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House Prices Bounce Back

The Bank of England recently announced that they were imposing another interest rate rise of 0.5% taking the current Bank’s Base Rate to 4%. This marks the tenth consecutive rate rise by the Bank’s Monetary Policy Committee (MPC) since December 2021. This rise now means that interest rates are now at the highest they’ve been since 2008.

Despite this, there is some good news as fixed-rate mortgages are starting to fall, which is a boost to first-time buyers. Lenders have reduced their rates by as much as 0.7%, with two, three and five-year fixed-rate mortgages seeing the most significant reductions.

This is because lenders had widely expected this latest rate rise in their market forecasts. The view is that it will rise to 4.5% by the summer, which will see rates peak and then start to come down, making borrowing more affordable. The ‘Base Rate’ is set by the Bank of England and is the interest rate it charges to other banks and financial institutions when they borrow money and is used to control inflation.

The Bank of England has announced that the Base Rate would continue to rise to tackle record-high inflation, which has a target of 2%. At present, it is 10.5%.

Mortgage deals were pulled after the mini-budget, which threw the economy into chaos. They were introduced at higher rates, but after the autumn statement was announced to mitigate the market reaction, rates started to fall again. They are still coming down because we are still in a period of stability.

If you’re looking to purchase a home, the mortgage market is now looking much more favourable for buyers, with more deals available and falling rates. This will give the property market more confidence ahead of the typically busy warmer months.

Most five-year, and many two-year fixed-rate deals are now available below 5%, compared to more than 6% at their peak in October last year, and competition between lenders is increasing, which is good for borrowers who can shop around. In addition, for those saving for a deposit, the interest rate on savings is higher than last year’s.

It’s estimated that around 15% of borrowers are on a variable rate or tracker mortgage, so the January announcement means that their mortgage repayments will rise. However, they will also reap the benefits as we progress throughout the year and rates decrease. Those on a historically low five, three or two-year fixed mortgage rate will feel the impact of a rate rise the most as their payments will jump considerably from around 1.5% to over 5%. Those on a fixed-rate deal with no immediate requirement to remortgage will find that their prices won’t change.

If your mortgage deal is coming to an end within the next six months, you can start to apply for a new deal now and secure a mortgage without paying an early repayment charge, as this will be a switch or product transfer. This shouldn’t require you to prove your income or undertake affordability testing. Mortgage applications are taking several months, so it’s worth looking as soon as possible – a mortgage broker will give you a whole market view. They will look at how much you can borrow based on your circumstances.

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