The UK housing market is facing increased pressure as mortgage rates reach a 15-year high, surpassing levels seen after the “mini-budget” crisis and contributing to the country’s slowing housing market amid stubborn inflation and the Bank of England’s efforts to combat it. The average two-year fixed residential mortgage rate has climbed to 6.66%, exceeding the levels touched in October 2020 and reaching the highest point since August 2008, according to data provider Moneyfacts.
Higher UK Mortgage Rates Will Affect Homeowners And Prospective Buyers
Despite a recovery in the housing market earlier this year, homeowners and buyers are now experiencing renewed mortgage pain as fixed mortgage rates have risen rapidly in recent weeks. Higher-than-expected consumer price inflation and increased market speculation on the Bank of England’s benchmark rate reaching 6.5% have contributed to the surge in rates.
Major mortgage lenders, including Nationwide, Lloyds Bank, and Santander, have repriced their mortgage offerings in response to the rise in rates. While there has been a slight increase in mortgage payment arrears, lenders report that arrears remain relatively low compared to pre-pandemic levels.
However, the impact of higher borrowing costs has not yet been fully felt by most households, as many are still locked into previous mortgage deals. In the coming years, approximately 2.4 million fixed-rate mortgages are set to end, requiring borrowers to refinance their loans. Analysis from the Resolution Foundation suggests that the average homeowner refinancing a mortgage in 2024 will have to pay an extra £2,900 ($3,732.88) per year.
UK House Prices Are Under Pressure
The rise in mortgage rates is also affecting the housing market, as evidenced by the decline in house prices. Reports from mortgage lenders Halifax and Nationwide indicate annual falls of 2.6% and 3.5% respectively, the largest declines in years. Meanwhile, the Royal Institution of Chartered Surveyors reported that, in June, its house price balance, which gauges the disparity between the proportion of surveyors witnessing increases and decreases in property prices, declined to minus 46 from minus 30 in May. This decline marked the lowest value on the index since April 2009, except for February when it also stood at minus 46.
The current environment of rising mortgage costs, high inflation, and uncertain interest rates poses challenges for both existing homeowners and prospective buyers. The effects on the UK housing market could have wider implications for the overall economy and the financial well-being of households. It is crucial to closely monitor the situation and consider measures to support individuals facing mortgage stress during this challenging period.
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