After years of self-inflicted hardship, the UK mortgage market has been plunged back into extreme turmoil. In reaction to soaring market volatility at least five of the UK’s largest lenders have hiked their fixed-rate offerings. Until a few weeks ago, we enjoyed a stretch of relative peace. That was before the world turned upside down and economists started pulling their predictions of interest rate cuts from the Bank of England. This follows a smaller-than-expected decrease in inflation in March, with many economists already recalibrating their forecasts.
Over the past two years, mortgage costs have been subject to extreme swings that have made home buying especially difficult for new borrowers. The most affordable two-year “best-buy” fixed-rate mortgage is currently set at 4.46%. By contrast, the most competitive five-year fix that is available provides a rate of just 4.13%. The typical rate for new two-year fixed-rate deals has shot up to 5.83%. This represents a significant jump from 5.8% at the beginning of the month and is part of a larger pattern.
Lenders are taking some surprising steps that are changing—and in some cases, upending—the mortgage market. Accord has already lifted specific rates by as much as 0.4 percentage points, while NatWest hiked a handful of its two and five-year “switcher” deals by 0.1 percentage points. In real terms that means the average rate on a new five-year fixed-rate deal is now 5.4%, up from 5.38% at the beginning of April.
As of September 2022, the repercussions from the disastrous mini-budget pushed most fixed-rate deals well above 6%. Over the course of this year prices for new fixed-rate offers plummeted. This provision served to push borrowers out into competitive markets as costs began to increase.
City investors expect two cuts by year’s end. Such an expectation suggests that further amendments may be on the way in the near future. With all this in mind, mortgage advisors are encouraging consumers to not freak out.
“There are still deals to be had, and a handful of lenders are holding rates or pricing down,” – Danny Belton
Nicholas Mendes noted that lenders have “adjusted their positions in response to market uncertainty.” This is indicative of a national trend as lenders grow much more cautious in the face of real inflation and higher interest rates.