What’s happening with mortgage rates?  

 A series of unfunded tax cuts announced by the new Chancellor of the Exchequer, Kwasi Kwarteng, forced the Bank of England to issue an emergency statement pledging to lift rates ‘as much as needed’ to control inflation, following major volatility caused to the pound and UK gilts. 

 The Bank of England had already raised the base rate seven times from 0.1% to 2.25% since December, which has pushed up the cost of borrowing, because the swap rates banks use to price fixed-rate deals have also risen sharply. These swap rates jumped rapidly in the aftermath of the Chancellor’s Mini-Budget on 23 September, which sent government borrowing costs soaring. 

Since that statement we have had a change of heart, changes in policy, a new Chancellor and a new Prime Minister. Has this helped?

 Market uncertainty 

 As a result of the uncertainty over future interest rates, many lenders within days of the Mini-Budget pulled nearly a thousand mortgage deals from the market. First-time buyers and those looking to remortgage are likely to be most affected.  

 Subsequently, there have been reports of some property sales falling through as lenders backed out of previously agreed mortgage deals due to market uncertainty. This is not something that I have witnessed, in fact if you gave a mortgage offer with a high street lender they will, in my experience, alway stand by that offer.

 Current mortgage 

 The Halifax, part of Lloyds Banking Group, put up the interest rates on a range of deals for new borrowers to well over 5%. ‘The new rates reflect the continued increase in mortgage market pricing over recent weeks,’ a spokesperson for Halifax said. 

 According to Moneyfacts, the interest rate on a typical two-year fixed rate mortgage has now breached 6% for the first time in 14 years. An average of at least 100,000 people a month are coming to the end of their current mortgage and face a significant rise in their monthly repayments. 

 Higher increase  

 The interest rate on a new, average two-year fixed deal on the morning of the Mini-Budget fiscal event was 4.74%, compared with 6.07% on 5 October. The result of this, for somebody borrowing £200,000 on a 30-year mortgage, is in the region of an additional £170 a month on repayments. A five-year fixed deal has typically risen from 4.75% to 5.97% over the same period. 

 Following the Mini-Budget, mortgage rates subsequently jumped with the expectation of a faster and higher increase in the bank rate in the coming months. Other major lenders such as NatWest, Nationwide and Virgin Money also increased their rates. 

 Monthly repayment  

 Moneyfacts highlighted a scenario whereby a homeowner borrowing £200,000 on a 30-year mortgage may have been looking at a rate of 3.5% and a monthly repayment of £898 during mid-September. However on 5 October, this is more likely to have risen to a 5.5% rate and a monthly repayment of £1,135. 

 On the morning of the Mini-Budget there were 3,961 deals available, compared with 2,262 at the start of October, a 43% fall, according to Moneyfacts. 

 Mortgage products  

 We do not know what will happen to the market next.   

In fact we have seen some lenders shaving a little of the rates available, however with the Bank of England raising the base rate to 3% and with further rises in the pipeline the outlook is for higher interest rates for the foreseeable future.  

Want to discuss your mortgage options? 

If you are concerned about the rise in mortgage rates it is essential you seek professional advice to assess the options and deals available to you right now. To discuss your situation, speak to The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk