To say it has been a hectic few weeks in the world of mortgages is somewhat of an understatement! I cannot ever recall the mortgage market gaining so many front pages of the newspaper headlines in my thirty years within Financial Services.

Everyone is going crazy over fixed rates. The thing is, why? Before I discuss solutions, let’s take a brief look at the housing market and property prices.

We live in a country where we are not building enough homes. We are a little island where the cost of land is a premium and the planning process is complex. The result is less housing stock which results in property prices remaining consistent, even in a challenging market.

Could property prices go down a little? We feel we are in a blip (some would say political negligence but time will tell) and the political issues will be behind us in the short term.

I have friends who, a few years ago, told me that they are going to wait as a housing crash is imminent. The price of their ideal property has become unaffordable now as it is 25% higher than two years ago. In the meantime, they are still in rented accommodation and the cost of their rent has dramatically increased. It is a lose-lose situation for them!

In the past year, the cost of the average property had increased by just over 15%. The most recent housing “crash” in 2008/2009 reduce prices (in Southeast London) to the same value as 2006/2007 before they swiftly recovered.

Therefore, I believe, if there was a correction then it will not be as bad as the press want us to believe with their sensationalised headlines!

The cost of fixed rates has dramatically increased recently as the swaps market is based on confidence. Fixed rates are great as they will give you stability but at a huge price in today’s market.

As borrowers, it is only in recent times that many consumers must opt for a fixed rate. But why?

A two-year tracker rate is presently available at 3.15% based on a 25% deposit.  The cost for a £300k repayment mortgage (i.e., £400,000 purchase price) over 25 years will be £1450.95 per month – I suspect this is cheaper than renting and you own the property and one day the mortgage will be paid off and it will be all yours!

On the other hand, a two-year fixed rate is presently available at 5.55% which will cost £1851.23 (for the same terms as above).

To lose out by opting for a tracker mortgage, the bank base rate must increase by 2.4%. Is this really going to happen? If it did there will be far larger implications, my guess is that this is highly unlikely!

Bank of England forecasts that the rate of inflation will return to the normal 2% level by 2024. Maybe this gives a little confidence?

To summarise, yes, it is certainly tougher now than it was in December 2021, rates are higher, but the alternative of renting is even more costly.

The group I sympathise with are those who are coming off fixed rates in the coming year. They will find themselves with a large financial increase compared to what they enjoyed in recent times.

I hope this helps and give a little more of a balanced view when compared to reading the headlines in the papers?