Era of Ultra-low Mortgage Rates at the Beginning of the End
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Taxes up, inflation up and now ultra-low mortgage rates deals are starting to come to an end. The chancellor has barely sat down after making his autumn Budget statement before mortgage providers started to increase their rates.
Office for Budget Responsibility (OBR) has forecasts UK inflation to rise to as high as 5% next year and that that will force the central bank to hike interest rates from the ultra-low 0.1% currently to at least 0.75% by year’s end.
But the OBR may be underestimating the extent of the possible hikes in rates, with markets betting that the Bank of England will start raising rates as soon as November and that they could end up nearer 1.25% by the end of 2022.
If you are looking to nab the cheapest mortgages, check out our story on how to find the best deals
Ultra-low mortgage rates: sub 1% 5-year fixed rate deals disappearing
Barclays said today that its rates would be rising by up to 0.35%. For example, its two-year fix on a 60% loan-to-value (LTV) ratio has gone up from 0.91% to 1.25%.
HSBC and NatWest raised rates on fixed-rate deals on Thursday. Other providers have already been slowly increasing rates over the past two weeks
Halifax said yesterday it would be putting up its rates up by 0.20%.
Santander has taken all of its three-year fixed rate deals off the market and increased rates on the rest so that there are no longer any with sub 1% rates.
Nationwide increased many of its rates and no longer has any five-year fixes sub 1%. – the same goes for NatWest.
Inflation will force up Bank of England base rate
None of the rate increases are likely to stop there as inflation picks up. The CPI rate actually fell back slightly from 3.2% to 3.1% for September, but experts expect the upward climb in the rate of increase to resume.
As we reported yesterday, consumers already face a spike in the tax take that will see the average household lose £3,000 by 2024, according to the resolution Foundation thinktank.
Borrowers have grown accustomed to ultra-low interest rates, so a rise will come as an unwelcome jolt. Also the low rates have helped to bolster property va;ues over the past decade and more.
Ultra-low rates have helped fuel a rampant property market, with house prices surging in most parts of the UK.
Moneyfacts still lists 13 two-year fixed rate mortgages at sub 1% levels, but borrowers are going to have to move fast to grab these deals. Mortgage providers have been engaged in a heated price war that has seen rates under 1% for fixed rate deals of up to five years, as they compete for customers.
Best mortgage rates are on borrowed time
Laura Suter, head of personal finance at stock broker AJ Bell, emphasised the need for consumers to secure new deals as soon as possible. “Homeowners need to be aware that it’s a case of when not if for an interest rate rise now and the clock is ticking on the record low mortgage rates we’ve all become accustomed to.”
The broker has calculated that someone renewing in 2023 would pay £600 per annum more for the equivalent deal on a £250,000 mortgage, based on data from OBR forecasts.
David Hollingworth, associate director at national mortgage broker L&C Mortgages reiterates the point about fixed rate mortgages starting to move higher. “Irrespective of what actually happens to base rate, fixed rates — which are the only kind of mortgage borrowers are interested in at the moment — are already on the move as a result of that expectation rising,” says Hollingworth.
Simon Gammon, managing partner at Knight Frank Finance, told the BBC: “The market is now alive with talk that interest rates are set to rise and all signs suggest the best products available are on borrowed time.
“Though any hikes are likely to be slow and measured, this is the lowest mortgage costs are likely to be for some time.”
