Mortgage Rates 28 June 2023
In June, the Bank of England increased interest rates from 4.5 percent to 5%.
Following the Office for National Statistics’ report that May’s inflation had remained at 8.7%, more than four times the government’s objective, the huge 0.50 percentage point increase had been widely anticipated.
Since December 2021, when the bank rate was barely 0.1%, there have been thirteen rate increases. It raises the bank rate to its highest level since 2008 and substantially increases borrowing costs.
Uncertainty and volatility
Following last September’s mini-Budget, which caused market turbulence and drove the pound to record lows, mortgage rates first skyrocketed. Major lenders at the time, including NatWest, Barclays, Halifax, and Virgin Money, all cancelled transactions and reintroduced them to the market at a higher price.
While mortgage rates have since decreased, there has recently been a rush of lenders raising the cost of packages as the Bank rate keeps climbing steadily despite rising inflation.
Average and ideal prices for well-liked deals
Our mortgage partner, Better.co.uk, reports that the current average cost of a two-year fixed rate agreement is 5.62%. Today’s average price for a three-year contract increased from yesterday’s 5.19% to 5.27%, while the current average price for a five-year contract is 5.16%.
The most recent rate increase had already been “priced in” by several mortgage providers. But more people this week have been cancelling deals and driving up the price of fixed rates.
Right now, mortgage rates still favourably contrast with peaks of more than 6.50% expected in October 2022.
According to Better.co.uk, the best offers are 4.59% for a five-year agreement, 4.89% for a three-year repair, and 4.99% for a two-year fix. The greatest bargain of its sort is now available for 4.64%, which is lower than the average two-year tracker rate of 5.20%.
According to Better.co.uk, the typical standard variable rate (SVR) for lenders is currently 7.33%. In May 2022, the average SVR was only 4.53%.
According to Moneyfacts, there were 4,967 residential mortgage options available as of June 1. Following last Autumn’s mini-Budget, the number of mortgages that were readily available had drastically decreased to about 2,560.
Mortgages and interest rates
So what impact would the most recent June Bank rate increase have on the price of mortgages?
Following the most recent Bank rate increase to 5%, the estimated 1.4 million homeowners (according to trade association UK Finance) with variable rate arrangements, such as base rate trackers, would almost immediately experience an increase in their monthly repayments.
As an illustration, a tracker rate increase from 5% to 5.5% would cost an additional £58 per month on a £200,000 loan with a 25-year term and increased monthly payments of £1,170 to £1,228.
In fixed-rate agreements, where the interest rate is fixed for a specified period of time, such as two or five years, borrowers won’t experience any changes in their monthly payments. However, available mortgage solutions will be significantly more expensive when the deal expires, as will be the case for more than 500,000 mortgage holders over the course of the remaining months of 2023.
Prices of homes and Stamp Duty
The value of real estate in the UK is declining, according to the most recent major house price indices.
For the first time since 2012, Halifax’s most recent housing market report, released on June 7th, revealed a decline in yearly house prices. Average property prices in May (£286,532) were 1% lower than they were in May of the previous year. According to Halifax, prices were stable on a monthly basis.
According to Nationwide’s house price survey, which was released on 1 June, the annual inflation rate fell to -3.4% in the year ending in May, which is a greater decline than the -2.7% reported in April. According to the lender, prices dropped 0.1% on a monthly basis, bringing the average price of a home in the UK to £260,736.
Despite reporting 1.3% price drops in the six months leading up to April, Zoopla still shows 1.9% annual inflation as positive.
The nil-rate band on the acquisition of a home increased from £125,000 to £250,000 as a result of the Stamp Duty reductions announced in the mini-Budget last autumn. While other tax breaks announced by the previous prime minister, Liz Truss, were reversed, this one was left in place.
Why is the interest rate going up?
Interest rate increases are a tool used by the Bank’s MPC to calm the economy and contain rising inflation.
The Office for National Statistics (ONS) reported today that the Consumer Prices Index (CPI) measure of inflation stayed constant at 8.7% in the 12 months leading up to May. Even if this is a little below the peak of 11.1% that was recorded back in October, it should be seen in light of the government’s 2% inflation objective for the Bank of England.
The price of energy is one of the primary longer-term factors contributing to rising inflation. The energy price cap has been established by regulator Ofgem at £3,280 as of April 1, 2023. According to normal consumption, the cost is an annual bill for a dual fuel family paying by direct debit.
On the other hand, the government’s own Energy Price Guarantee (EPG), which was put in place to safeguard consumers against skyrocketing energy costs, is in effect. The EPG is currently fixed at £2,500 per year.
As of July 1, the energy price cap will decrease from £3,280 to £2,074. The price cap will once more be in effect and set the cost of energy for homes in England, Wales, and Scotland through the end of September because this is below the level of the EPG.
After that, a new cap will go into effect on October 1.
What more should I know?
Mortgage offers with the lowest rates frequently have additional costs. These can either be paid in full up front or added to the loan.
Alternative ordering options include beginning rate, lowest charge, monthly payment, or even the lender’s “follow on” rate, which is the rate that the agreement will return to at the conclusion of the term.
The very lowest prices are saved for larger deposits, often at least 60% of the value of the property. To be approved for a mortgage, you will always need to have a suitable income and a spotless credit history.
When may I begin remortgaging?
Mortgage offers typically have a six-month expiration date once they are made, but some lenders, like Skipton Building Society, extend their validity to a full year. This means that if you’re wanting to refinance your present home, you may lock in a rate right now for free and without any conditions.
