Mortgage rates continued to climb through June after a second consecutive inflation reading spooked financial markets.

The average two-year fixed rate mortgage reached 6.23% in late June, approaching the recent previous peak of 6.65% that took place following the 2022 ‘mini budget’, according to Moneyfacts.

Rising mortgage rates are showing few signs of slowing and almost all of the major lenders repriced higher during the seven days to June 29th. The pressure on borrowers is likely to continue until we see two or perhaps three encouraging inflation figures. If that happens, swap rates should ease and we’d expect lenders to pass that through to borrowers quite quickly.

Banks advanced just £58.8 billion in mortgage debt during the first quarter, the lowest level since the height of the pandemic, the FCA said on June 13th. The value of new mortgage commitments - lending agreed to be advanced in the coming months – stood at £48.9 billion, down 16.1% on the previous quarter and a 40% contraction compared to the same period a year ago.

Though subdued relative to long run averages, activity had remained largely stable to the end of May. Mortgage approvals for house purchase, a good indication of future borrowing, ticked higher to 50,500 during the month, up from 49,000 in April, according to Bank of England data published Thursday. Those figures only partially cover the most recent period of volatility and we expect activity to ease through the summer.

The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages rose by 10 basis points, to 4.56%. That prompted homeowners to make £100 million of net mortgage repayments in May, following a record £1.5 billion net repayments in April.

Private banks have been less affected than mainstream lenders by the market volatility. All have increased rates, but their lending criteria has remained largely the same and they are eager to find new business.

Similarly prime property markets with a higher proportion of cash buyers are likely to outperform over the coming months. The number of new prospective buyers in London over the most recent four-week period, for example, was 24% above the five-year average, according to Knight Frank figures. Around half of sales inside zone 1 are typically in cash. Prime markets will also be supported by greater levels of affluence, the relatively weak pound (depending on your timing) and the fact overseas travel is returning to pre-Covid levels.

So how has recent economic volatility impacted those with high-value and complex property requirements? How have private lending criteria and approaches shifted since the pandemic and the mini budget? And what are the options and approaches that clients and their advisors should consider? Register for our upcoming event to find out.