How Lenders Raising Mortgage Rates Impacts the Housing Market

Free conveyancing quote
How Lenders Raising Mortgage Rates Impacts the Housing Market
LPC & LLM Ume-Kulsoom Anwar
Legally reviewed by: LPC & LLM Ume-Kulsoom Anwar Updated: In: Conveyancing

Major Banks Increasing Cost of a New Mortgage

Yesterday, Nationwide, Santander and NatWest announced they are increasing the cost of new mortgage deals as uncertainty remains over lending costs. The changes contradict predictions earlier this year that interest rates would be cut by the Bank of England. Mortgage experts now expect that other banks wills follow suite.

1.6 Million Borrowers Due for Mortgage Renewal in 2024

This year we expect to see 1.6 million existing borrowers’ fixed fee mortgage due for renewal. As a result, many people who were previously benefiting from the previously low interest rates, will be hoping to find new deals.  The borrowers will have to decide about what next steps to take. They can enter a new fixed rate mortgage which usually lasts for two to five years. Alternatively, they can go on a variable rate mortgage, however, this can end up costly. Many of these borrowers were hoping that mortgage rates would significantly fall this year after all-time highs.

Mortgage Interest Rates Cuts Not as Early as Previously Predicted

The year started off promising for borrowers with mortgage interest rates taking some drops. However, mortgage interest rates have subsequently stabilised and even begun to increase. For example, the UK’s biggest building society, Nationwide, increased their rates on deals by up to 0.25% last Tuesday.

The average mortgage rate on a two year-fixed deal is currently 5.87%, according to financial information service Moneyfacts. However, this is still a percentage point lower than the peak in 2023.

Mortgage brokers are reassuring that the changes over the last few days are not an indicator of rapidly rising rates like we have seen before. However, some borrowers had banked on rates going down, influencing home purchasing decisions.

“This is not one-way traffic and could change again soon,” said David Hollingworth of L&C Mortgages.

Aaron Strutt from Trinity Financial adds: “Many people expected the cost of fixed rates to drop rather than increase and these higher rates do put people off buying.

“It would not be a surprise to see more banks and building societies raising rates this week.”

The Bank of England makes their next decision on benchmark interest rates on 9 May. It is currently not expected to cut the rate as early or as often as previously thought.

What Do Rising Mortgage Rates Mean for the Housing Market

The addition of rising mortgage rates, from lenders like Santander and NatWest, in addition to stationary or increasing Bank of England rates, are creating a wave of uncertainty in the housing market. This uncertainty can discourage both buyers and sellers.

Potential homebuyers are facing the potential of higher borrowing costs and the reality that rate drops will likely happen much later than predicted. As a result, potential homebuyers are pushed out of the market or facing limitation to their buying power.

For homeowners with expiring fixed-rate deals, higher rates could also mean reassessing their finances. This could potentially lead to reduced housing demand as they choose to stay put. The overall changes create a cautious atmosphere, with both buyers and sellers waiting for the market to settle. This combination of factors could lead to a cooling effect on the housing market, with fewer transactions and potentially even a stabilisation of house prices.

The Role of an Expert Conveyancing Solicitor

Conveyancing plays a pivotal role in ensuring a smooth and secure transaction. In times of market change, having a dedicated conveyancing department and experienced solicitor is invaluable. Their expertise is crucial in navigating the intricacies of property transactions, safeguarding the interests of buyers, and ensuring a seamless transfer of property ownership.

Get in Touch with AWH’s Conveyancing Team

Are you looking to buysell a house, or re-mortgage a property? Our team of experienced conveyancers is here to provide professional advice and support. Our conveyancing process safeguards your interests at every stage of the transaction.

At AWH we offer quality guidance and support to all our clients. As a result, we can ensure that under any circumstance the conveyancing process will be straightforward. AWH Solicitors is regulated and authorised by the solicitors’ regulation authority.

At AWH, we have expert property solicitors ready to deal with all aspects of residential freehold and leasehold conveyancing. Contact us online or call us on 0800 999 2220 for a quote.

Get in touch