[ad_1]
The Bank of England on November 3 raised interest rates from 2.25% to 3.0%. The 0.75 percentage point increase marks the eighth increase since December 2021 when the Bank Rate was just 0.1%. That puts Bank Rate at its highest level since November 2008.
volatility and uncertainty
After September’s ill-fated mini-budget, as well as rising bank rates, the cost of mortgages was already rising due to sterling volatility and market uncertainty. Major lenders including NatWest, Barclays, Halifax and Virgin Money all pulled deals and brought them back to the market at higher prices.
The appointment of Rishi Sunak as Prime Minister helped stabilize the markets and the average cost of a fixed rate mortgage has continued to fall from its peak.
According to data provider Moneyfacts.co.uk, the average cost of two- and five-year fixed rate deals across all deposit tiers rose to 5.84% and 5.67% respectively earlier this week. This compares to an October 20 high of 6.65% and 6.51%.
Average costs for both timescales are now below 6% for the first time in more than two months.
However, the last time mortgage costs were at this level (outside of recent weeks) was back in 2008 and 2010, respectively.
Rachel Springle at MoneyFacts says mortgage rates could fall further, but it’s hard to know when and by how much: “Borrowers feel they need to wait a little longer before committing to a new fixed mortgage, or even from the recent interest rate uncertainty. Wait until next year to see how the market recovers.
The average number of residential mortgage deals available earlier this week was 3,873. The number has risen again to 2,560 since September’s Lease Truss/Quasi Quarteng mini-budget. However, it is still a far cry from the 5,300 reported by Moneyfacts in December 2021, before interest rates began to rise.
A more accommodative political landscape, with the annual rate of inflation slightly down to 10.7% as reported by the Office for National Statistics (ONS) today, could ease pressure on the Bank of England to raise interest rates.
The next decision to be taken by the Bank’s Monetary Policy Committee (MPC) is scheduled for tomorrow, December 15.
Interest rates and mortgages
So what do rising interest rates mean for mortgage prices so far?
An estimated two million homeowners on variable rate deals, such as base rate trackers, saw their monthly payments rise almost immediately after the recent Bank Rate hike to 3.0%. For example, a tracker increasing from 3.5% to 4.25% on a £200,000 loan costs an extra £80 per month.
Moneyfacts Someone with a £250,000 mortgage over 25 years at an average two-year fixed rate of 6.46% would see monthly payments rise from £1,520 to £1,643 – that’s up to £123 (assuming the full rate rise was passed).
Remortgagors and first-time buyers will find themselves facing higher mortgage costs when they come to bargain because interest rate increases are often already factored into the price.
Determine the monthly cost of a mortgage against various interest rates with our mortgage calculator.
House prices and stamp duty
Despite being out of the realm of affordability for many, UK house prices are starting to fall. The average asking price for a property listed on Rightmove in December was £359,137, according to figures published by the portal today.
While this is up from 5.6% last December, it is a significant slowdown from the annual growth rate in November which was recorded at 7.2%.
On a monthly basis, asking prices fell 2.1%.
Tim Bannister at Rightmove said: “The price drop is an understandable short-term reaction to the economic turmoil we saw in late September and October, before things started to settle down.”
Rightmove expects property prices to fall by a further 2% over the next year.
The nil rate band on property purchases was raised from £125,000 to £250,000 due to the reduction in stamp duty announced in the mini-budget. Other tax breaks announced under former prime minister Liz Truce were U-turned, but remain in place.
Why are interest rates rising?
The Bank’s MPC uses interest rate hikes to cool the economy and curb rising inflation. The Consumer Price Index (CPI), a measure of inflation, rose to 11.1% in the 12 months to October, against the government’s target of 2%.
And if inflation continues to rise, some forecasters suggest that Bank Rate could reach 6% by next year.
One of the main long-term drivers behind rising inflation is energy costs. Under regulator Ofgem’s energy price cap, a typical household’s annual bill will have risen to £3,549 from 1 October and will still be £4,279 from 1 January 2023.
But the government has circumvented the price cap with its own ‘affordable’ Energy Price Guarantee (EPG). This limits the typical annual bill to £2,500 until 31 March 2023, then to £3,000 for 12 months beyond 1 April 2023.
What mortgage deals are available?
With upwardly-mobile banks and inflation rates, it’s increasingly challenging to keep track of mortgage costs — especially when rates change, and deals can be pulled on a daily basis.
An easy way is to use our mortgage tables, powered by online mortgage broker Trussal.
To find out what deals are available at today’s rates for the type of mortgage you’re on, you’ll need to enter your personal criteria into the table below. Here’s what to do:
- Select whether there is a mortgage Funding for home purchase or if it is a Remortgage For existing property
- Enter Property value And Mortgage Amount you need This will automatically generate a percentage known as your ‘loan to value’. The lower the cost of your loan, the cheaper the mortgage rates available
- Tick the relevant box if it a Buy-to-let or interest-only mortgages (You’ll need a repayment strategy for this deal), or if you’re looking for a mortgage to finance. Shared ownership Property
- Finally, filter your search by Type of mortgage You might want, for example, a two- or five-year fix or tracker. The filter is set to a full mortgage term of 25 years but you can change it if needed.
Here’s a live table of mortgage deals available today.
What else do I need to know?
Mortgage deals that offer the cheapest rates usually have fees attached. You can choose to pay these upfront or add them to the loan. To take into account the cost of fees, order your results by ‘early period cost’ (in the ‘Sort by’ dropdown).
Alternatively, you can order results by introductory rate, lowest fee or monthly repayment – even by the lender’s ‘follow on’ rate that the deal will return to at the end of the term.
Very cheap are reserved for large deposit amounts, usually 60% or more of the property’s value. And, in all cases, you’ll need sufficient income and a clean credit history to be accepted for a mortgage.
If you want to see what your monthly mortgage payments look like under different scenarios when covered with household bills, our mortgage calculator will crunch the numbers.
When can I start a remortgage?
Once issued, the mortgage offer is valid for six months. If you want to remortgage your current home, this means you can lock in the rate you see today – at no cost and with no strings attached.
[ad_2]
Source link
