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Five reasons why mortgages are getting us down

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Conversations about mortgage rates are no longer confined to the dinner party circuit or the golf course.
People are talking about their mortgage shock with friends at the school gates or in the supermarket. It is not only anxious homeowners – tenants are worried their landlords, facing higher rates of their own, will put up their rent.
Here are five reasons for the current commotion.
If forecasts were to be believed, we should be seeing a significant slowdown in price rises. The rate of inflation shows the pace at which prices are going up, and so charts the rising cost of living.
The latest official data spooked markets and lenders though, as it suggested inflation was going to stay higher for longer than anticipated. It also pointed to a theory that higher prices were becoming more embedded in the UK economy.
The premier, if rather blunt, tool to tackle high inflation is for the Bank of England to put up interest rates. With the benchmark rate now expected to peak at 5.5%, rather than the current 4.5%, the cost to lenders would be greater, and so – in turn – they have put up the interest rate they charge for mortgages.
Mohamed El-Erian, former deputy director of the International Monetary Fund (IMF) and president of Queens' College at Cambridge University, says the blame lies with central banks who suggested high inflation would only be temporary.
"It turned out inflation was persistent and therefore central banks were late and society as a whole was late to adjust to higher inflation," he told the BBC.
Two years ago there was a rush from property buyers as tax concessions from ministers to keep the housing market moving during Covid were wound down.
Lower or zero rates on stamp duty, and the equivalent tax in Scotland and Wales, made "a hot market even hotter", according to analysts. The pandemic led many people to reconsider where they lived, and stamp duty cuts made them move more quickly.
Many of those buyers got two-year fixed mortgages, which are now due to expire.
The peak for homeowners rolling off fixed mortgage deals is July to October this year, with more than 400,000 expected to do so, according to figures from the City watchdog, the Financial Conduct Authority.
The timing isn't great. The rates being offered for a new deal now are considerably higher than back then. That could add hundreds of pounds to a monthly mortgage repayment.
Anil and Jessica Jhamat, from Solihull, are having to find an extra £550 a month. They bought their home during the stamp duty holiday, which allowed them to purchase "a house we wouldn't otherwise have been able to afford".
"We assumed interest rates would stay low, otherwise we'd have taken out a five-year fix," Mr Jhamat said. "Hindsight is a wonderful thing."
The pharmacist and his wife, a digital manager, also have to find £1,000 a month in childcare fees for their one-year-old son. "Where we are now, we've lost what we saved [in stamp duty]. Essentially we're back to square one," he said.
A mortgage repayment is the highest monthly outgoing for many people, so decisions over which product to choose are made with lots of thought and advice.
The trouble is lenders are currently withdrawing their mortgage products with hardly any notice. That makes for a frenzied situation.
On Thursday, HSBC gave notice to brokers that it was going to pull its deals four hours later. After being inundated with applications, it withdrew them within three hours, only to then temporarily reopen the channel for applications on Friday.
At times like this, big lenders do not want their deals to be significantly cheaper than their rivals, and they only want as many applications as they can cope with.
Justin Moy, founder at Chelmsford-based mortgage broker EHF Mortgages, said: "These last-minute communications just add to the stress of the situation. Decisions on rate changes and repricing must give everyone the opportunity to react in a controlled manner, especially when the increases are hefty and make a real difference to a borrower."
Homeowners who decide the best thing to do is sit on their hands and wait for things to settle down could face a nasty shock.
When a fixed term comes to an end – usually after two or five years – then a borrower reverts automatically to their lender's standard variable rate (SVR). That rate is higher, which is why most people go on to another fixed deal instead, although not everyone has that option as, for example, they may have missed payments in the past.
Brokers say these SVRs have soared, meaning anyone who adopts a wait and see approach would see a massive jump in the rate they pay, and therefore a much higher monthly mortgage bill.
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Interest rates fluctuate based on the Bank of England's base rate and market conditions.
"Some lenders have a much higher SVR than others. We tell our clients how important it is to choose a lender that treats its customers fairly when their rates come to an end," says Aaron Strutt, of broker Trinity Financial.
Many people have been shocked by the rise in mortgage rates since December 2021, because they had grown so accustomed to ultra-low interest rates for the previous decade or more.
A variety of economic, and pandemic, reasons kept interest rates down – at times at historic lows.
Anyone who has bought a first home during that time would never have faced such a situation as now. Rates have been much higher in previous decades, but people are now borrowing more as house prices have soared.
Lenders tested applicants' finances for their ability to cope with higher rates. That is now more reality than theory, and will lead some people to question whether they stretched themselves too far. Analysts say the availability of jobs, and a relative lack of unemployment, has saved many from having to sell up.
The impact is felt by tenants too. Higher costs for landlords will push up rental prices, and would lead to fewer homes being available to rent if they decide to leave the sector.
Read more here
Additional reporting by Jemma Dempsey
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