Homeowners and potential buyers have been feeling “utterly powerless” this weekend as thousands wait to find out if their mortgage deals will now cost them hundreds of pounds more a month, while brokers report people are already exiting or exiting the market prepare for downsizing.
Chancellor Kwasi Kwarteng’s Sept. 23 mini-budget has seen 40% of mortgage products withdrawn over the past week, with many potential buyers still waiting to hear what they will pay and other higher interest rates or Reduced loan sizes are offered.
“People were worried about the energy crisis and how they were going to heat their homes, but that’s a different kind of fear,” said Michael McLaughlin, a mortgage broker in Northern Ireland. “Now it’s ‘Are we going to have roofs over our heads?’ They just feel totally powerless.”
People are reacting to the situation in different ways, he said, with some planning to sell and downsize their homes or move in with family members as they can’t afford the increases in principal.
Some McLaughlin clients have in recent days paid a penalty fee to get out of their current fixed-rate mortgage deal in order to secure a higher interest rate now, fearing it could go even higher. “That’s because they’re not willing to wait for an even higher rate next year,” he said. “They pay a penalty to break their contract for that.”
Meanwhile, a real estate company near him has paused its planned development, estate agents are reporting fewer bookings for viewings, and clients are waiting up to an hour or more to speak to their lenders on the phone.
“It’s like an icy fear, the speed at which this happened compared to that [the housing market crash in] 2008. The collapse was seismic and so quick,” said McLaughlin, who works for Mortgage and Insurance Directions in Newcastle, County Down.
Heather Tang, 34, was already missing out on her dream family home when the buyers’ chain collapsed earlier this year. She and her family, who are planning to move from London to Macclesfield, Cheshire, have found another property to buy but are now waiting to find out what mortgage rate they were accepted at. As the sale of their current home progresses and the bank has no clarity, they are left in the dark about the future.
“We haven’t agreed to anything so I just don’t know what we’re going to do. I see people being offered 6% to 10% [interest rates]said Tang, a librarian. “I know house prices are going down, but they’re not going down anytime soon, and in the meantime we’re kind of homeless because we have yet to sell our house.”
She added: “There’s not really anything else we can do right now [except wait]. We’re so close to selling our house so we can’t undo it and we have to move so there’s not much else we can do.”
Robbie Coffin, 33, an NHS administrator from Aldershot, Hampshire, and his partner had accepted an offer for a two-bedroom bungalow in April. The survey revealed that additional work was needed so they lowered the offer, which was accepted, meaning that although they had previously agreed on a 2.5% fixed rate contract, their new mortgage has yet to be approved.
“We’re in this huge line that seems to be getting longer to see if it gets approved, but we don’t know if we can afford the mortgage if the interest rate is higher,” Coffin said. “We’re in limbo, and that’s the worst part.”
Others have already given up the search. Louise, a project manager who didn’t want her last name used, had a 2.65% mortgage offer with her partner on a three bedroom house in Kent six months ago. Last month the seller pulled out and now the rate hike has meant they have postponed any decision to move until 2024. “It’s just unsustainable anymore, with interest rates going up and the cost of traveling to London,” she said. “A new mortgage offer for the same loan amount would now cost at least £200 more a month. House prices have since risen by a further £20,000 [since March]. It’s really hard, but what can you do?”
Rightmove, the real estate website, said the data showed that the number of prospective buyers who came to view properties on Monday and Tuesday last week fell by 3% compared to the same days in the previous three weeks. The number of sales agreed on Tuesday hit the highest level since early August as buyers rushed to get a mortgage before interest rates rose further.
Marc von Grundherr, director of property brokerage chain Benham and Reeves, said: “Those who already have their terms have been largely unhindered and their sales are progressing as planned.
“But that’s not to say everyone has, and we’ve seen a handful of cases where buyers have been knocked out from under their feet by banks withdrawing their pre-agreed mortgage offers.”
Additional reporting by Jedidajah Otte
THE FIRST BUYER
Borrow £180,000 on £200000 home with 10% deposit
September 1: NatWest offered a two-year fixed rate of 3.59%. The monthly payment would have been £910 per month.
October 1: NatWest offers 4.39% firm for two years. The monthly payment would be £990 per month.
Cost = £960 more per year
THE HOUSE OWNER
Rescheduling from £300,000 to a £400,000 house
1 September: The Coventry Building Society offered a two-year fixed rate of 3.39%. The monthly payment would have been £1,484.
October 1: NatWest offers a two-year fixed mortgage rate of 4.3%. This works out to a monthly payment of £1,634
Cost = £1,800 more per year
Source: London & Country Mortgage Brokers
“Buying our first home used to seem difficult, but possible. It’s completely out of reach now.
Earlier this summer, Alex, a Sussex charity worker, was hoping he and his partner Jo could soon buy their first home. The couple are currently renting a flat in Brighton, where Jo works in the events industry and spends around £1,500 a month on rent, council tax and utilities.
“We had a meeting with a mortgage advisor three months ago,” says the 27-year-old. “We were told we could afford a house north of £400,000. We looked at anything with bedrooms and one bathroom, really, this area is expensive. But we were really excited.”
“We had another meeting with a mortgage advisor on Friday, shortly after the mini-budget was announced. We found our budget suddenly dropped to just under £360,000 because we were expecting mortgage rates to be 5-6%. It felt like a carpet being pulled.
“It’s only gotten worse since then. There are currently no mortgage offers that we could apply for. It used to seem difficult but possible, now it’s completely out of reach.”
Since the initial shock wore off, the couple have been looking at homes in areas further from their jobs, but so far the search has only added to their disappointment.
“We looked at towns and villages 10, 20 miles outside of Brighton, like Worthing and Littlehampton,” says Alex.
“On Monday we viewed a property in Littlehampton which we had booked for a while. There were literally mushrooms growing out of the floorboards and all the walls in the basement were covered with mold. This house cost £400,000.”
Unless the market changes significantly, Alex says, he can’t see how they’ll be able to find an affordable property in a commuter area.
He believes increasing their deposit from the existing 20% they were hoping to deposit is the only option, but with a combined household income of around £50,000 anything they set aside could end up being hit by rising interest rates and house prices to be overtaken.
“I sometimes wonder if house prices will go down, which would be great for first-time buyers like us, but terrible for homeowners. Lately I’ve had to draw on my savings due to rising costs and utility bills. I feel like I’m mourning a loss because right now I don’t think I’ll ever be able to afford a house.”
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