Mortgage Rates Begin to Stabilise: How long will it last?

Date: 31/03/2023

Author: Prospect Tree Mortgages

For keen observers of the property market, it’s been evident that there is a change taking place. UK house prices, after two and a half years of high growth, have fallen for the fourth consecutive month, including a 1.5% decrease in December. Moreover, mortgage approvals have declined to their lowest level since the emergence of the pandemic. The cause of this shift is mortgage rates, which have impacted buyer affordability. In October 2022, the average two-year fixed rate hit 6% for the first time in 14 years.

Although mortgage rates have declined slightly in recent weeks and are expected to continue decreasing throughout 2023, the picture remains unsettling. As a result of these changes, it is becoming increasingly challenging for current and aspiring homeowners to identify the best mortgage deal.

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Here, we provide an overview of what is happening in the market.

Why are house prices falling?

The reason is primarily due to higher mortgage expenses. Since December 2021, the Bank of England (BoE) has raised interest rates eleven times, reaching the current rate of 4.25%. The interest rate was increased to 4.25% on 23rd March 2023.

With borrowing costs rising, many potential homebuyers are finding themselves priced out of properties that they previously could afford. Between October and November 2022, the number of UK mortgage approvals dropped by 20%, from 58,997 to 46,075. As a result of the decline in demand, sellers are being forced to lower their asking prices.

Experts anticipate property values to continue decreasing in 2023, with expected declines ranging from 2% to 20%. It is important to note that this is without taking inflation into account, which, despite decreasing somewhat last month, still remains above 10%. Consequently, some believe that prices could fall by 30% in real terms.

How much will my mortgage cost?

According to Moneyfacts.co.uk, the best two-year fixed-rate mortgage for home movers and those looking to remortgage is 4.74%, while the cheapest five-year fixed rate is 4.39%. However, these deals are only available if you have a maximum loan-to-value ratio of 60 to 65%.

These rates are just a sample, and in reality there are in excess of 4,000 mortgage products available on the market right now. Nonetheless, a mortgage broker such as ourselves can often access exclusive deals which are not offered direct to customers. So you should always double check with an expert before choosing a product, it costs nothing, takes minutes and could save you thousands of pounds on your new mortgage or remortgage.

With fixed-rate mortgages, the interest payable remains constant throughout the term, which is typically two, five or ten years. Once the term expires, you will move onto the lender’s standard variable rate (SVR). The lenders SVR will fluctuate with rising and falling interest rates and is often set a lot higher than their on the shelf products. So, unless you have exceptional reasons for remaining on the SVR, you should look to move to a new product ASAP.

You can move to a new product with your existing lender, this is called a ‘product transfer‘, and is often the quickest and easiest way to move onto a new rate. A mortgage broker will usually be able to complete this switch for you exceptionally quickly and help you keep costs to an absolute minimum. However, any good broker will also want you to take the opportunity to check the marketplace for any potential savings. Again, unless you have exceptional reasons for not doing so, this is always a good idea!

Deals are less favorable for first-time buyers, who can access rates of 5.24% and 4.84% for two and five-year fixes, respectively. That being said, a first-time buyer with a larger deposit will always be able to secure better rates and for those who work in certain professions, you may also be able to secure a preferential deal! Ultimately, you should always check with an expert who can make sure you’re aware of everything that’s available to you.

In October 2021, the cheapest fixed rate was only 0.84%. Moreover, 57% of mortgages coming up for renewal in 2023 were fixed at rates below 2%. To put this into perspective, data from the Office for National Statistics (ONS) indicates that borrowers with a £300,000 mortgage could be paying up to £661 more per month once their current deal expires. On average, the increase is expected to be around £250 per month.

The energy crisis pales in comparison to the increase some households will be seeing to their mortgage payments this year. This is something we’ve been warning our customers about ever since the end of 2021.

If you’re concerned about your mortgage repayments, take a quick questionnaire to find out how much you could save.

Tracker rates, on the other hand, are usually less expensive than fixed rates. According to TotallyMoney.com, the best two-year and five-year deals are 3.74% and 4.1%, respectively. Once again, rates change on a daily basis and you should always contact an expert before deciding on a mortgage product.

Trackers differ from fixed-rate mortgages in that the level of interest can vary during the term. In most cases, rates are linked to the BoE base rate. For example, they might be 0.50 percentage points above. If the BoE raises rates, which has been happening a lot lately, your mortgage will become more expensive.