20 Jul 2023
The average interest rates for fixed rate mortgage products is currently at its highest since the financial crisis back in 2008 and it’s the first time it’s surpassed 6% since. According to Moneyfacts.co.uk [moneyfacts.co.uk] the average 2 year fixed rate now sits at 6.53% and the average 5 year fixed rate now sits at 6.36%. These are the highest seen since 2008
Mortgage rates have been increasing in the last 6-8 months and following the ‘mini budget’, which was announced by the government in recent weeks, this caused interest rates to increase even further. However, now there has been a U-turn from the Chancellor reversing some of the changes, mainly tax cuts, it’s unknown whether this will positively impact interest rates.
Why are rates so high?
Ultimately, lenders are in control of the interest rates that they have to offer, however these are usually influenced by external factors such as the Bank of England Base Rate and the swap rates that lenders agree to borrow the money for.
The Bank of England base rate has been on the increase since the beginning of 2022 in a bid to control inflation, which in the UK, is currently way above the target set of 2%.
A swap rate is the rate at which interest is exchanged between one party to another (in our case the lender). Over the last 12 months, it’s becoming increasingly more expensive for the lenders to lend, which results in higher interest rates homeowners are offered.
The announcement of further tax cuts and a cut to stamp duty which was announced by the Chancellor recently, sent the UK into economic worry and this led to most mortgage lenders withdrawing rates from the market, allowing them to take time to appropriately price their interest rates. It’s becoming increasingly difficult for lenders to determine what their interest rates should be. This hasn’t been helped where lenders are extremely busy, so in a bid to manage their new applications and control their time scales, lenders often increase their rates slightly to steady the flow of new business coming in, allowing them to catch up.
Is it likely for rates to come down?
There has been talk recently of interest rates reducing, particularly since the U-turn from the government to scrap the tax cuts. It’s likely this was a move to stabilise the economy and encourage investors, however we think it’s unlikely rates will reduce in the short term. It’s more likely that there will not be as many sharp increases to the rates, but things can change quickly so there are no guarantees.
Could interest rates get even higher?
Yes. Unfortunately, we have seen interest rates far higher in the past, although times are different now. It’s predicted that the Bank of England Base Rate is due to continue to increase until the Spring of 2023 and could surpass 6%. How this will affect rates in the short term is unknown, but what we do know is the times of securing 1% interest rates are gone and are unlikely to return any time soon.
It’s estimated that some 100,000 homeowners need to remortgage every month so the likeliness is that they will be doing so on a far higher rate than they were on previously, resulting in an increase on their monthly mortgage payment. It’s highly recommended you speak to a mortgage professional to get the correct advice if you are due to remortgage soon.
Contact us today on 01252 214044 or email@example.com