On 3rd August the Bank of England increased interest rates for the 14th successive time since 2021 – from 5% to 5.25%. This was another blow for all mortgage borrowers.
In May 2023 the Bank of England published an article explaining why higher interest rates help to lower inflation. Increasing interest rates reduces spending in the economy, price rises slow down, subsequently reducing inflation. There was mixed reaction to the latest rate rise from economists and the housing market alike, many believing that this rate rise will eventually create the equilibrium we are looking for and avoid a recession.
The impact of these rises has been bitter-sweet. For first-time buyers in particular there is, of course, concern over affordability. House prices have dropped, which is bad news for the market, but may attract some buyers. For those homeowners on fixed-rate mortgages, many will have a while to go before renewing, which will leave many unaffected by the rate increase, whilst hoping for better news in the next few years.
Are responsible mortgage lenders the answer to the problem?
Yesterday we saw more positive news from the lenders with the Halifax joining HSBC, Nationwide and TSB and cutting its mortgage rates by 0.71%.
At the point of the last Bank of England interest rate rise, more than 1.4 million people will be on tracker and standard variable rate (SVR) mortgages and consequently, they have seen an immediate increase in their monthly payments. Only two years ago, the average two-year fixed-rate deal was 2.29%, now they are well above 6%, so it is no wonder there continues to be anxiety among home owners and sellers. Currently, approximately 75% of all mortgages are fixed-rate deals, and so the monthly payments will not change until the fixed-rate term comes to an end.
What does the Bank of England rate increase mean for house movers and house builders?
Leading house builders like Taylor Wimpey and Barratt Developments have voiced their challenges due to the economic climate. Recently, Taylor Wimpey expressed concern over whether customers can afford to buy and have seen a drop in sales and profits over the past six months. However, they recently told shareholders that it is building properties ahead of forecasts, which is encouraging indeed. Source: Evening Standard
Barratt Developments has also announced that it anticipates a 20% drop in home construction this year. Total housing completions were down 3.9% on the previous 12 months, but the last 6 months of 2022 saw a year-on-year increase of 6.9% over the same period with the first half of this year showing a drop of 12.8% on the same period in 2022. Source: Sky News
The market really is in flux, and that’s why stabilisation measures are being introduced. The recent news on four mortgage lenders taking a stand to cut interest rates can only be a positive move for buyers and sellers. After all, there is a critical need for affordable homes and new homes generally in the UK, whether this is for first-time buyers or second-steppers. Could this mark the start of the next wave of positivity and stimulation to the market?
As a national specialist conveyancing firm, we have not experienced the significant downturn that was predicted and continue to remain strong in the new build and re-sale markets. However, we continue to act ethically and responsibly educating potential purchasers on the help that is available to them. Moving home and re-mortgaging can be challenging at any time, not least where there is more than usual uncertainty. We have dedicated conveyancers on hand to help and answer any questions customers may have on everything and anything relating to the conveyancing process and we encourage our customers to seek the right financial advice, and explore all options, via a mortgage broker or the lender themselves to find the best deals for their circumstances. At the moment, interest rates, and consequently the market, continue to remain unpredictable, and the press reporting can be confusing. Buyers, sellers and those remortgaging should make decisions according to their respective personal requirements after taking expert advice.