The term “Mortgage Stickiness” describes the situation where a property owner has a mortgage product that they want to keep, typically because the mortgage is a fantastic deal that they cannot expect to improve upon, or it may be their financial situation has weakened and thus its unlikely they will be able to get another mortgage.
The current market has left up to 50% of residential mortgage holders with products that track bank base rates at 1% or 2% over base rate, in some case less than 1%. In effect these mortgage holders have a huge disincentive to move property because if they did the new mortgage would have a much higher long term interest rate (some products offer initial low rates but the longer term rates are typically 3% or 4% over bank base rate).
The effect is that someone with an average mortgage of around £140,000 (BBA statistics) could see interest charges increasing from £233 pcm (2% rate) to £466 pcm(4% rate). For many people this is a huge disincentive to move.
The other factor is those whose financial situation has changed, or maybe the more recent strict mortgage rules man they can no longer get a mortgage (some self employed may fall into this category).
No one knows for certain but it is clear that a very large percentage of property owners are effectively in a trap, they have a “sticky mortgage”, it would simply be too expensive to move to a new mortgage, effectively leaving them with no option of moving property.
This then takes us to our last point. With a large proportion of the property market (up to 50%) trapped in this way we have a situation where there is insufficient property coming onto the market. Perhaps this is a good thing short term as it helps to stabilise property prices? However if the BofE starts to increase bank base rates too fast we could see a major shift, many will no longer be held back by their existing mortgage which will become more comparable to new mortgages on offer. This could create a step change in market supply and create some interesting dynamics for property prices.
