UK’s Mortgage Market Hit By Rising Interest Rates
The UK’s bleak economic outlook and rising interest rates are finally biting into the country’s housing sector, thanks to interest rates rise from the Bank of England (BoE).
It may be recalled that on June 16, members of the Bank’s monetary policy committee voted to increase the base rate by 0.25 percent, taking it to 1.25 percent – a rise that will affect more than 850,000 homeowners almost immediately.
The rising base rate means 850,000 people on tracker mortgages and 1.1million on variable deals will likely see their mortgage rate go up. A quarter of all UK homeowners are on variable, tracker, or standard variable rates which are directly linked to movements in the base rate.
The latest figures from the BoE, which show approvals fell more than expected in June, have solidified the bleak outlook as high street banks ring the alarm over slowing mortgage loans growth.
Analysts have said that the so-called race for space fuelled the mortgage market during the pandemic but there are signs this is starting to cool.
NatWest reports slower mortgage growth in second quarter while Barclays said growth in home loans was near stagnant,
Consumers in the meanwhile have significantly stepped up their borrowing despite incomes dropping, both signs that the cost of living crisis is tightening its grip on the economy.
Property prices in Britain have soared to record levels over the past two years, with many buyers chasing bigger homes away from city centres as the COVID pandemic struck.
That has seen high street banks enjoy higher returns amid a boom in the mortgage market while the base rate was at rock-bottom and lenders competed fiercely to pour capital into home loans.
However, the BoE has since opted for five back-to-back 25 basis points rate hikes to tackle record high inflation. UK interest rates now stand at a 13-year high of 1.25%.
Meanwhile, NatWest reported slower mortgage growth in second quarter with net mortgage growth of £3.3bn in the second quarter, down from £3.6bn in the same period last year. Another UK mortgage lender Barclays in a statement said, growth in home loans was near stagnant.
Homeowners specially those with fixed deals coming to an end in the next few months have been urged to “act now” and lock in a new rate now to avoid being hit with extra costs further down the line, amid expectations that the base rate could hit nearly 3 percent next year.
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