More than 1,600 mortgage products were withdrawn immediately after Kwasi Kwarteng’s speech as borrowers worried about interest rates
So if you’re an anxious potential borrower – or a mortgage payer wondering what you’ll do when your current contract ends – how long does a mortgage offer last? Here’s what you need to know.
What’s New in Mortgages?
It is the responsibility of the Bank of England to maintain the value of the pound sterling, which it controls through interest rates. When interest rates rise, inflation falls because it becomes more expensive to borrow money.
In response to the fiscal event and its impact on markets, the Bank of England said it would not hesitate to raise its base rate by a significant amount. Since this rate sets the tone for mortgages, this statement suggests that mortgages will likely become more expensive. The next pricing decision will be made on November 3.
As of September 29 – less than a week after the mini-budget and just days after the Bank of England’s announcement – more than 1,600 mortgage products were withdrawn from the market. Although the situation has improved since then, there are still around 1,000 fewer mortgage products than there were on mini budget day, according to an analysis by moneyfacts.co.uk.
“Mortgage offers were withdrawn because lenders are hedging their risk,” explained Paula Higgins, CEO of HomeOwners Alliance. “Lenders need to be able to make money and won’t want to be forced to offer low rate mortgages when the base rate goes up.
“Another factor is that regulations require lenders to ensure customers’ mortgages are affordable. Their stress tests should ensure that borrowers can afford to repay if the base rate rises.
“A lack of certainty about rates and their direction means it’s easier to simply withdraw mortgage products until things are clearer.”
The mortgages you can get have become much more expensive, with the market expecting the UK central bank to raise rates to around 6%. This could mean that some borrowers are struggling to pass lenders’ affordability checks, reducing the number of mortgages they can get.
On Tuesday (October 11), the average two-year fixed rate mortgage stood at 6.6.43% – the highest level since the depths of the financial crash of 2008. In real terms, this means that a The average person with a £200,000 25-year mortgage would find themselves paying £5,000 more per year (£417 per month) than they would have in December 2021.
Five-year fixed rates rose by a similar amount to an average of 6.29%.
“Mortgage interest rates continue to rise, so borrowers comparing fixed offers would be wise to seek advice to see what options are available to them,” said Rachel Springall, finance expert at moneyfacts.co.uk .
“Mortgage products are starting to return after lenders temporarily withdrew offers amid interest rate uncertainty, but there is still a long way to go from the level of choice seen before the mini-budget.
“Consumers need to carefully consider whether the time is right to buy a home or mortgage, or wait and see how things change in the weeks ahead.”
How long does a home loan offer last?
If you got a mortgage offer in principle at a better rate than those currently advertised, the current situation may make you anxious – especially given that accessibility checks may become more difficult to pass as the interest rates rise.
Prospective buyers face a host of potential delays, particularly if their property purchase depends on moves further up the chain – which could become more problematic if the housing market slows.
According to comparison site U-Switch, a mortgage usually lasts 60 to 90 days (about two to three months). If you are further along in the process and the lender has made you an official mortgage offer, it will last between three and six months.
The start of this countdown varies from lender to lender. Some start it when you make an offer on a property. Others do it from the date you receive your mortgage application.
If you are likely to run out of time, you can request an extension from the lender. If this extension is not granted, you will have to reapply for the mortgage and may face additional costs, such as a new home appraisal.
The general advice for now — as NationalWorld pointed out in its article on when to fix your mortgage — is to register and stay in touch with a mortgage broker. They can advise you on the latest market developments and pitfalls that may apply to your situation.
Can a loan offer be withdrawn?
Obviously, if you don’t get your home purchase in time for your mortgage offer, you’ll likely see it taken away. But could it be removed before? Fortunately, the odds are slim according to the experts NationalWorld spoke to.
Halifax, which is one of the UK’s biggest lenders, says the phenomenon is ‘relatively rare’.
“An offer may be withdrawn if new information comes to light that we were not aware of at the time of the offer,” a spokesperson told us. “For example, undeclared commitments, inconsistent address history, or fraud — things that significantly undermine the initial loan decision.”