How Lowering Mortgage Rates Will Impact Buyers

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Lowering Mortgage Rates
LPC & LLM Ume-Kulsoom Anwar
Legally reviewed by: LPC & LLM Ume-Kulsoom Anwar In: Conveyancing

Mortgage Rates the Highest Since 2008

With mortgage rates at their highest level since the 2008 financial crisis, many potential buyers and mortgage owners are hoping for mortgage rate cuts in 2023.

HSBC First Big Lender to Announce Mortgage Rates Cut

HSBC have become the first big lender to announce they are cutting rated on fixed-term mortgages. The bank is set to reduce the cost of residential products by up to 0.35 percentage points. The lower mortgage rates come as a sign of hope for many homeowners who are currently looking at borrowing costs almost as high as 7%.

HSBC has made recent adjustments to their mortgage offers. 100 of their mortgage offers are not implementing rate cuts across the board. The two-year fixed rate mortgage with a 60% loan-to-value has seen a reduction of 10 basis points. The mortgage now stands at 6.14%.

Comparatively, the average mortgage rates for two-year and five-year deals as of 27 July 2023 are as follows:

  • The average rate on a two-year fixed deal now stands at 6.83%
  • The average rate on a five-year fixed deal now stands at 6.34%

Encouraging Inflation Data

These mortgage rate cuts were prompted by encouraging inflation data that was released previously this week. The data has eased some concerns showing that market predictions for additional interest rate increases may not be as bad as initially predicted.

Furthermore, Lloyds Banking Group said Bank of England interest rate should peak at 5.5%. This is much lower than the 7% that some were fearing only a few weeks ago.

Other Big Lenders Predicted to Lower Mortgage Rates

Brokers have stated they expect other big banks to follow suit and make mortgage rate cuts. This is to win businesses over and stay competitive. Additionally, banks have been under pressure from politicians for failing to pass on interest rate rises to savers while mortgage costs go up. The following smaller lenders have already stated they will be lowering their rates:

  • Platform (part of the Co-operative Bank)
  • Yorkshire Building Society
  • Accord Mortgages
  • Australian non-bank lender Pepper Money

However, brokers have cautioned that borrowers are encountering an uncertain situation in anticipation of the Bank of England’s upcoming interest rate decision next week. As of Wednesday, two-year fixed rate mortgages reached 6.86%. This passed the levels last year following the unfunded tax cuts in the “mini” budget presented by Liz Truss. Additionally, several other lenders continue to raise their interest rates, further complicating the current mortgage market.

We may have to wait until the 3rd of August before we see other lenders make their call on whether they will raise or lower interest rates. This is because they will want to see if the base rate decision changes.

Read more about how rising interest rates will impact the housing market. 

Nick Mendes, a broker at John Charcol, has stated that lenders would be staggering reductions over the next few weeks. This is in an effort “to ensure that they do not quickly become market leading, resulting in an influx of applications and dampening their service levels”.

How are Mortgage Rates Affecting the Housing Market?

The combination of elevated borrowing expenses and the ongoing cost of living crisis has had a large impact on consumer demand.

Evidence of this downturn is evident in mortgage approval figures, which dropped from 51,500 in March to 48,700 in April. Additionally, net mortgage borrowing experienced a decline, dropping by £1.4 billion in April. This is the lowest level ever recorded based on Bank of England data.

A noteworthy factor contributing to these circumstances is the continuous increase in the Bank of England’s base interest rate, which has risen for 13 consecutive times. The rate currently stands at 5%.

It is hoped that with the drop-in mortgage rates, the market will open up again for buyers priced out by the high rates.

What Does Mortgage Affordability Mean for House Prices

According to economists at Capital Economics, there is a projected 8% decrease in house prices for this year. This is mainly due to the burden of mortgage affordability dampening demand. Considering that a house is typically the most significant asset for many individuals, declining prices could significantly impact their confidence, leading to potential changes in their spending decisions.

James Sproule, Chief UK economist at Handelsbanken states: “Looking to 2024 and beyond, the revival in nominal house prices will be a key aspect of rising consumer confidence and the willingness of consumers to finally spend some of their pandemic-accumulated savings.”

Enlisting the Help of a Conveyancing Solicitor

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