The Volatility Of Interest Rates – What Does This Mean For My Mortgage?

Conveyancing - First Time Buyer

With recent increase in interest rates, Trainee Solicitor Michael Radze-Constable discusses what this means for mortgages in his latest blog…

Just over 25 years ago, the then Labour Chancellor of the Exchequer and subsequent Prime Minister, Gordon Brown, gave the Bank of England independence, allowing this body to set interest rates. The last year in particular, has been a busy period for the Bank of England; In September, interest rates increased from 1.75% to 2.25%. This marked the seventh rise in interest rates since December 2021, when the rate stood at merely 0.1%. We are now witnessing the highest level of interest rates for 14 years, following the aftermath of the 2008 financial crises.

What Does This Mean For Buyers’ Dependant On Mortgage Finance?

Unsurprisingly, it is not good news. The dramatic changes in interest rates have produced market uncertainty, which has been heightened by the UK having 4 different Chancellor’s in the last 4 months. Over the last few weeks, prominent lenders such as Halifax, Virgin Money, Barclays and NatWest have pulled out of deals, and re-adjusted their figures in line with market rates, resulting in higher interest rates on mortgages. Following last months mini-budget, Skipton Building Society pulled numerous mortgage offers with immediate effect, notifying mortgage brokers that all deals would be withdrawn for new customers. For the estimated 2 million homeowners on variable rate deals, the recent rise to 2.25% will result in a near immediate rise to monthly mortgage repayments.

However…There Is Light At The End Of The Tunnel

It is important to remain calm. With the government performing a U-turn on last month’s mini budget, signifying a change in philosophy by appointing Jeremy Hunt as the new Chancellor and reversing nearly all the tax cuts imposed last month, market stability will likely be restored. This should lead to an end in rising interest rates, which are set to be reviewed again on 3rd November 2022.

Furthermore, there are signs that purchasing a house in the UK will become cheaper. Online real estate company Rightmove identified that this month, the average cost of property on the market hit a record high of £371.158.00. However, there are signs of a stagnating market, with annual inflation dropping from 8.7% in September.

Furthermore, September’s dramatic reforms to Stamp Duty Land Tax is one of the mini budgets surviving policies, resulting in a significant reduction to stamp duty payable, particularly for first time buyers, who will pay £0 Stamp Duty for properties up to £425,000.00 https://www.timms-law.com/stamp-duty-changes-2022/

Conclusion

Overall, it has been an unpredictable last few months for the UK. So many of us are dependant on mortgages to purchase our new homes, and we will be even more so in the future. While the statistics certainly are intimidating, we will ride the storm.

Michael Radze-Constable
October 2022

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