Rosalind Evans
The latest actions from prominent lenders such as Nationwide, HSBC, and TSB, who have slashed their fixed mortgage rates, indicate that the peak of home loan costs might be near after escalating to almost 7%.
This move is in response to data from the previous week showing that June’s inflation decreased more than anticipated, pacifying financial markets and decreasing the forecast for the number of required interest rate hikes to control inflation.
In the following week, the Bank of England is expected to increase rates by a quarter point for the fourteenth consecutive time, bringing it to 5.25%. Investors are now predicting a peak in rates of 5.75% by March of next year, a lower figure than the earlier prediction of a rise up to 6.5%. Such an increase would have further boosted home loan rates for UK citizens, currently under agreements with rates lower than 2%.
The rise in housing expenses puts additional strain on UK citizens already grappling with increased food and energy costs. A recent official poll showed that 45% of rent or mortgage payers experienced a cost increase over the past half-year, and 40% are having difficulty meeting these payments.
After a steady rise from under 6% in mid-June, the average two-year fixed-rate mortgage reached 6.86% on Wednesday, as per Moneyfacts data. However, by Friday, it had dropped to 6.81%.
This trend shift is mirrored in the improved rates offered by major players such as Barclays, TSB, HSBC, and Nationwide, all of whom have reduced their rates in recent days. Analysts are predicting this downward trend in average rates to continue.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, suggested that while fixed mortgage rates may have peaked, the same could be true for savings rates. However, she warned that rates for homeowners on variable rate deals would likely still rise if the base rate increased as predicted.
As Coles remarked, “For significant moves below 6%, we will need to see a prolonged decrease in inflation and the Bank of England considering rate cuts.”
While this rate reduction is a welcome relief for borrowers, there is no expectation of returning to the previously enjoyed meagre rates. Nonetheless, the shift will provide significant relief to those remortgaging worried about finding a new deal and some prospective buyers who were once unable to enter the market.
While a return to the historically low rates is not forecasted, these reductions signify a potential respite for homeowners and prospective buyers. As lenders take a more conservative stance on interest rates, the UK housing market could shift dynamically. However, borrowers are advised to remain vigilant as potential interest rate fluctuations could continue to impact their financial situation.
