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UK Mortgage Rates Soaring

Rates on new mortgages continued to climb this week. The fallout from the mini-budget is continuing to reverberate through the housing market. The higher rates being offered are bad news for both first-time buyers and those looking to remortgage. So how bad are things going to get, and what can we do? Compare conveyancing fees online,

Finance Minister Kwasi Kwarteng announced in his “mini-budget” controversial plans to introduce tax cuts and more relaxed regulations for businesses. While the cost-of-living crisis in the U.K. continues, Kwarteng argues his budget will boost growth. Critics say that it will mostly help the rich and promote inequality in the U.K. even more than usual

The mini-budget did have one positive for those trying to buy a home; Stamp duty was reduced.

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Stamp Duty Cuts

People whose property is worth more than a certain threshold pay stamp duty. For first time buyers this was already set at a higher level than the average U.K. property price before the mini-budget came into effect. The changes therefore don’t impact many first-time buyers.

Chancellor Kwasi Kwarteng announced that SDLT would not be charged on the first £250,000 of a property purchase for people moving home. This has risen from the current level of £125,000. Furthermore, to help people get on to the property ladder, no stamp duty will be paid on the first £425,000 of a property worth up to £625,000 for first-time buyers. 

While the cuts will benefit some buyers, any gains might be cancelled out by other rising costs. Paresh Raja, CEO of the firm ‘Market Financial Solution says:

“The cuts to stamp duty…will definitely help. Unfortunately, a number of other factors are simultaneously making their lives harder: namely, inflation, interest rates and mortgage market disruption,” 

Francis Gill, a financial advisor at Humboldt financial, has a similar opinion:

“For people who were very close to being able to afford a purchase, but were still saving for stamp duty costs, this is a win and they should be able to bring forward their purchase date. However, what they have saved on SDLT will likely be eaten up on higher mortgage rates pretty quickly,” he said.

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What About Mortgage Rates?

The housing and mortgage sector has been hit hard. Lenders are pulling out of hundreds of mortgage deals or pricing them at a much higher level after the Bank of England rate expectations surged. This pushed up costs considerably for borrowers.

According to Moneyfacts data, the average rate for a 2-year fixed mortgage surpassed 6% this week. This is up from 2.25% a year ago. This could go up even further; Nicholas Mendes, a technical mortgage manager at mortgage broker and advisor John Charcol says:

“With lenders costs increasing, volatile economic outlook, and factoring in service levels and future rate rises expect, we could be seeing an average rate of 7% in the new year,” he said.

Many borrowers are  concerned that they will not be able to afford their mortgage payments. They are set to more than double in thousands of cases. Research and expert advice are key for anyone looking for a mortgage deal right now. Gill explains.

“Make sure your credit score is accurately reflected, make sure they speak to an independent broker, consider fixing for a period {…] and consider any Early Repayment Charges,” he suggests.

Consider what will happen if the rates are this high in 2/3 years, (however long they may be considering fixing for

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What Else Might Happen To The Housing Market?

Markets are expecting a “difficult 12 months. Lenders could increase rates further and the mortgage base rate could rise, while a recession and the cost-of-living crisis are likely to put pressure on homeowners.

Property prices are predicted to drop in 2023. Likewise rates are expected to fall slightly from the highs they are today.

Markets could stabilise, or at least be less unpredictable compared to the last two weeks. The lending market will likely calm down after this particularly turbulent period. There will be more stability in rates and less products being pulled.

This would at least ease some of the uncertainty homeowners are currently facing.

For people trying to get onto the property ladder, the situation might have some long-term silver linings as others are forced to leave the property market; There may be an opportunity if a lot of landlords leave the market with an influx of properties for sale and prices might come down.

Compare Conveyancing Fees Online

Are you moving home? Buying, selling or remortgaging in England and Wales? We provide an online instant fixed fee residential conveyancing quote from impartial, accredited licensed conveyancers and solicitors throughout the UK.

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