The end of low interest rates? Why now is the time to seek help from the Bank of Mum and Dad
Professor Les Mayhew believes that the fall in five-year fixed-term mortgage rates is not enough to support a change in fortunes for those wanting to buy.
A leading expert in the housing market has warned that days of low interest mortgage rates are over and believes first-time buyers will be more reliant than ever on the ‘Bank of Mum and Dad’ in the years to come.
Professor Les Mayhew, a Professor of Statistics at Bayes Business School, said that parents are likely to need to play a greater role in supporting the next generation of home owners after the average rate on a five-year fixed-term mortgage fell to its lowest level in two months.
It is possible the trend may continue, although the 5.95 per cent existing rate remains significantly higher than between one and two per cent of around a year ago.
While the drop may be positive news for those who saw mortgage rates rise drastically following the mini-budget in September, Professor Mayhew says the news is far from cause for celebration.
“The good news is that it could have been much worse, but the bad news is that it is still bad news, irrespective of how you look at it.
“At the moment home ownership looks like becoming an even more distant dream. If you can this would be a good time to seek help from the Bank of Mum and Dad.
“The previous hike can be traced to the disastrous mini budget in September, but also before. Borrowers on fixed-term mortgages that are approaching renewal should be prepared for a deep intake of breath, since the hike comes on top of skyrocketing cost of living increases in the form of higher energy costs and general inflation.
“At Bayes, we have been predicting a housing correction in 2023 for more than four years but we didn’t know that a war in Ukraine would trigger it. The key questions are ‘how far will the market fall?’ and ‘what will the Bank of England do?’”
The Scottish Labour Party have unveiled the step of a mortgage rescue package to help people pay for their mortgage arrears, with the aim to prevent homelessness whilst the crisis lasts.
Professor Mayhew labelled the step as "unprecedented", highlighting that the end of low interest rates is likely to mean increased renewals for those with mortgages and further problems for those looking to save.
“The truth is that whilst any dip in borrowing rates is to be welcomed, the real issue is that the era of low interest rates is over – therefore change is inevitable.
“That means two things: Firstly, existing borrowers will struggle financially at the point where they must renew their deal and, secondly, savers will struggle because it means that borrowing costs have just got higher and that their savings for a deposit might not be enough. Estimates vary depending on individual circumstances but a borrower with an outstanding loan of £300,000 due shortly for renewal could have to find an extra £500 a month in repayments.
Professor Les Mayhew is a Professor of Statistics at Bayes Business School and Head of Global Research at the International Longevity Centre.