Mortgage Rates in 2023: Prospects for UK Homeowners

The Current Situation

Mortgage rates are a significant concern for homeowners, and with the UK economy facing its highest inflation rate since the 1980s, many are wondering when mortgage rates will fall. The base rate increased to 3% on November 3rd, 2022, in an effort to combat inflation, but this has caused additional instability in an already volatile market. As a result, 1.8 million homeowners whose fixed rate terms end next year may face a considerable increase in their mortgage payments.

Guidance for Homeowners

Brian Murphy, Head of Lending at Mortgage Advice Bureau, suggests that those struggling with mortgage payments should seek guidance from their provider. Lenders may be able to offer a range of options, including extending the term of the mortgage, switching to a new fixed rate deal, or moving to a tracker rate mortgage. Seeking advice can help homeowners understand their options and make informed decisions.

The Pros

While the mini-budget resulted in a reduction of mortgage products, they are slowly showing signs of returning. The average rates are marginally falling, with tracker rates and discounted variable rates becoming more readily available. Moreover, some lenders have cut rates by 0.5%, and many products have fallen below the 6% threshold.

The recent increase in interest rates is beneficial for savings accounts, as it encourages people to save more. According to Moneyfacts, average savings rates for one-year fixed-rate bonds are at 10-year highs. This is great news for savers, with 49% of consumers admitting to saving 5% or less of their salary each month.

Additionally, the cut to stamp duty has not been revoked, which means homeowners can save up to £6,250 on their home purchases. This may encourage those looking to relocate to do so. As a result, consumer sentiment about spending may improve.

There are also signs of stabilization in the pound, gilt yields, and the price of natural gas, which should contribute to the market settling. This has also had a knock-on effect on swap rates, which serves as a leading indicator for mortgage rates. This may begin to boost buyer demand levels, stabilizing house prices and investment in the housing market.

The Cons

Although the latest base rate increase means that the average fixed rate mortgage now stands at around 5-5.6%, lenders have cut their rates for the first time compared to the other base rate increases. This indicates that lenders had already factored in the latest base rate rise and any future increases. It looks like rates should settle around the 4-5% margin by next year.

In terms of the housing market itself, the number of houses for sale is below average, and buyer demand is much lower than usual. Zoopla states that higher mortgage rates could reduce residential property prices by up to 5%.

The Outlook

Overall, the housing market in 2023 looks set to be one of re-adjustment as the UK returns to more consistent mortgage rate levels. While the current situation may not seem ideal for some homeowners, it is not all doom and gloom, as there are signs of improvement in the market.

Savills expects house prices to grow by 1% in 2024, followed by a larger increase of 7% in 2026 if mortgage lenders cut rates over the next 12 months and the base rate declines from mid-2024 as inflation falls.

Additional Resources

  1. Bank of England: The official website of the central bank of the UK provides up-to-date information on the base rate and its impact on the economy, including the housing market.

  2. Moneyfacts: This independent financial information provider offers comparisons of various mortgage and savings products available in the UK, along with analysis and news updates.

  3. Zoopla: A popular UK property website that provides market data, trends, and insights into the housing market.

  4. Savills: A global real estate services provider that produces market reports and forecasts for the UK and other regions.

  5. Mortgage Advice Bureau: A leading mortgage broker that offers advice and support to homebuyers and homeowners looking to remortgage.

Common questions about mortgage rates

Mortgage rates can be affected by a number of factors including inflation, economic growth, government policy, and global events. Inflation has a direct impact on mortgage rates, as higher inflation leads to higher interest rates to combat inflation. Economic growth can also affect mortgage rates, as a strong economy leads to higher demand for credit and can push rates up. Government policy, such as the Federal Reserve’s decision to increase or decrease interest rates, can also impact mortgage rates. Finally, global events such as war or political instability can lead to changes in mortgage rates.

Mortgage rates can change daily, or even multiple times per day, depending on market conditions. Lenders set their rates based on the current market, and as the market changes, so do the rates.

It can be tempting to wait for rates to go down before getting a mortgage, but it’s important to remember that rates are unpredictable and can change quickly. Instead of waiting for rates to go down, it’s better to focus on getting the best rate you can at the time of your mortgage application, as rates may not be any better in the future.

To get the best mortgage rate, it’s important to shop around and compare rates from multiple lenders. It’s also important to have a good credit score, as this can help you qualify for a lower rate. Other factors that can affect your rate include your down payment, the type of loan you’re applying for, and the length of your loan term.

Yes, it’s possible to negotiate your mortgage rate with your lender. This can be done by getting pre-approved for a mortgage from multiple lenders and using these offers to negotiate a lower rate with your preferred lender. It’s also important to have good credit, a steady income, and a substantial down payment to increase your chances of getting a better rate.

Whether to choose a fixed-rate or adjustable-rate mortgage depends on your personal financial situation and goals. A fixed-rate mortgage offers a predictable payment over the life of the loan, while an adjustable-rate mortgage offers lower initial rates that can fluctuate over time. If you plan on staying in your home for a long time and want predictable payments, a fixed-rate mortgage may be the better option. If you plan on moving or refinancing within a few years, an adjustable-rate mortgage may offer a lower rate in the short term. It’s important to discuss your options with a lender or financial advisor to determine which type of mortgage is best for you.