What is the Future of Mortgage Rates in the UK?

Interest rate

On the 2nd of February, The Bank of England hiked up the interest rates from 3.5% to 4%. This rise of 0.5% was the 10th increase since December 2021, where the Bank rate was only stable at 0.1%. This decision put the Bank rate at its highest point since 2008 and increased the expense of lending even further.

Tomorrow at noon (23rd March), the next Bank rate announcement will take place.

After the mini-budget last September, the market became uncertain and the cost of mortgages increased. This caused major lenders like NatWest, Barclays, Halifax, and Virgin Money to withdraw their deals and reintroduce them at higher prices. The pound also hit a historic low during this time. However, since then, mortgage rates have been stabilizing.

The expenses related to mortgages have shown a decrease from the maximum point they had reached before, and there is a possibility that they may stabilize around the present rates.

The Typical and Optimal Prices for Common Promotions

As per Better.co.uk (previously Trussle), the current average price for a two-year fixed rate arrangement is 4.72%. Alternatively, the average cost for a three-year and five-year fix sits at 4.51% and 4.32% respectively. These rates are significantly lower than the previous highs of over 6.50% recorded in October 2022.

According to Better.co.uk, the most economically attractive offers include a 2-year fixed plan at 4.08%, a 3-year program at 4.19%, and a 5-year option at 3.94%. Currently, the leading 10-year fixed rate proposal is set at 3.99%.

Currently, the average rate for a two-year tracker is 4.58%, whereas the most competitive rate available is 4.14%. On the other hand, the average for a customary standard variable rate (SVR) has escalated from 6.90% to 6.93%, based on data from Better.co.uk.

At the beginning of March, Moneyfacts reported that there were 4,372 options available for people who want to take out a residential mortgage. This is more than the 3,643 deals that were available at the start of the year and the 2,560 deals available since the mini-Budget in autumn. However, there were more than 5,300 mortgage deals available on the market in December 2021, before interest rates started to go up.

The upcoming choice that the Monetary Policy Committee (MPC) of the Bank needs to make is planned for tomorrow, which is 23 March.

The Impact of Interest Rates on Mortgages

How would the increase in interest rates affect mortgage expenses up until now?

Around two million homeowners who opted for variable rate deals, like base rate trackers, will encounter a sudden hike in their monthly payments due to the recent increase in Bank rate to 4%. For instance, an increase in tracker rate from 4.5% to 5% may result in an additional £50 per month for a £200,000 loan.

Individuals who have opted for fixed-rate agreements will not experience changes in their monthly payments as the interest rate remains consistent for a couple of years. However, once the agreement terminates, it is probable that mortgages presented will be more costly.

With our Mortgage Calculator, you can figure out the monthly expenses of your mortgage based on diverse interest rates.

How Stamp Duty Affects House Prices

The most recent update on house prices, provided by Nationwide Building Society, indicates a 1.1% decline in average property values from the previous year in February. Additionally, there was a 0.5% decrease in prices from the previous month. This marks the sixth consecutive month where prices have decreased. Currently, prices are 3.7% below their highest recorded value in August 2022.

According to property website Rightmove, the typical price of a home up for sale rose by 0.8% from February to March, reaching £365,357. Meanwhile, the annual increase in property prices stands at 3%. However, there was almost no change in asking prices between January and February.

The Autumn’s mini-budget brought a reduction in Stamp Duty charges with an increase in the nil-rate band for purchasing a property from £125,000 to £250,000. While other tax incentives announced under former Prime Minister Liz Truss were reversed, this particular tax cut was not.

What is causing the increase in interest rates?

The Monetary Policy Committee (MPC) of the Bank utilizes increased interest rates to calm down the economy and manage inflation that is going up. The inflation measure called Consumer Prices Index (CPI) surged to 10.4% in February's 12 months, which is more than the 9.9% projected by analysts. This is due to the increasing costs of restaurants, cafes, food, and clothing sectors.

Before the news on inflation, people anticipated a bank rate increase of 0.25%. It was predicted to go up to 4.25%. However, there is a chance that the rate may not go up at all. Additionally, there may be an increase of up to 4.5%.

The rate of inflation hit its highest point in October, reaching 11.1%, however, it has been decreasing significantly since then. The Bank of England is required by the government to maintain a 2% inflation goal.

One significant factor that can cause inflation to increase over time is the expense of energy. Beginning on April 1, 2023, the regulatory authority, Ofgem, will establish an energy price cap of £3,280. This cap applies to the estimated yearly bill of a dual fuel household that pays via direct debit and uses a standard amount of energy.

Nonetheless, the Energy Price Guarantee (EPG) introduced by the government to safeguard households from surging energy expenses will be in force. Presently, this guarantee is established at £2,500 annually.

The EPG was supposed to increase to £3,000 starting on April 1st. However, before the Budget was released on March 15th, they revealed that the limit would remain at £2,500 until the end of June, which is an extra three months.

What are the available options for mortgage deals?

It is becoming more and more difficult to monitor mortgage expenses due to the constantly rising Bank and inflation rates. The task is even more challenging because rates can shift frequently and special offers may vanish without notice.

An effortless method is to utilize our mortgage charts, which are fueled by Better.co.uk.

If you want to discover the current rates for the type of mortgage you're interested in, you must input your specific requirements into the chart below. Here are some instructions:

Take a look at this dynamic chart displaying the current mortgage deals on offer.

What additional information should I be aware of?

Mortgage offers that have a low interest rate often have additional charges. These fees can be paid in advance or included in the overall loan amount. To calculate the total cost, arrange the options by the 'initial period cost' on the dropdown menu.

On another note, you have the choice to arrange the outcomes by the starting interest rate, the most affordable charge, or the monthly installments. You can even sort them by the moneylender's "follow on" rate, which will be in effect at the end of the agreed period.

The most affordable mortgage rates are typically offered to those who can provide a deposit of at least 60% of the property's value. Furthermore, it is imperative that you have a satisfactory income and a credit report free from any negative marks to qualify for a mortgage.

To get an idea of how much you would need to pay for your mortgage every month in various situations combined with other expenses, our Mortgage Calculator can help you compute the figures.

At what point can I begin a remortgage?

Mortgage offers usually last for six months after they are released. Skipton Building Society is among the few lenders who extend their offers to 12 months. If you plan to refinance your existing property, this gives you the advantage of securing a rate with no fees or obligations.

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