Interest-Rates.Info

Since mortgage rates began rising, many of the nine million mortgaged households in the UK and close to two million landlords have been faced with the prospect of much higher payments.

Before that, many had become accustomed to ultra-low interest rates for more than a decade.

In this six-part series, we look at how much more people are really paying when they take out a new mortgage, how households are coping and if a mortgage crisis is afoot.

Previously, we looked at how much more people are paying for new mortgages compared to the cheaper deals many are rolling off.

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The high proportion of UK homeowners on fixed-rate mortgages means the Bank of England should be wary of keeping interest rates too high for too long, the International Monetary Fund has warned.

The IMF said many borrowers had been sheltered until now from the impact of higher interest rates and there was a risk of declining consumption, house price falls and increasing defaults as tighter policy finally had an impact.

Although the chapter from the Washington-based body’s forthcoming world economic outlook does not single out any individual central bank, the study shows that the UK has one of the highest proportion of fixed-rate mortgages, after a sharp increase in their popularity in the decade leading up to the start of the Covid-19 pandemic.

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Mortgage rate rises in the UK are easing in an “encouraging sign” for homeowners, according to experts.

The average interest rates on overall two and five-year fixed deals rose from March to April but more modestly than the month before, according to research by Moneyfactscompare.

Despite this slight hike, this mortgage rate rise remains lower compared to the average reported for January 2024.

Between the beginning of March to early April, overall average two and five year fixed rate mortgages jumped to 5.80 per cent 5.39 per cent, respectively.

Currently, the average two-year rate deal is higher 0.41 per cent than the five-year equivalent, Moneyfacts found.

As well as this, the average standard variable rate (SVR) remained at 8.18 per cent which is just below the highest recorded between November and December 2023.

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Over the last few years, high inflation and the Federal Reserve’s aggressive interest rate hikes pushed up mortgage rates from their record lows around the pandemic. Since last summer, the Fed has consistently kept the federal funds rate at 5.25% to 5.5%. Though the central bank doesn’t directly set the rates for mortgages, a high federal funds rate makes borrowing more expensive, including for home loans.

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UK mortgage approvals increased more than expected to a 17-month high in February as markets expect interest rate cuts this year.

Mortgage approvals for house purchases rose to 60,400 in February from 56,100 in January, the Bank of England reported Tuesday. This was the highest since September 2022 and also exceeded the forecast of 57,000.

Net approvals for remortgaging also increased in February, to 37,700 from 30,900 in the previous month.

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House prices fell unexpectedly last month despite mortgage approvals rising more than forecast as lending rates fell from their peaks.

The average price of a home dropped 0.2 per cent from February to March, to £261,142, according to figures from Nationwide Building Society.

Separate Bank of England data showed net mortgage approvals for house purchases rose to 60,400 in February from 56,100 in January.

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Mortgage rates will not go back up. That is my prediction.

I believe that the large banks and other mortgage lenders have sussed the Bank of England and realise they are wrong in the way they have handled and continue to administer monetary policy (interest rates).

They may not all agree with me that Andrew Bailey and his mostly stubborn Monetary Policy Committee colleagues were terribly wrong to raise interest rates 14 consecutive times in a very short period to combat our mainly non-consumer-driven inflation, which always falls by itself.

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Remortgage approvals rose 22% from 30,900 to 37,700 month-on-month.

Homeowners borrowed £1.5bn of net mortgage debt in February compared to £1.1bn in January.

The average interest rate on newly drawn mortgages fell by 29 basis points to 4.9% compared to the previous month.

Simon Gammon, managing partner at Knight Frank Finance, said: “The recovery in housing market activity is taking hold despite an uncertain start to the year for mortgage rates. Hotter-than-expected inflation data in January and February prompted a few lenders to notch up mortgage rates, which knocked sentiment, but not enough to kill the market’s momentum.”

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The UK’s upcoming general election could cause great challenges for the mortgage industry in the coming year, the Building Societies Association has suggested.

Paul Broadhead (pictured), head of mortgages and housing at the trade association, warned against politicians staging vote-grabbing stunts which could disrupt business.

“The biggest challenges in the next year may very well be as a result of the pending general election,” Broadhead told Mortgage Introducer. “The potential for this to cause disruption is high, and we can only hope that politicians refrain from any posturing or stunts in an attempt to win over voters in the lead up to the election.”

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