Chancellor to hold crisis talks with high street banks after biggest increase in mortgage costs for 14yrs
HIGH street bank bosses have been summoned to crisis talks with Chancellor Kwasi Kwarteng.
It comes as homeowners face the biggest increase in mortgage costs for 14 years.
The average rate on a two-year fixed mortgage has surged to 6.07 per cent — the first time it averaged more than six per cent since 2008.
Mr Kwarteng is calling in bank bosses after more than 1,000 mortgage products were pulled by lenders over the past week.
The products were withdrawn on the back of market turmoil in government bonds, which made it almost impossible for banks to price their products against.
It has also become harder for first-time buyers to get loans due to higher interest rates and tougher affordability checks.
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The market chaos was in part sparked by concerns about a surge in borrowing and unfunded tax cuts in last month’s mini-Budget.
Critics dubbed the knock-on impact as the “Kwarteng premium”.
Bosses from Barclays, NatWest and Lloyds Banking Group are expected to attend the meeting, according to Sky News.
The financial watchdog has recently called for banks to justify the withdrawal of their rates.
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The jump to 6.07 per cent — compared to an average of 2.34 per cent last year — means homeowners with a £200,000 mortgage over 25 years will face paying an extra £416 a month, or nearly £5,000 a year, compared to last year.
And the same deal will be £78 more than if a borrower was able to secure a mortgage just five days ago.
Homeowners with a five-year fixed mortgage are also facing a 5.97 per cent interest rate rise, meaning a £373 increase compared to last year, according to .
Rachel Springall, from the firm, said: “Borrowers may well be concerned about the rise to fixed mortgage rates but it is essential they seek advice to assess the deals available to them right now.”
A mortgage broker can help you work out the best mortgage deal for your circumstances and what you can afford to borrow.
What is going to happen to the housing market?
High interest rates could be a big blow for demand as we have become accustomed to low interest rates and many of us do not have additional cash buffers.
Consumer champion Martin Lewis explained that it's hard to predict what will happen with the housing market at the minute during an appearance on GMB.
He said that because there are "so many variables and it's incredibly complex right now."
House prices could be hit as higher borrowing rates are expected to make it harder for people to buy a home.
Because mortgage rates are rising, buyers face higher monthly repayments than when rates were lower.
The government slashed stamp duty in the mini Budget to help home buyers.
First-time buyers stand to save up to £6,250 and those already on the property ladder up to £2,500 compared to the previous rates.
Is now the right time to buy a house?
Buying a home is always based on your individual circumstances. For example, if you need more room for a growing family.
You'll want to comb through your finances before signing up to any loan - including a mortgage.
It's important to see if you can actually afford the repayments alongside your existing bills and outgoings.
Buying a property is a long-term investment. You’ll need to consider long-term affordability and now may not be the time to stretch yourself with a sizeable mortgage that may become harder to pay as the cost of living rises.
I have already agreed a mortgage in principle, can my lender rip it up?
Make sure you line up a mortgage in principle with a lender.
Also known as a “decision in principle,” this is a statement or letter written by a lender, setting out how much they would be willing to lend.
It gives you a helpful illustration of how much you could borrow, based on an initial assessment of your circumstances.
Mortgage brokers typically say that once a mortgage in principle has been agreed, it’s rare for lenders to go back on it.
The contract usually lasts for three to six months before it expires.
What will it mean for me?
For a homeowner with a £200,000 two-year fixed mortgage ending early next year, if the base rate rises to six per cent, then monthly payments will rise from £800 to £1,408 — meaning £7,296 more a year.
If it’s a £300,000 mortgage, monthly payments will rise from £1,200 to £2,112 — meaning a £10,944 annual increase.
Those on variable or tracker mortgage deals will have already noticed a rise in rates.
A homeowner on a £400,000 standard variable mortgage would see bills jump by £965 a month, or £11,580 a year, if rates hit six per cent.
Those on fixed deals will be protected from rate rises until their deal expires.
Should I refix my mortgage early?
If you’re on a fixed deal then you may consider leaving early — but you will have to factor in any early repayment charge.
You can usually secure a fixed-rate mortgage six months before the end of your existing deal.
Nick Morrey, technical director at mortgage broker Coreco, says: “We have seen a marked increase in the number of borrowers looking to exit their deal early to get a new product before rates go much higher.
“They are prepared to pay significant early repayment charges to do this but it is not always a good idea.”
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The Sun spoke to mortgage expert Nick Morrey to find out what first time buyers should do now.
Here, we list and explain everything you need to know as interest rates and housing bills soar.