What’s Next For UK Mortgage Rates?

The Bank of England’s recent interest rate increase marks a crucial shift for the UK economy, particularly for the housing market. For those considering buying or selling a home, this move could significantly impact property prices and the cost of borrowing. So what’s next for UK mortgage rates?

The Current State of Mortgage Rates

Currently, the average cost of a two-year fixed rate deal stands at 4.74%, while the average prices of three and five-year fixed contracts stand at 4.56% and 4.31%, respectively, according to Better.co.uk. Since October 2022, these rates have gradually come down from highs of over 6.50%. However, the most competitive deals are still at around 4.08% for two-year fixed rate deals, 4.14% for three-year fixed rate deals, and 3.94% for five-year fixed rate deals.

Meanwhile, the average two-year tracker rate stands at 4.63%, with the top deal of this type priced at 4.14%. Standard variable rates (SVRs) have also increased, now priced at around 6.95%, compared to the recent Bank rate increase.

The Impact of Interest Rates on Mortgages

The estimated two million homeowners on variable rate deals such as base rate trackers will see a rise in their monthly repayments almost immediately. On the other hand, those on fixed-rate deals won’t notice any difference until the agreement ends, when mortgages available are likely to be more expensive.

However, it’s not just about the immediate impact. Interest rates affect the overall affordability of housing as higher rates mean that people can borrow less, reducing their purchasing power. Nevertheless, even small rate changes can significantly affect your mortgage payments. For example, a tracker rate rising from 4.5% to 4.75% costs almost £31 extra a month on a £200,000 loan over 25 years.

House Prices and Stamp Duty

According to the Nationwide Building Society, the average property value in February decreased by 1.1% YoY, leaving prices 3.7% below their peak in August 2022. Meanwhile, Rightmove reports that the average cost of a home listed for sale in March is 0.8% higher than in February.

Stamp Duty cuts announced last Autumn raised the nil-rate band on property purchases from £125,000 to £250,000, benefiting homebuyers. However, with rising interest rates, the impact on the housing market is expected to slow down.

Related Facts and Key Takeaways

• The next Bank rate decision will be taken on 11 May 2023.
• Mortgage rates have been settling from their peak, but they are still expected to continue rising in the coming years.
• Interest rates affect affordability and purchasing power, reducing the number of people who can afford homes.
• Homeowners on variable-rate deals will have to bear the increased monthly repayments, while those on fixed-rate deals will face higher mortgage costs when their contract ends.

Conclusion

The Bank of England’s interest rate increase significantly indicates the economy’s stability after a difficult period. However, it will undoubtedly affect the housing market, and mortgage rates will continue to rise in the coming years. Therefore, for those looking to buy a home, it’s essential to factor in interest rates and affordability to make informed decisions about future property purchases.