How long does a mortgage offer last? Can your agreed rate change or be withdrawn amid mini budget disruption

More than 1,600 mortgage products were withdrawn in the immediate aftermath of Kwasi Kwarteng’s mini budget, amid anxiety over interest rates

The Chancellor Kwasi Kwarteng spooked the markets with his mini budget on 23 September. A big cut to stamp duty, a reversal of Rishi Sunak’s national insurance hike and - before a u-turn - the 45p income tax rate abolition all led to concerns about the longer-term direction of the economy.

In the aftermath of Mr Kwarteng’s fiscal event, the pound slid to record lows against the dollar and the Bank of England felt compelled to launch a major bond buying exercise to prop up pension funds. It has subsequently expanded this operation ahead of its 14 October deadline.

One of the most tangible effects of the disruption was seen in the mortgage markets, where UK lenders big and small suddenly withdrew more than 1,600 products. Mortgage rates have also climbed to highs not seen since the 2008 recession.

So, if you are an anxious potential borrower - or a mortgage payer wondering what you will do when your current deal ends - how long does a mortgage offer last? Here’s what you need to know.

UK mortgage rates have become much more expensive since Kwasi Kwarteng’s mini budget (image: Adobe)

What’s the latest on mortgages?

The Chancellor’s mini budget sparked a scare in mortgage markets because the tax cuts it included and the market’s reaction to them (and the lack of an OBR forecast for the UK economy) were inflationary - inflation essentially being the erosion of the value of a currency.

It is the Bank of England’s responsibility to maintain the value of pound sterling, something it controls through interest rates. When interest rates go up, inflation decreases because it becomes more expensive to borrow money.

In response to the fiscal event and its impact on markets, the Bank of England said it wouldn’t hesitate to hike its base rate by a significant amount. Given this rate sets the tone for mortgages, this statement suggested mortgages were likely to become more expensive. The next decision on rates will be made on 3 November.

The UK economy would contract in a recession (image: PA)

As of 29 September - less than a week after the mini budget and just days after the Bank of England’s announcement - more than 1,600 mortgage products were withdrawn from the market. While the picture has improved since then, there are still around 1,000 fewer mortgage products out there than there were on the day of the mini budget, according to analysis by website moneyfacts.co.uk.

“Mortgage offers have been withdrawn because lenders are protecting their risk,” explained Paula Higgins, CEO of the HomeOwners Alliance. “Lenders have to be able to make money and won’t want to be tied into offering low rate mortgages when the base rate increases.

“Another factor is that under regulation, the lenders need to make sure customer mortgages are affordable. Their stress tests need to ensure borrowers can afford repayments if the base rate rises.

“A lack of certainty about rates and where they are heading means it’s easier to simply pull mortgage products until things are clearer.”

Lenders are uncertain about how much the Bank of England will hike interest rates by (image: AFP/Getty Images)

The mortgages you can get hold of have become much more expensive, with the market expecting the UK central bank to raise rates to around 6%. It could mean some borrowers struggle to pass lenders’ affordability checks, thus reducing what mortgages they can get hold of.

As of Tuesday (11 October), the average two-year fixed-rate mortgage came in at a rate of 6.6.43% - the highest level since the depths of the 2008 financial crash. In real terms, it means an average person with a £200,000 25-year mortgage would find themselves paying an extra £5,000 a year (£417 a month) than they would have in December 2021.

Five-year fixed-rates have risen by a similar amount to an average of 6.29%.

“Mortgage interest rates are continuing to rise, so borrowers comparing fixed deals would be wise to seek advice to see what options are available to them,” said Rachel Springall, a finance expert from moneyfacts.co.uk.

“Mortgage products are starting to return after lenders temporarily withdrew deals amid interest rate uncertainty, but there is still much more room for improvement compared to the level of choice seen before the mini-budget.

“Consumers must carefully consider whether now is the right time to buy a home or remortgage, or to wait and see how things change in the coming weeks.”

Uncertainty is engulfing the housing market (image: AFP/Getty Images)

How long does a mortgage offer last?

If you have secured a mortgage offer in principle at a better rate than those now being advertised, the current situation may be making you anxious - especially given the fact that affordability checks may become harder to pass as interest rates rise.

Prospective homebuyers face a whole host of potential delays, particularly if their property purchase depends on movements further up the chain - something which could become more of an issue if the housing market slows down.

According to comparison website U-Switch, a mortgage in principle usually lasts for 60 to 90 days (roughly two to three months). If you are further along with the process and the lender has given you a formal mortgage offer, it will last for between three to six months.

When this countdown starts varies from lender to lender. Some start it when you put an offer in on a property. Others do so from the date your mortgage application was received.

Halifax says mortgage offer withdrawals are ‘relatively rare’ (image: AFP/Getty Images)

If you are in danger of running out of time, you can apply for an extension from the lender. If this extension is not granted, you will have to reapply for your mortgage and may face extra costs, e.g. a new home valuation.

The general advice at the moment - as NationalWorld pointed out in its article on whether now is the right time to fix your mortgage - is to check in and then keep in touch with a mortgage broker. They can advise you on the latest market developments and any pitfalls that may apply to your situation.

Can a mortgage offer be withdrawn?

Clearly, if you don’t get your home purchase over the line in time for your mortgage offer, you will probably see it withdrawn. But could it be withdrawn before then? Fortunately, the chances are low according to the experts NationalWorld has spoken to.

Halifax, which is one of the UK’s biggest high street lenders, says the phenomenon is “relatively rare”.

“An offer can be withdrawn if new information comes to light which we were not aware of at the time of offer,” a spokesperson told us. “For example undeclared commitments, inconsistent address history or fraud - things that materially undermine the original lending decision.”