Navigating the Mortgage Rate Increase: What buyers need to know

On the 22nd June 2023 the mortgage rates in the UK experienced a significant increase, sending ripples of concern across the housing market. For potential homebuyers such news has raised questions about the impact on their financial plans and the overall housing landscape.

Why has the mortgage rate increased?

Mortgage rates are influenced by various factors, including the Bank of England’s base rate, inflation, the economy’s overall health, and investor sentiment. In recent months, several developments have led to an upward trajectory in mortgage rates in the UK.

  1. Rising Interest Rates – last Thursday the Bank of England increased the interest rate by 0.5, taking the base rate to 5%. Consequently a household with a tracker mortgage has seen their pay rate ride from 05.5% to 6%. Due to these deals being directly linked to the base rate.
  2. Market Uncertainty -The global economic landscape has experienced volatility and uncertainty, impacting investor sentiment. Investors seeking safer havens have driven up government bond yields, which serve as a benchmark for long-term fixed-rate mortgages. This increased demand for bonds has resulted in higher mortgage rates.
  3. Inflationary Pressures – Inflation has been on the rise due to supply chain disruptions, increased commodity prices, and wage pressures etc. To maintain price stability, central banks may raise interest rates, indirectly influencing mortgage rates.

Implications for homebuyers and vendors:

  • Higher Monthly Payments
  • Lower housing demand (especially first time buyers)
  • Remortgaging

The mortgage rate increase in the UK has added complexity to the already dynamic housing market. Potential homebuyers must understand the reasons behind this increase and its implications for their financial plans.

Click here to read our article on how homebuyers should behave during this uncertain time.

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