There is a glimmer of hope on the horizon for home buyers and those hoping to get onto the housing ladder.
Lenders including HSBC and Virgin Money have begun tentatively lowering mortgage rates, as two and five year gilts saw a drop in yields bringing down the cost of Government borrowing.
The news is a welcome reprieve after mortgage rates increased at alarming speed over the past few weeks since the then-chancellor Kwasi Kwarteng’s ill-fated mini-Budget.
The average two-year fixed rate across all deposit sizes is now 6.50 per cent, down from 6.65 per cent a week ago, according to Moneyfacts.
The average for a five-year fix has also fallen to 6.36 per cent from 6.51 per cent over a few days.
Deal’s off: If there is a material change in circumstances with the property or your finances, lenders reserve the right to pull a mortgage offer – even if it has been approved
On 23 September (the day of the mini-Budget) the average rate for a two-year fixed mortgage across all deposit sizes was 4.74 per cent.
Less than a month later on 28 October, it sat at 6.53 per cent. A rise of that magnitude would add £134 to monthly payments for a £200,000 mortgage over 25 years, or an additional £1,608 per year.
Things are changing quickly, and those currently buying a home might be wondering what their position is if rates change during the process.
Normally, a lender cannot take away a mortgage rate that has been approved – as rates hold for six months after acceptance.
For those who got a mortgage offer approved earlier in the year but have yet to exchange on their property, their lenders is likely to honour that rate. This means that if you locked in a fixed-rate offer in May it is likely to still be valid.
However, in some circumstances lenders can withdraw offers despite them being approved. We look at when and why this happens.
When can a lender pull a mortgage deal?
In normal circumstances this cannot be done. An accepted offer is legally binding and usually holds for around six months, giving you time to complete and exchange on your house.
Jane’s mortgage story
Jane is a trainee paramedic living in Sussex. After working tirelessly for years to save for a deposit she was offered a mortgage in June by Nationwide of £188,000 with a 2.7 per cent interest rate and a deposit of £90,000.
Because of a mistake made by the estate agency undervaluing the maintenance fees of the property she has to reduce her offer for the property by £5,000. The change resulted in the bank recalculating the by today’s ONS cost of living figures and found she was no longer eligible for the loan. The most she could borrow was £18,000 less than originally offered.
This left her in a very precarious position as her landlord increased her rent and she can no longer afford to buy a house at the higher interest rates, despite a strong credit score.
Jane was lucky that her broker had a good working relationship with Nationwide and was able to get the lender to reconsider and rerun the figures as there hadn’t been a change in her personal finances.
‘I genuinely believe that had I not used a broker who has business contacts at Nationwide and a good working relationship, they would have stood firm on rejecting my application,’ she told This is Money
However, mortgage lenders can usually withdraw a rate they have approved if there is a ‘material change’ to the conditions of the mortgage.
The most common example of this is if value of the property is reduced.
Your lender may also withdraw a rate if you declare a material change in circumstances, such as new income, or it finds evidence of fraud in the application.
Most mortgage offers include a requirement on the borrower to disclose a material change to the lender that occurs before completion.
They can also consider withdrawing an offer if there are legal issues around that property that have cropped up, such as title restrictions or rights of way that the buyers didn’t know about until the legal due diligence was completed.
If any of these issues crop up, it is a good idea to speak to a mortgage broker to get professional advice – as our case study (right) shows.
If you want a new rate with them under the new circumstances then they will likely ask for updated documents, such as payslips, and re-run a credit check.
Furthermore, since you first applied for your mortgage lenders may have tightened their stress testing on prospective borrowers which may make it harder for you to access credit.
Despite the Bank of England doing away with mandatory stress testing for mortgages in the summer, the ongoing cost of living crisis and rising rate of borrowing have meant lenders are tightening the conditions under which they will approve mortgages.
However, Matt Coulson, a mortgage expert at Heron Financial, says there haven’t been many reports of lenders pulling offers.
‘There are niche examples of non-mainstream lenders doing it whenever you have fluctuations on this scale in the market’, he says.
‘But they’re often catering for people with very adverse credit. Those are the ones that start to move the goal posts, but for the main high street lenders we haven’t seen it happen.’
Can I switch to a better deal if rates fall?
The other side of the coin is the question of what happens when mortgage rates fall, but a borrower has already had a mortgage offer accepted at a higher rate.
This has happened at several lenders recently, with some making significant reductions that could potentially save buyers hundreds of pounds per year.
Accord Mortgages, for example, announced that it was bringing down several of its rates, including on low-deposit products which target first time buyers.
In an email to brokers the lender confirmed it was reducing 5 per cent deposit rates by up to 0.52 per cent, and 10 per cent deposit product rates by up to 0.53 per cent.
Still time: Home buyers don’t have to accept a mortgage offer until they send funds for completion – but switching lender may complicate things if they are far along in the process
Slightly higher-deposit products of 15 per cent and 25 per cent are set to come down by up to 0.35 per cent.
You can apply for a lower rate with the same lender as long as you haven’t completed on your purchase, says John Charcol’s Ray Boulger.
‘You are not committed to accepting a mortgage offer until your solicitor requests funds for completion,’ he says.
‘Some lenders will allow you to switch to a cheaper rate at no cost and others might allow you to switch but impose a fee.’
If rates have fallen far enough and you have enough time, you can switch to a new lender and not take up the original offer
Coulson warns that typically these fees are around £100, although if the new rate is notably lower it is likely worth the price.
‘Alternatively, if rates have fallen far enough and you have enough time you can switch to a new lender and not take up the original offer,’ he adds.
The overarching guidance is that, unless you have completed on the mortgage, then you have options. The point of no return for changing your rate is once the funds are drawn down to pay for the property.
‘You could look across the market for better rates,’ advises Ashley Thomas, director at mortgage broker Magni Finance. ‘But if you are quite far gone the best option is to stick with your current lender.’
In the best case scenario you have a lender which has a simple process, where the broker can just amend the rate to the product of your choice.
Alternatively they may ask you to withdraw your original application and reapply for the lower rate.
In both scenarios the mortgage provider may run another credit and affordability check, so you will need to have documents ready.
You also need to be sure that you have time to change the rate before completion, as some lenders could be slow depending on the level of demand.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic.
Banks and building societies are still lending and mortgages are still on offer with applications being accepted.
Rates are changing rapidly, however, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates.
This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value
What if I need to remortgage?
Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate.
Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal.
Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I am buying a home?
Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.
Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to higher mortgage rates limiting people’s borrowing ability.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.
You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.
Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check the best fixed rate mortgages you could apply for
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