In the UK, mortgage rates have increased ever so slightly. Lenders are looking to the future with cautious optimism as they adjust their practices to a shifting economic landscape. Moneyfacts reports that the average rate for a two-year fixed mortgage has just reached above 5% – it’s now 4.98%. That’s a slight 0.02 percentage point increase from last month. This is the first month since February that average mortgage rates have risen on a monthly basis.
According to Rachel Springall, a finance specialist at Moneyfacts, the increase in average mortgage rates has been “staggering.” Two years ago, they were at a significantly higher 6.67%. The current average for five-year fixed mortgages is in the increase at 5.02%. These changes in rates will likely be disappointing to borrowers counting on further drops.
More than four-fifths of mortgage borrowers today are in fixed-rate contracts. This is because the interest rates they locked in will be fixed until their contracts end, typically within two to five years. This stability has led many homeowners to get used to rates that were common during the 2010s—many times just 3 percent or less.
Springall cautioned those considering a loan to weigh their unique situations to make informed choices in the market that is markedly changing. She warned that practical independent advice should be sought for those affected, adding that,
“It remains essential borrowers seek independent advice to navigate the mortgage maze and not feel pressured to secure a deal because of the Budget rumour mill.” – Rachel Springall, Moneyfacts
Volatility in the swap market is causing lenders to adopt a much tighter credit posture. Consequently, we have seen the end of consecutive monthly average rate decreases. According to Springall, this climate has created a sudden stop in progress on falls, saying,
“Volatile swap rates and a cautionary approach among lenders have led to an abrupt halt in consecutive monthly average rate falls.” – Rachel Springall, Moneyfacts
This line of thinking is championed by Simon Gammon, the managing partner at Knight Frank Finance. If you look at the total cost, that’s crazy.” He noted that the average rate for two- and five-year fixed mortgages now approaches 5%.
As winter approaches, hundreds of thousands of potential first-time buyers are hoping to secure their first mortgage and find a place of their own. These new market dynamics will prove to be especially difficult as so many are just testing the waters figuring out how to get financing.