Following the news that The Bank of England has raised the base rate to 1%, we explore five key trends to be aware of across the UK mortgage market.
- Interest rates are rising
The Bank of England is moving through a slow and steady process of raising borrowing costs in an attempt to rein in inflation, which is running at the fastest rate for thirty years. Today’s rise in the base rate to 1% ensures mortgage rates will continue to increase during the weeks ahead.
Products are being repriced each week, which creates significant uncertainty for borrowers. Rates on the best deals have doubled in the past 6 months, though at 2% they remain very low by historic standards.
Banks are regularly changing their lending criteria and we expect mortgage rates to continue to rise during the months ahead. If you’re having difficulty securing the mortgage you’d like, don’t hesitate to reach out to one of our experienced brokers.
Borrowers seeking to get ahead of further interest rate rises have prompted a spike in remortgage activity. The number of refinance deals, excluding those in which equity was withdrawn, hit 17,720 in February, up from 10,230 during the same month a year ago, according to data from UK Finance. That amounts to more than £3.6 billion in new deals.
“Mortgage offers typically valid for six months, so if you are considering refinancing your home, it’s better to act sooner rather than later,” says Hina Bhudia, partner at Knight Frank Finance.
Average private rents are surging amid a shortage of available properties as residents repopulate cities in the wake of the pandemic. In London, average asking rents climbed 14% in April compared to a year earlier. Outside London, rents climbed more than 10%, and in hotspots like Manchester reached growth of 14%.
“On top of the obvious benefits this will bring landlords with properties in the city, it could also be a great opportunity for them to raise capital against their existing properties to improve and grow their portfolio,” says Knight Frank Finance Landlord Finance Specialist, Huy Le.
“For buy-to-let mortgages, lenders use the rental calculation for a property to determine how much you can borrow, so landlords could take advantage of rising rents levels to maximise their borrowing power.”
- The last months of Help to Buy
Developers sold more than 6,000 new homes in London during the first quarter, the most since the first quarter of 2018.
The government’s Help to Buy scheme ends in less than twelve months and we’re already witnessing a clamour to secure the eligible properties while they’re still available.
The housebuilder-led placement “Deposit Unlock”, which enables borrowers to secure up to £750,000 at between 90% and 95% LTV is gathering momentum and some 17 housebuilders have signed up already. Two lenders, including Nationwide, are taking part in the scheme.
- The expanding market for equity release
Growth in UK house prices added £27,000 to the average home in the most recent twelve months. Increasing numbers of old borrowers are seeking ways to redistribute that wealth to family members while they are still around to see the benefits.
Quarterly lending to equity release customers reached £1.53bn between January and March, up from £1.34bn in Q4 2021. Much of the growth in the market is being fuelled by wealthier homeowners, who view Equity Release as a core financial planning tool, particularly for the purpose of minimising inheritance tax.
If you are looking to buy a property or remortgage this year and would like to discuss your options, get in touch with our team who would be happy to help. We have access to over 200 lenders, and can help find the most suitable and cost-effective mortgage for you.