A mortgage ‘ticking time bomb’ awaits if UK interest rate hikes follow market forecasts, Martin Lewis has warned.
Speaking on ITV’s Good Morning Britain, the consumer champion suggested those with variable rate mortgages or fixed rate deals that end in the next three to five months could check a comparison website to see what is currently available.
The founder of MoneySavingExpert.com said: “So check out your existing business to see what it will bring you, then mortgage brokers are worth their weight in gold right now.”
Mr Lewis said that for some there may be logic in breaking their fixed agreement, but he added: “It’s not good for everyone – you want the mortgage broker to make those numbers. “
It has recently been suggested that the Bank of England may need to raise interest rates by up to 6%.
Clearly, many people will start failing affordability checks at this rate.
Mr Lewis said that scenario would be ‘catastrophic for mortgage holders’, pointing to the costs it could add to mortgages.
He continued: “Once you start applying (for a mortgage), you have to pass an affordability check.
“Obviously a lot of people will start to fail affordability checks at this rate. So either they’ll be locked into their own company’s offers only, or they’ll opt for a standard variable rate.
“And worse, because we now have a risk for house prices, this is not a prediction, I am saying that there is a risk that house prices will go down, that they will not do not, that they continue to increase.
“And if house prices fall, it will hurt people’s loan-to-value ratios, making it even harder to get a cheap mortgage.
“So there is a ticking time bomb in mortgage lending if UK interest rates follow what the market is predicting and rise to 6%.”
What happened to our market is specific to the UK, based on the decisions that were made in the mini budget
Speaking earlier in the interview, Mr Lewis said: ‘We spent six months talking about the energy crisis and all of a sudden we were… and it seems like, you know, it has been, it’s self-imposed evil that is happening in the mortgage market right now.
He added: ‘What happened to our market is specific to the UK, based on the decisions that were made in the mini budget.
Mr Lewis said markets expected the big debt to come from energy bills ‘but all of a sudden we had income tax cuts’.
He continued: “The government can say the tax cuts are good and maybe in the long run they will turn out to be right, but like in comedy, timing is everything.
“And putting all of those things together absolutely spooked the markets and made us look like a nation of comedians, frankly.
“The thing with the markets, it’s easy to dismiss them. It’s easy to say, ‘These are city boys and girls doing their thing and who cares.’
“But they are not impartial commentators. They don’t just stand aside and say, “We don’t like it.
“They control trillions and trillions of pounds of money that move major economies.”
Lenders have pulled mortgage products from sale and prices have risen in response to current conditions.
The choice of mortgage products continues to shrink, according to Moneyfacts.co.uk.
Some 2,340 mortgage products were on sale on Thursday – down from 2,661 on Wednesday, after choice fell from a record 935 products between Tuesday and Wednesday.
On Friday, the day of the mini-budget, 3,961 products were available, which means that the choice of residential mortgage products has decreased by 1,621 offers since last Friday.
Brokers said they expected lenders to return with new offers in the coming days.
Rightmove housing expert Tim Bannister said: ‘The number of attractive mortgage deals dropping this week is a bitter pill to swallow for those wanting to move and those whose fixed terms are due to end, and it will have an impact on buyers’ budgets, especially those that were already stretching.
“We are carefully monitoring activity in real time, and so far what we are seeing is that the housing market is still on the move.
We have seen a slowdown in demand over the past few months, but buyer demand is still 20% above the pre-pandemic five-year average.
“The number of potential buyers asking to view properties on Monday and Tuesday is down 3% compared to other Mondays and Tuesdays this month, and demand is still significantly higher than the supply of homes for sale. .
“Additionally, the number of agreed sales on Tuesday was at its highest in a day since early August, perhaps as some people rush to get a mortgage before rates rise further.
“Over the past month, activity has shown that the housing market has been surprisingly resilient to the headwinds of rising rates and so it appears that for those who can move, they are forging ahead at the moment.
“We have seen a slowdown in demand over the past few months, but buyer demand is still 20% above the pre-pandemic five-year average, house prices are 15% higher than they were there. two years ago and the total number of homes going through ownership transfer is 40% higher than in 2019.”