High mortgage rates continuing to put pressure on young homeowners

While the sense of turmoil that defined Liz Truss’s brief premiership has thankfully subsided, the legacy of the measures she (tried to) implement still remains.

According to the Bank of England, the number of mortgage approvals hit its lowest level since 2009 – excluding Covid lockdowns – during January this year.

That means that the mortgage market has contracted for five months in succession, and many analysts believe this is a consequence of the ill-fated Mini Budget last September, which sent mortgage rates shooting up and products pulled off the market.

At the same time, we’ve seen annual house price growth slipping into negative territory for the first time since June 2020. According to Nationwide Building Society data, prices in February 2023 were down 1.1 per cent on the same month last year – the biggest dip since 2012.

As Robert Gardner, Chief Economist at Nationwide, notes: “While financial market conditions normalised some time ago, housing market activity has remained subdued.”

This, he believes, reflects the “lingering impact on confidence”, as well as continued high inflation and mortgage rates being well up on where they were in 2021.

Higher mortgage rates are having a particularly big impact on young homeowners. New figures from the Financial Conduct Authority (FCA) show that borrowers aged between 18 and 34 are more likely to be financially stretched than other working age adults.

The FCA also reports that 356,000 mortgage borrowers could face payment difficulties by the end of June next year. This includes those who are reaching the end of their fixed rate deal, who estimates suggest could end up paying a monthly average of £340 extra on their mortgage.

As the watchdog notes, being stretched doesn’t necessarily mean borrowers will miss payments, as some will be able to rely on savings, cut spending elsewhere or increase their incomes to cover their mortgage costs.

But while this might help homeowners meet their immediate mortgage commitments, that doesn’t help with their longer-term financial planning, particularly if they are actively working to achieve specific goals.

So if you’re among those who are struggling with mortgage costs right now, or are facing a big hike in the size of your repayments, it’s well worth asking for advice. You could speak to your lender, for instance, or consult free services such as MoneyHelper.

Speaking to a professional, regulated financial adviser can also be a good idea, as they’ll take a holistic look at your finances before offering guidance and support. With this approach, any advice will be given with your long-term financial and lifestyle goals firmly in mind, as you don’t want to be knocked off course as you’re working towards a specific aim.

Making big financial decisions and juggling conflicting interests can be really difficult, as you’re managing strong emotions while trying to make sense of technical jargon and details.

A professional financial planner will take an objective look at your situation, so you can have the peace of mind you need and confidence that you’re making the right decisions at the right time.

Please don’t hesitate to get in touch with us if you have any questions about managing your finances in the current climate. We’ll be happy to speak with you.

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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. Welby is a trading name of Welby Associates Wealth Management Ltd Company Registered Number NI630504 who is authorised and regulated by the Financial Conduct Authority, FCA register number 697372. The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk

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