The era of sub-4% mortgage rates seems to be drawing to a close. This shift comes as mortgage providers hike up their rates on new fixed deals, bringing an end to the more affordable borrowing costs that many had been enjoying. Here’s a round up of the latest mortgage market trends, what’s driving these changes, and what it means for prospective and current homeowners.
The UK mortgage market is changing. According to Uswitch, average rates for two-year fixed deals have escalated to 5.66%, and five-year deals are not far behind, at 5.11%. This increase is a direct consequence of the Bank of England’s decision to maintain interest rates at a 16-year peak of 5.25%, marking the fourth consecutive hold at this elevated level.
Kellie Steed, a mortgage expert at Uswitch, explains that this stagnation in base rates has prompted many lenders to reassess and slightly increase their fixed-rate offerings. Notably, none of the “big six” banks are currently offering deals under 4%, a stark contrast to the more competitive rates seen in January. Halifax stands out as an exception, opting to reduce rates on some of its fixed products in defiance of the broader trend.
HSBC’s Shift
HSBC has retired its appealing 3.99% five-year deal, with the lowest rate now at 4.18% for the same term. For those eyeing a two-year plan, the best rate available is 4.64%, assuming a 60% loan-to-value (LTV) ratio. HSBC also caters to those with smaller deposits, offering 95% LTV deals at significantly higher rates, underscoring the impact of deposit size on borrowing costs.
NatWest and Santander Increase Rates
NatWest has also adjusted its rates upward, eliminating its most competitive 3.94% offer. Now, the best rate available is 4.24% for a five-year term, with a considerable product fee, especially for green mortgages targeting more energy-efficient homes. Similarly, Santander has stepped back from its sub-4% offerings, with rates now starting from 4.17% for a five-year fix on a £300,000 mortgage with a 40% deposit.
Skipton and Barclays Offerings
Skipton Building Society’s rates have seen an increase, with a two-year fixed rate now at 4.89% and a five-year fix at 4.48%, both requiring a 40% deposit. Barclays, on the other hand, is offering a competitive 4.09% rate for a five-year deal with a similar deposit requirement, though the best deals are reserved for Premier clients.
Nationwide and Halifax Update Their Rates
Nationwide has announced rate increases for new and existing customers, with up to a 0.2 percentage point rise across various fixed-rate mortgages. Halifax has introduced a two-year fixed rate of 4.42% and a five-year rate of 4.18%, with the latter setting monthly repayments at £968 for a £180,000 mortgage.
The Future Landscape of Mortgage Rates
With the Bank of England’s interest rates at a significant high in an attempt to curb inflation, the outlook for mortgage rates has been pessimistic. However, there’s a silver lining. Analysts believe that as inflation pressure eases, the Bank will start to cut rates in 2024, potentially reducing mortgage rates throughout the year. This could be a beacon of hope for the 1.6 million borrowers with expiring fixed-rate deals this year.
A Glimpse at Government-backed Mortgage Schemes
Despite these rate hikes, there’s buzz around a new government-backed 99% mortgage scheme aimed at helping prospective homeowners secure a mortgage with just a 1% deposit. This initiative, intended to replace the Help to Buy scheme, aims to make homeownership more accessible, although it doesn’t necessarily promise lower interest rates.