The Bank of England has hiked interest rates by 0.75 percentage points – the biggest increase in more than three decades. Rates now stand at 3%, a significant rise from the previous 2.25% and the eight consecutive increase since December. Soaring inflation in addition to surging energy costs and a severe cost-of-living crisis are significantly affecting prospective homebuyers and homeowners with mortgage deals that are set to expire will experience a rude awakening following this announcement.
The announcement is set to further impact mortgage prices in the UK property market. It was revealed that fewer mortgage deals with smaller deposits are on offer, causing first-time buyers more difficulties when trying to get onto the property ladder. Research from Moneyfacts shows that there were 137 mortgage offers at 95% loan-to-value last week, compared to 347 at the start of 2022, with the largest number of deals (583) from lenders for 75% loan-to-value mortgages. The announcements made in the infamous mini-budget caused chaos in the property market pushing mortgage interest rates to 14-year highs – with the average two and five-year fixed rates climbing to 6.65% and 6.51% respectively but have since begun to fall. Mortgage rates have been rising continuously for months as central banks try to tackle rising inflation – currently standing at 10.1% in the UK.
Properties in the UK are now more unaffordable than ever, with figures released by the ONS showing that the average home sold in England cost the equivalent of 8.7 times the average annual disposable income – which is the worst affordability ratio in England since records began in 1999. UK house prices fell for the first time in more than a year during the month of October, according to Nationwide’s latest monthly report. The average price of a property fell by 0.9% from September to £268,282 – representing the first decrease since July 2021, as the property market continues to feel the effects of the havoc caused by the mini-budget, announced by former prime minister Liz Truss’ government. After the announcement, the financial markets went into panic, which resulted in widespread repricing of the mortgage market. This led to chaos for people across the property spectrum as 40% of mortgage deals were pulled overnight causing many to have to abandon property purchases, and many existing homeowners had their mortgage payments increase significantly.
Group Chairman of Cornerstone Tax, David Hannah, discusses the impact of the rise in interest rates on UK households:
“The announcement of the biggest interest rate hike in more than three decades today will continue to add strain to homeowners. We are seeing a new level of unaffordable house prices in the UK property market, and the property market is now becoming increasingly difficult to enter for first-time buyers, and even though the average price of a property is falling, the increase in mortgage rates and the decrease in availability of mortgages are significant problems. We all know the challenges the UK’s property market is currently navigating – inflation and rising interest rates are causing a whole raft of issues.
We’ve seen a surge in building costs and building materials which is slowing down construction and worsening the issue of supply and demand. The affordability of mortgages has worsened and monthly payments soared following the mini-budget announcements, undoubtedly contributing to the fall we have seen in property prices in October. . Despite the rising interest rates, I still see the main obstacle for first-time buyers being the ability to save enough money for a deposit.
“Renters will also feel the effects of today’s interest rate hike. They will find it more difficult to find available properties as landlords are set to experience higher mortgage rates which could deter them from renting their properties and look to sell instead. I think potential landlords will be more cautious when buying buy-to-let properties which will have a significant impact on the availability of homes in the UK.”
