It’s hard to escape the media reporting on the current state of the mortgage market. Stories of mortgage products being withdrawn at short notice and of some lenders pulling their complete mortgage ranges has created a sense of fear and panic. The media is painting this as a mortgage meltdown so, what’s going on?

There’s nothing that spooks the market more than uncertainty, and the way that mortgage deals are funded relies on a degree of certainty.

To a lender a mortgage deal is a product that they sell with a profit margin applied. Lenders must fund, or buy, the product (funds) then they apply their margin before selling on to the public. When the price of the product (funds) is relatively stable, it’s easy for a lender to offer fixed-rate deals that they know they’ll be able to offer for a reasonable time.

What we have now is a volatile market with no certainty as to where the new level that interest rates will settle at. This is making it difficult for lenders to agree funding at rates that they can apply a margin to be competitive. This is causing fixed rate deals to be withdrawn at short notice.

Lenders are responding to this in different ways, some are withdrawing from the market completely until things settle down whilst others are launching new products, albeit at higher rates, and then withdrawing these products at short notice. Sometimes the result of this is that lenders launch a product in the morning, only to withdraw it in the afternoon because of either demand or not being able to continue to fund them.

So, what should you do if you are worried about rising rates? Firstly, don’t panic, as this may lead to you making the wrong decision that could be costly. Secondly, speak to a mortgage professional who’ll take account of all your circumstances before recommending the various options to you.

Whichever decision you make must be made quickly in the current market. Thinking time has been reduced as any deal that’s around today may not be around tomorrow.

What we’re seeing is that clients with current deals that are due to end in the next 12 months want certainty as soon as possible as they fear rates will continue to rise. Before the current turmoil we would have advised waiting to see what the existing lender is offering, before comparing this with what was available with other lenders. This has changed, as lenders don’t typically offer new deals to existing borrowers until the existing deal has only 3 to 4 months remaining. For many clients this is too long as they want to secure a new deal much sooner. We are now talking to clients who are in the last year of their current deal to weigh up their options.

Mortgage offers on new deals are usually valid for at least 6 months, this means that clients can apply for a new deal now to secure a rate with a view to the new mortgage starting in 6 months’ time. We’ve even seen some clients prepared to pay an Early Repayment Charge on their existing deal to secure a new rate. Whilst this is not usually advisable, it is something clients wish to discuss.

In summary, don’t panic, talk to a mortgage professional and don’t risk losing out on a new deal by delaying making a decision once you’ve received the advice.