Updates on UK mortgage rates

Updates on UK mortgage rates: What you need to know

On 2 February, the Bank of England increased its interest rates from 3.5% to 4%, a rise of 0.5 percentage points. This marked the 10th increase since December 2021, when the Bank rate was only 0.1%. As a result, borrowing costs have been pushed even higher, and the Bank rate has reached its highest level since 2008.

The Bank of England is set to make its next announcement regarding the Bank rate on 23 March.

Mortgage rates UK

Market Instability

Market turbulence and instability resulted in a significant increase in mortgage costs following the September 2022 mini-Budget. Major lenders in the UK withdrew their deals and re-introduced them at higher rates due to the volatility and uncertainty in the sterling market.

The arrival of Rishi Sunak as the Prime Minister positively affected market stability and the average cost of fixed-rate mortgages has been steadily decreasing since its peak.

Typical Prices for Mortgage Deals Today

Today’s average cost for a two-year fixed-rate mortgage deal is 4.65%. Meanwhile, the average costs for three-year and five-year fixed-rate deals stand at 4.59% and 4.37%, respectively. This is a significant decrease from the highs of over 6.50% recorded in October.

Among the most competitive deals available in the market are a two-year fixed rate deal priced at 4.13% and a five-year fixed rate deal priced at 3.94%. Currently, the best 10-year fixed rate deal is at 3.99%. Regarding tracker rates, the average two-year rate is 4.61%, while the market leader offers a rate of 4.24%. The typical standard variable rate (SVR) is currently at 6.89%. (Source: better.co.uk)

Moneyfacts reported this month that around 4,340 residential mortgage deals are currently available on the market. This is an increase from the 3,643 deals at the start of the year and 2,560 deals available since the Autumn 2022 mini-budget. However, the number of deals available is still below the 5,300-plus deals in December 2021, before the interest rates began to rise.

The recent drop in the annual inflation rate to 10.1% in January and a settling political landscape may ease the pressure on the Bank of England to increase interest rates further in 2023. 

The Bank’s Monetary Policy Committee (MPC) is scheduled to make its next decision on 23 March 2023.

Relationship between Interest Rates and Mortgages

What does the recent increase in interest rates mean for mortgage costs?

For the estimated two million homeowners on variable rate deals, such as base rate trackers, the recent Bank rate rise to 4% will result in an almost immediate increase in their monthly repayments. For instance, a tracker rate increasing from 4.5% to 5% could cost an added £50 per month on a £200,000 loan.

On the other hand, those on fixed-rate deals, where the interest rate is fixed for a certain period, such as two or five years, will not see any change in their monthly payments. However, available mortgages will likely be more expensive when their deal ends.

Several major house price indices indicate that UK house prices have declined in recent months, although they started to stabilize at the beginning of this year. Nevertheless, many people still find these prices unaffordable.

Relationship between House Prices and Stamp Duty

According to Rightmove, the average cost of a home listed for sale in February is £362,452, a mere £14 higher than in January. This is the smallest increase recorded by Rightmove between these two traditionally strong months for the property market as spring approaches. However, Rightmove reported that demand is stronger than expected, with enquiries to agents increasing by 11% in the last two weeks alone.

In last Autumn’s mini-Budget, the Stamp Duty cuts announced raised the nil-rate band on property purchases from £125,000 to £250,000. While U-turns were made on the other tax breaks that were announced under former Prime Minister Liz Truss, this one has remained in place.

What is causing the increase in interest rates?

The Bank of England’s Monetary Policy Committee (MPC) uses interest rate increases to control the economy and curb inflationary pressures. In the 12 months leading up to October, the Consumer Prices Index (CPI) measure of inflation surged to 11.1%. Although it moderated to 10.5% in December and further to 10.1% in January, these figures should be viewed considering the government’s target of 2%.

One of the primary long-term factors driving inflation upward is the cost of energy. Ofgem, the regulator, had set an energy price cap that would have resulted in annual bills of £3,549 for a typical household from 1 October and further increased to £4,279 from 1 January 2023.

However, the government has replaced the price cap with its own cheaper Energy Price Guarantee (EPG), which limits typical annual bills to £2,500 until 31 March 2023, followed by £3,000 for an added 12 months starting from 1 April 2023.

What does all this mean for Expat Mortgages?

The cost of borrowing is usually higher for those resident outside the UK. Additionally, the deposit required for your property will be higher, with a maximum LTV of 75% probable. Recent movements in the mortgage market haven’t changed these criteria – the eligibility bar is still high.

That said, there have been reductions in mortgage rates for non-resident buy-to-let mortgages and products that were pulled following the mini-budget last autumn are back on the market now.

Before all borrowing, overseas buyers must give themselves the best chance of finding a reasonable rate. That means:

  • Having as big a deposit as possible
  • Organising proof of funds and income to comply with anti-money laundering legislation
  • Maintaining a UK credit file, if possible

At Hoxton Capital, we recommend working with our specialist mortgage team to find the best product for your needs.

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