Average mortgage rates hit 6% – is the headline rate the whole story?
Mortgages have been back in the headlines recently with news that average fixed rates have climbed above 6%. This will have understandably caught the attention of those looking to buy a house or refinance an existing property.
In the current climate, the prospect of taking on a mortgage at a rate beginning with a six can be concerning. However, while headline rates provide a useful snapshot of the wider mortgage market, they don’t tell the whole story when it comes to an individual’s mortgage options.
An average rate isn’t necessarily your rate
In recent months, mortgage rates have responded to uncertainty and volatility caused primarily by the ongoing conflict in the Middle East. The impact this has had on energy prices and supply, as well as inflation and expectations for interest rates has influenced the mortgage rates available to both new and existing borrowers.
While this has meant that some mortgage rates now start with a six, this isn’t the case for every mortgage option available. In reality, mortgage rates vary significantly depending on the circumstances of the borrower and the property.
Factors such as the size of the deposit or the amount of equity available in an existing property, loan-to-value ratio, income, outgoings and the type and value of the property can all influence which products and lenders may be available.
Borrowers therefore shouldn’t necessarily assume that seeing average rates above 6% mean they will be offered the same rate, or that a mortgage is automatically unaffordable.
The only way to truly know what may be available is to look at your own circumstances and consider the range of options that could potentially be suitable. A mortgage adviser is well placed to help you explore the options most suitable for you.
Rate is not the only thing to consider
Finance is now a frequent part of everyday life, whether it’s purchasing a new or used car, buying the latest smartphone or spreading the cost of new furniture, clothing or tech. While we may consider the interest rate in these scenarios, the focus is often on what the monthly payment will look like – in other words, is it affordable for me and my budget?
The same principle can apply when considering a mortgage. A headline rate is important, but it is the monthly payment that will have the biggest impact on your day-to-day finances. The question shouldn’t be whether a mortgage is available at a particular rate, but whether the monthly payment is affordable alongside your other commitments and leaves enough room in your budget now and into the future.
It’s also important not to judge a mortgage purely by the headline rate. It’s worth remembering that the lowest headline rate isn’t necessarily the cheapest option overall.
A lower rate may come with a higher product fee – a one-off charge applied by the lender to set up and secure the mortgage. Meanwhile a slightly higher rate, but with a lower product fee, could potentially represent better overall value depending on the size and term of the mortgage. Looking at the overall cost could give you a much clearer picture of whether a deal is right for you.
Don’t let headlines make decisions for you
While the current market may make it tempting to hold off on plans, basing your decision purely off headlines could mean you overlook more favourable options that may be available for your individual circumstances.
The mortgage market is constantly changing and lenders have different criteria, product ranges and borrower sweet spots. They all have different appetites for new business, meaning that while some are raising mortgage rates, there are equally those trimming rates to encourage new applications.
Above all, it’s important to remember that a mortgage that works for one borrower may not be suitable for another – even if they were buying similar properties or their circumstances looked the same on the surface.
That’s why advice is so important and can be hugely valuable when rates are moving and affordability may be tight.
Beyond the headlines
Nobody knows for sure where mortgage rates will go next, so trying to time the market perfectly can be very difficult.
It’s also important to remember that ultra-low rates seen following the financial crash in 2008 or the COVID pandemic in 2020 were not the norm, but a response to the circumstances of the time. So while borrowers may hope for lower rates and may well see averages improve, we shouldn’t expect a return to those ultra-low options.
Instead, borrowers should focus on understanding what they can afford, what products and lenders may be available to them and which option best fits their circumstances and plans.
A 6% average rate may make for a striking headline, but it shouldn’t automatically be the reason to halt all plans. Whether you’re a first-time buyer, mover or someone approaching the end of your current deal, those headlines should serve as an important reminder to seek advice from a qualified mortgage adviser.
They will be able to help you look beyond those headline figures and understand the options available to you. The best option may not be the one with the lowest rate. Instead, it will be the one that is affordable, appropriate for your circumstances and fits your wider financial plans.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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