First time buyers and home movers have been left confused by a mortgage rates rollercoaster in recent months.
Earlier this year there was talk of a ‘mortgage price war’ with lenders cutting rates on five-year fixed rate deals to below 4 percent.
However, these rates have disappeared leaving home buyers unsure about what is the biggest purchase of their lives.
The angst has been fuelled by the fact many banks and building societies have removed their cheapest mortgage deals with just a few hours’ notice.
Since the start of February, the average two-year fixed rate mortgage has risen from 5.56 percent to 5.78 percent, according to Moneyfacts. At the same time, the average five-year fix has risen from 5.18 percent to 5.34 percent.
Fears for those remortgaging
Some 1.6 million households will be remortgaging this year, and they could face big increases in monthly payments of several hundred pounds.
Many of the fixed deals that are coming to an end carried an interest rate of just 2 percent, while currently the best value options will be over 5 percent.
Why have mortgage rates risen?
Global factors such as Russia’s invasion of Ukraine led to an energy price shock and pushed up the cost of food, driving up inflation around the world.
This was exacerbated in the UK by the Liz Truss and Kwasi Kwarteng mini-budget of September 2022. Concerns about unfunded tax cuts and spending plans spooked the markets and drove up borrowing costs.
Ms Truss’ departure from Number 10 saw a calming of the markets with the cost of borrowing gradually falling.
What next for mortgage rates?
Industry analysts are hopeful that recent increases in home loan rates are at an end.
With inflation set to fall to around 2 percent in the next few months many analysts believe the Bank of England will have room to introduce one of two reductions in the base rate later this year.
Generally, banks and building societies try to pre-empt such falls, which suggests mortgage rates might start to come down a little over the summer.
What do the money markets tell us about the future of mortgage rates?
The direction of so-called swap rates, which relate to future agreements between banks on the fixed rates of interest they will charge each other, are a good guide.
Mortgage lenders enter into these agreements to shield themselves against the interest rate risk involved with lending fixed rate mortgages.
As of March 8, five-year swaps were at 3.88 percent and two-year swaps were at 4.49 percent.
This is slightly up compared to the start of the year when five-year swaps were 3.4 percent and two-year swaps were 4.04 percent.
However, they are both a lot lower than during the summer of 2023 when five-year swaps were above 5 percent and the two-year options at around 6 percent.
What is next for house prices?
Repeated reports of an imminent housing market crash have proved to be an exaggeration.
Depending on which house price index you follow, property prices may have either fallen slightly over the course of 2023 or be marginally up.
The most reliable figures come from the Office of National Statistics (ONS), which found a marginal fall of 1.4 percent across the UK in the year to December.
By contrast, the latest house price index from Halifax, which relates to its own approved mortgage applications, said that house prices rose by 1.4 percent in the 12 months to February. While Nationwide recorded a 1.2 percent annual rise in February 2024.
Now, the estate agent Knight Frank is predicting house prices will rise by 3 percent this year having previously predicted a 4 percent fall.
