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The Bank of England on December 15 raised interest rates from 3.0% to 3.5%. The 0.50 percentage point increase marks the ninth increase since December 2021 when the Bank Rate was just 0.1%. That puts the bank rate at its highest level since 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 our mortgage partner, better.co.uk (formerly Trussal), the average cost of a two-, three- and five-year fixed rate deal across all deposit levels today is 5.32%, 5.19% and 4.90% respectively. This compares with October’s high of over 6.50%.
Better.co.uk says the most competitive deals are 4.69% for a two-year fix and 4.49% for a five-year deal. Currently, long-term fixes are the cheapest, with the best 10-year fixed rate deal costing 4.04%.
The number of different residential mortgage deals is around 4,000. The number rose again after the Liz Truss/Quasi Quarteng mini-budget in September, when it fell to 2,560. Yet that is still far from the more than 5,300 deals in the market in December 2021, before interest rates start to rise.
A more accommodative political landscape, with inflation marginally down to 10.7% annually, could ease pressure on the Bank of England to raise interest rates further next year. We’ve gathered some expert opinion on how this could affect the mortgage market in 2023.
The next decision to be taken by the Bank’s Monetary Policy Committee (MPC) is scheduled for 2 February 2023.
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, will see their monthly payments rise almost immediately after the recent Bank Rate rise to 3.5%. For example, increasing the tracker rate from 4% to 4.50% costs an extra £50 per month on a £200,000 loan.
Those on a fixed-rate deal, where the interest rate is locked in for two or five years, will see no difference in their monthly payments. But when their deal ends, they may find they have to pay a higher rate for their next mortgage due to the recent rise in prime bank rates.
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 while it rebounded to 10.7% in November, it’s still high enough to make interest rate watchers tick.
If inflation remains high, some forecasters suggest the bank rate could reach 4.5% in 2023.
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.
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