The UK mortgage market is experiencing a significant improvement for both homeowners and buyers, as mortgage rates have dropped to their lowest levels since the aftermath of the Liz Truss mini-budget in September 2022. Currently, NatWest is offering a five-year fixed-rate mortgage at 3.83%, the lowest fixed-rate option since that tumultuous period, according to broker L&C. This positive trend is reflected in the fact that seven of the ten largest lenders in the country are now providing fixed-rate deals below 4%.
The recent cut in the Bank of England’s base rate from 5.25% to 5% and a declining inflation rate have triggered a competitive price war among banks, benefiting borrowers. Although the consumer prices index saw a slight increase from 2% in June to 2.2% in July, this figure was lower than expected and significantly down from the 4% recorded in January. As a result, banks are offering substantial mortgage rate cuts to stimulate a property market that has been affected by high borrowing costs over the past two years.
Mark Harris, CEO of the mortgage broker SPF Private Clients, highlighted that many homeowners had delayed potential moves due to concerns over house prices and expensive mortgages. However, with the base rate reduction and falling fixed rates, there is a growing interest in moving, which is already observable in the market. Rightmove, a leading property portal, reported a 19% increase in prospective buyers contacting estate agents compared to the same period last year, along with a 16% year-on-year rise in agreed sales.
Tim Bannister, a data analyst at Rightmove, attributed this increase in buyer activity to the recent Bank rate cut and the downward trend in mortgage rates, both of which have positively influenced home-mover sentiment. Consequently, Rightmove has adjusted its forecast for asking prices, now anticipating a 1% rise this year after a previous 1% decline. Tom Bill from Knight Frank noted that August could be a crucial month for the UK housing market, with expectations of stronger trading volumes this autumn as more sub-4% mortgages become available.
While mortgage rates have been gradually decreasing since their peak in summer 2023, they remain considerably higher than the levels seen for most of the last decade when the Bank of England base rate was below 1%, allowing millions of borrowers to secure loans at rates of 2.5% or lower. Nevertheless, the declining rates are expected to offer some relief to the 474,351 homeowners whose deals are set to expire between September and December, according to the Financial Conduct Authority.
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