The Bank of England (BoE) has now raised the base rate three times since December, with financial markets anticipating further hikes this year – but what does this mean for borrowers?
Here are our top four trends to watch out for in the months to come.
The BoE base rate rise to 0.75% this March isn’t the only thing to keep an eye on when it comes to interest rates.
“What are known as swap rates are also on the rise, so it’s important to note that even if the BoE base rate doesn’t increase further, rising swap rates could have a greater impact on the cost of fixed mortgages,” says Krina Desai, mortgage specialist at Knight Frank Finance. Over the last 12 months we’ve seen 5-year swap rates increase by approximately 1.3%, which correlates to us seeing 5-year fixed mortgage rates as low as 0.91% last year, but you’d be lucky to get them under 2% now.
“However, you haven’t missed the boat”, says Krina. “Mortgage rates are still very low compared with historic standards. So, if you’re in a position to do so, you should act sooner rather than later if possible.”
House price growth hit 14.3% in March, according to Nationwide data – the fastest rate of growth since 2004. Halifax meanwhile reported a 10.8% annual growth rate in February.
Chris Druce, Knight Frank’s senior research analyst, says this growth is being driven by strong demand, which continues to outstrip supply.
“We still have a lot of buyer demand in the UK market. Looking at the 4-week average, running to the latest point, new prospective buyers were 44% higher compared with our 5-year average.
“This has been consistent since the autumn, even after the stamp duty holiday came to an end. On the same metric, offers accepted over this time were also up by 70%.
“However, it’s no secret that there are more headwinds out there and buyers have become slightly more realistic. For owners thinking about bringing their property to the market, it means the next few months represent a window of opportunity while demand remains so high.”
- 3: Boom in equity release market
The Equity Release market has boomed in recent times, with a 24% year-on-year increase in lending from 2020 to 2021, totalling £4.8bn, according to Equity Release Council data.
“More people are thinking about Equity Release than ever before,” said David Forsdyke, Knight Frank Finance head of later life finance.
“For some, this is due to necessity such as pressures around the cost of living or reducing pension values. But for many its driven by lifestyle choices such as home improvements.
“Increasingly, Equity Release is being used as a strategic decision by homeowners over the age of 55 to manage their wealth or estate, or for inheritance tax planning.”
He added, “We’re also seeing Equity Release interest rates increase in line with the rest of the market. The average lifetime mortgage rate has risen from around 3.86% to around 4.33% at the end of last year. So, we would also encourage people to act sooner than later.”
- 4: First-time buyer products on the rise
The base rate may be putting upward pressure on rates, but lender confidence towards first-time buyers remains high, says Ben Sheriff, Knight Frank Finance head of London.
The total number of mortgage products available for first-time buyers rose from 2,782 in Dec 2020 to over 5,000 in Dec 2021, according to Moneyfacts data.
“This part of the market has been recovering very consistently over the last year,” Ben said. “A 2-year fixed rate with a 10% deposit in Dec 2021, for example, would cost you about 2.51%. That compares with around 3.79% the year before.
“There’s going to be a lot of activity over the course of the year as Help to Buy comes to an end in 2023. It’s going to be a frenetic time for first-time buyers. With demand outstripping supply, this will be an interesting one to watch.”