages.
2. Tighter lending criteria.
3. Increase in house valuations
4. Change to Bank of England base rate
5. Increased uptake of life insurances, critical illness, income protection, and more.
6. People reviewing their insurances to make sure they’re fit for purpose.

So far in 2022 we have seen all of the above happen.  Halifax’s latest house price index shows that house valuations have gone up.  An average Scottish home is now £201,549 which is the first time an average home in Scotland has been over £200k since records started.  The average home across the UK is now £294,845 (please don’t ask about London prices!).

With such house price increases it does make you think that borrowing has been easy.  With the removal of the affordability test by the Bank of England, it would seem, at first, that borrowing is easier.  It really isn’t.  With the increases in base rate, utilities, fuel, food and more, borrowing is becoming harder with each month.

We had a mortgage case offer in December at 90% LTV on a rate of  1.65% fixed for two years.  The same scenario today would be 3.25% fixed for two years. An increase of 1.6% which is nearly double in the space of six months.

On a purchase price of £500,000 that is a monthly increase of £361 on the mortgage payment..  We’ve had increases to council tax, utilities, fuel and food to contend with at the same time. There is no denying that the cost of living has risen exponentially over the last six months.

The mortgage market is not offering the same incentives to borrow less either. Here are some of the current deals available.

• 90% deals are 3.25% with a £199 arrangement fee
• 85% deals are 3.25% with a £199 arrangement fee
• 80% deals are 3.25% with a £199 arrangement fee
• 75% deals are 3.14% with a £995 arrangement fee, £275 valuation fee & £300 cashback
• 70% deals are 3.25% with a £199 arrangement fee

As you can see, even with a 25% deposit or more, the rates stay roughly the same. (Your house may be repossessed if you do not keep up with repayments.)

The 3.25% deal is hitting the best deal in so many areas due to the low fee.  The market is not offering cheap mortgages anymore and will continue to push rates up.

From a builder view point focusing on energy efficiency and everything being new is the best bet for continued sales.  The Green deals are not really incentivising anything and I don’t see rates reducing.  However with the focus on energy efficient homes, the green deals are a good

At the Bank of England’s meeting ending on 15 June 2022, the Monetary Policy Committee (MPC) voted by a majority of 6-3 to increase the base rate by 0.25 percentage points, to 1.25%.  This is the fifth consecutive increase since December 2021.

Those members in the minority preferred to increase the Base Rate by 0.5 percentage points, to 1.5%.  The thought behind increasing it by 0.5% instead of 0.25% is to curb inflation, traditionally this meant savings rates would go up and “encourage” people to save.  

The savings rates haven’t gone up significantly to encourage saving.  The BOE predicts inflation to rise to 11% in 2022 and not come down till we’re into 2023.  A very scary thought as the price of everyday things continues to increase.  The BOE has a target of 2% for inflation, and the Monetary Policy Committee (MPC) has stated it will act forcefully to reduce inflation (https://www.theguardian.com/business/2022/jul/06/bank-of-england-vows-to-act-forcefully-to-prevent-lasting-inflation).

With the cost of living increasing and everyone wanting higher wages I don’t see an end to higher interest rates and I wouldn’t be surprised if the Bank of England made another increase making it six increases in successive meetings.  

So what can people do?

Get your remortgage options sorted sooner rather than later. A mortgage broker will be able to secure you a deal six months before your current deal expires. If you have six months or less to go before your deal expires, now is the time to get your remortgage sorted.  If you’re on the standard variable then please get your next mortgage deal sorted before the next increase.

Use a mortgage advisor to ensure you really are getting the best deal for you. Your lender may offer you a rate to stay but always check if that rate really is the most suitable for you. A good advisor will compare the rates and give you the rate which is going to be the most suitable, even if that means telling you to go back to your lender.  Team MFS stand by our clients to ensure that they get value for their money but that things stay affordable.  

It might also be tempting when looking to reduce your monthly spend to cancel any life insurance policies.  I would say this is false economy, those insurances are there to protect you and your loved ones should something terrible happen.  Before you cancel policies, speak to your Protection Advisor for options, or arrange an appointment with Team MFS.  We don’t charge a fee to review your life insurances and there is no obligation, we would like our clients to be as informed as possible to make the right choices for themselves.

The rest of 2022 will bring about more base rate increases, even tighter lending criteria and continued increases to living costs.  Team MFS are here to help with your mortgage and protection queries.  

What’s next?

• Further increases to the Bank of England base rate until well into 2023, with a possible increase of 0.5% instead of 0.25% in some months.
• House valuations will not increase in the same manner it has done in the last year.  
• Remortgages will become a priority.
• Borrowing will become more difficult because of continued increases to cost of living.

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