Why have mortgage rates increased while house prices decreased?
Thursday 30 May, 2024
With all the recent changes in the mortgage market, it has never been more important to have professional mortgage advice when looking for your next mortgage deal.
UK house prices experienced an unexpected decline in April for the second month in a row, as reported by the building society Nationwide.
The uncertainty surrounding interest rates and the rise in mortgage costs has cast a shadow over the typical spring homebuying season, affecting activity within the housing market.
Some economists suggest that the series of monthly decreases in the index may indicate a developing pattern. With ongoing increases in fixed mortgage rates, this data placed additional strain on the Bank of England ahead of its May interest rate announcement, leading to a 6th consecutive hold at 5.25%.
In this article, Amy Kadir, our St Albans mortgage broker, looks at the latest news on the housing market and the pressures exerted by the Bank of England base rate on mortgages.
What are the influencing factors for the housing and mortgage markets?
The Bank of England interest rate directly influences mortgage rates, affecting the affordability of buying homes. Higher interest rates often lead to increased mortgage costs, which can then potentially dampen the demand for housing.
The UK inflation rate and the cost of living can also impact the housing market, as they affect consumers' purchasing power and overall economic conditions. Additionally, rising inflation can further erode people's real incomes, making it harder to afford housing expenses.
Moreover, the higher costs of living can further influence individuals' decisions regarding homeownership, renting, or investing in property.
Overall, fluctuations in these factors can directly influence the dynamics of supply, demand, and affordability within the UK housing market.
What is happening with the Bank of England’s interest rate?
Predictions regarding the future course of the Bank's main rate significantly impact the mortgage rates provided by major mortgage lenders. Presently, the Bank's main rate sits at 5.25%, and earlier in the year, analysts had anticipated a cut starting in June.
However, inflation—the pace at which prices increase—hasn't dropped as rapidly as anticipated, causing some to delay their predictions about when the Bank will make changes.
What has happened to mortgage rates?
Following the inflation rate announcement, three of the major mortgage lenders increased their interest rates on various fixed-rate mortgage products. As a result of these increases, several other banks and building societies followed suit about a week later.
These adjustments saw the average rate for five-year fixed-rate mortgages jump from 4.84% to 4.97%, a notable increase from just two weeks earlier.
This uptick indicates that typical rates on fixed-rate mortgages are approaching levels seen earlier in the year.
What to do about your mortgage?
If your current mortgage deal is nearing its end within the next six months, it's crucial to consider seeking professional mortgage advice as soon as possible.
Obtaining trusted guidance from a qualified mortgage adviser is essential to avoid making hurried decisions that could result in less favourable outcomes from your new mortgage or remortgage deal.
Our team of professional mortgage advisers will assess all your options, recommend the most suitable ones, and assist you throughout the application process.
With access to a wide network of lenders, we can uncover deals and opportunities you may not have considered. Our experience enables us to compare offers from your current lender with those available elsewhere, ensuring you make a thoroughly informed decision.
In summary
With so many influencing factors, it is important to seek professional mortgage advice as soon as possible. This advice will help you avoid making potentially costly decisions on your next mortgage deal.
Call our mortgage broking teams in St Albans on 01727 845500 if you want personalised mortgage and protection advice.
Please note: As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments. The Financial Conduct Authority does not regulate some types of buy to let mortgages.
Sources:
https://www.theguardian.com/business/2024/may/01/uk-house-prices-fall-unexpectedly-for-second-month-in-a-row
https://www.bbc.co.uk/news/articles/c3g8p440309o
https://www.nerdwallet.com/uk/mortgages/mortgage-rates-begin-to-rise-as-base-rate-delay-predicted-may-2024/
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