As Adverse Credit Mortgages are typically 1-2% above the average mortgage rate, depending on your level of bad credit, many homebuyers and home-movers with bad credit are holding off until the adverse credit mortgage rates become more affordable and/or property prices fall further.
But what can we expect in the UK mortgage market in the near future?
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What is the current UK Mortgage Market?
At the time of writing, the UK Bank of England Base Rate is 4% and the lowest mortgage rate on offer in the UK is 3.99% Fixed for 5 years with HSBC or Fixed for 10 years with Lloyds Bank and Virgin Money.
In all instances a maximum loan to valuation of 60% is required so the lowest rates are far from accessible to the majority of the mortgage market.
In September 2022s mini-Budget the UK saw average mortgage rates spike to as high as 6.5 per cent and as a result many borrowers held off on making decisions in the hope that rates would stabilise. This was especially painful for UK mortgage borrowers given that less than 12 months earlier mortgages were widely available with rates lower than 2 per cent
With HSBC, Virgin and Lloyds mortgage rates now technically below the actual base rate there are positive signals ahead, however.
The Outlook for UK Interest Rates
The consensus is that the Bank of England Base Rate is expected to peak at no more than 4.5% during 2023 before starting to fall from 2024 onwards and down to 3.25% over the next three years, where it will be expected to remain for the foreseeable future.
With this long term forecast from the Bank of England being more optimistic mortgage lenders are now starting to hedge their bets and offer more competitive mortgage rates in the hope that whilst they may lose on the first 12-24 months of the loan, that months 24-60 will offer them a profit to outweigh the initial hit, especially when the upfront fees of £1000-2000 are factored in to the overall mortgage.
Whilst there is some acceptance needed from borrowers as to the changed market, there is optimism ahead for mortgage applicants with good credit and even for those in the market for adverse credit mortgages.
The Outlook for UK Mortgage Rates
With the UK Central Bank rate now forecast to be more stable over the next 5 years the banks, building societies and other mortgage lenders are starting to regain confidence in their future pricing again and slowly but surely as the rates stabilise, the number of mortgage products on offer is rapidly increasing.
With interbank swap rates hovering around 3.5 per cent on a five-year fixed rate, there is a clear indication that base rate and the economic outlook is far more positive than recent times so it is expected that for the next five years, fixed rates of 3.75 per cent to 4 per cent will be fairly typical for those with good credit and a lot of equity in their property.
The rates for higher loan to valuation mortgages for first time buyers will likely be 4.25 per cent to 4.75 per cent for those with a minimum of 10% deposit, excellent credit and impeccable affordability.
Geoffrey Russell from UK online broker Adverse Online said: “Given the turmoil of the last six months since Liz Truss mini budget its encouraging to see the high street fixed mortgage rates coming down for borrowers looking to secure a new deal, as typically the adverse market isn’t far behind in lowering its rates and we are starting to see movement”
The Outlook for UK Adverse Credit Mortgages Rates
Mirroring what Russell from Adverse Online says, the best rates in the UK adverse mortgage market that are available today, are 6.1% 5 Year Fixed and 5.57% 15 Year Fixed with TML and Kensington respectively. Both are subject to criteria and a maximum of 60% loan to valuation.
These rates from TML and Kensington are close to the long-running average of a 1.5% uplift for bad credit mortgages, from the best rates on offer from the major banks for customers with good credit.
As such, the adverse credit mortgage market may well see their best rates fall to between 4% and 4.5% in the near future, for those with moderate adverse credit history and a loan to valuation of less than 75%.
How can I get the best mortgage deal?
Getting the best mortgage rates will obviously depend on the rates available at the time and your circumstances, but there are several ways to secure a better deal for yourself.
- Secure the biggest deposit you can
- Check your credit report for any errors
- Think at least 12 months ahead and review your outgoings to improve you affordability
- Speak to a Mortgage Broker for their help in finding the best deal for your circumstances
If you have very bad credit and no more than a 5% deposit your options are severely restricted compared to someone with excellent credit and a 50% deposit but no matter what your circumstances it pays to shop around and to speak to a broker to help you navigate the market.
