January 18, 2023
Russell Braiden

Are Mortgage Rates Going Up?

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Are Mortgage Rates Going Up?

Due to a series of unfunded tax cuts announced by the then Chancellor of the Exchequer, Kwasi Kwarteng, the Bank of England was forced to issue an emergency statement. This statement pledged to lift rates ‘as much as needed’ to help control inflation, following major volatility caused to the pound and UK gilts.

Since December 2021 the base rate had already been raised seven times by the Bank of England from 0.1% to 2.25% which subsequently increased the cost of borrowing. This was due to the swap rates banks used to price fixed-rate deals which have also risen sharply. After the Chancellor’s Mini-Budget, these swap rates jumped rapidly, sending Government borrowing costs to soar.

Mortgage Uncertainty

Lenders pulled up to a thousand mortgage deals from the market within days of the Mini-Budget due to uncertainty over future interest rates. As a result, first-time buyers and those looking to remortgage were most affected.  

Since then, there has been many reports of property sales falling through as lenders backed out of previously agreed mortgage deals – all because of the uncertainty within the market.

Recent Mortgage Changes

The Halifax, part of Lloyds Banking Group, increased their interest rates to over 5% on multiple deals for new borrowers.

‘The new rates reflect the continued increase in mortgage market pricing over recent weeks’, a spokesperson for Halifax said.

The interest rate on a typical two-year fixed rate mortgage has now breached 6% for the first time in 14 years according to Moneyfacts. With around 100,000 people a month coming to the end of their current mortgage, they are faced with significant rises in their monthly repayments.

What will you Pay Now?  

To put into context, the interest rate on a new, average two year fixed deal on the morning of the Mini-Budget was 4.74%. As of the 5th October it was 6.07%, meaning for somebody borrowing £200,000 on a 30-year mortgage they would pay in the region of an extra £170 per month on repayments. A five-year fixed deal has typically risen from 4.75% to 5.97% over the same period.

Following the Mini-Budget, mortgage rates jumped in view of the expectation of a faster and higher increase in the Bank of England base rate in the coming months. NatWest, Nationwide and Virgin Money are just some of the other lenders who have increased their rates.

Monthly Repayment Increases

Moneyfacts outlined how a homeowner in mid-September with a £200,000, 30-year mortgage would be looking at a rate of 3.5% and a monthly repayment of £898. Where-as on 5th October, this is more likely to have risen to a 5.5% rate and a monthly repayment of £1,135. A significant increase in such a short space of time.

On the morning of the Mini-Budget there were 3,961 deals available in comparison to 2,262 at the start of October - a fall of 43% according to Moneyfacts.

What’s Next?

It’s extremely hard to determine what will happen in the market next. If the Bank of England leaves interest rates unchanged then lenders will have more certainty and more mortgage products will return. However, if the pound falls again there is an increased risk of a Bank of England reaction, and affordability is likely to further decline. Economic clarity provided by clear forecasts from the Office for Budget Responsibility however should eventually feed through to stop the increases, or see some reversal in mortgage rates.

If you are concerned about the rise in mortgage rates and what this means for you Transparent Mortgage Services will be more than happy to discuss in further detail. Contact one of our friendly advisors on: telephone 01424 444 597 or email: info@tms-fs.co.uk.

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