Navigating the New Normal: embracing the reality of interest rates

Rumours abound about potential interest rate increases, leaving First-Time Buyers, like you, wondering if it's the right time to pursue your dream of homeownership. It's natural to consider a "wait for interest rates to come back down to normal" strategy. But the unfortunate truth is that a 5% Base Rate is actually the long-term average (BOE data goes back to 1694). We've been living in an anomaly with super low interest rates for the past 15 years and now interest rates have risen back up to the long term average. The disappointment is real for many First Time Buyers, who haven't benefitted from those low rates, however it's crucial to plan your homeownership strategy in the current economic climate rather than based on interest rates of the past and hope that world returns again.

Let's start by adjusting our mindset and accepting that a 5% Base Rate (or thereabouts) is likely to be the new normal. This mental shift will immediately set you apart from everyone else whose longing for the good old days because they won't be proactively preparing for things as they are now. Thinking and planning with the new normal in mind will put you in a robust financial position now and only strengthen your situation if rates do go down in the future. Adjusting your way of thinking is the most important step.

Next, let's focus on your deposit. If you've already started, it's worth exploring whether saving for a higher deposit that would lower your Loan-to-Value ratio can offer better you interest rate options. Even if you haven't begun saving, consider that aiming for the minimum 5% deposit may not provide the best affordability in terms of mortgage options. Understanding the impact of your deposit on which mortgage product (and interest rate) you could get is essential.

Now, let's consider your monthly mortgage costs. Higher interest rates translate to higher mortgage payments, which may require a larger portion of your take-home pay. To make these costs more manageable and potentially increase your borrowing capacity, it's vital to explore avenues for improving your income.

Your earning potential is greater than your current wage so get creative and explore additional income sources. In today's world, earning from multiple sources has never been easier, you have so many different options. Moreover, wages from 9-5 jobs are on the rise, with many sectors experiencing significant pay increases right now. The employment market and economics, in general, tend to adjust towards an equilibrium, even if that is set at a new threshold. Although it may take time, wages will align with the new current interest rates, inflation and cost of living levels.

Accepting the new normal means recognizing that interest rates of around 5% will be here for the foreseeable future. Using this as a realistic benchmark allows you to assess what is needed to achieve your dream of homeownership.

Stay positive and adaptable. With the right mindset and determination, you can navigate the new economic climate and achieve your goal of owning your own home. As in life, the journey is never straight forward and simple, but with perseverance, you will get there.