As a result of the recent tax cuts announced by the government, interest rates have soared, adding fuel to the fire for many experts who were already worried about a possible housing market crash.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Finance Minister Kwasi Kwarten’s “mini budget” announced on September 23 included £45 billion worth of debt-funded tax cuts. In response, government bond yields, which are used by mortgage providers to determine pricing of their fixed-rate mortgages, increased in the immediate aftermath. The temporary purchase program of these bonds brought some stability to the market, no matter how tenuous it might be. There is no telling how long this will last, though.
Another consequence of the announcement is that many banks suspended mortgage offerings for new customers alongside increasing the interest rates on their existing mortgage products. Select products have since returned to market with higher rates, unsurprisingly.
Experts caution against a likely scenario wherein house prices crash if interest rates remain at the current level for much longer as they are overvalued based on what UK homeowners are able to afford for monthly payments.
The popularity of fixed-rate deals may help to soften the blow of the current high interest rates, but this will put off potential homeowners, at least until the market calms down again. The housing market has already been experiencing a down swing recently, thanks to the reduced demand and already rising borrowing costs, coupled with a nationwide squeeze on household budgets.
So what should we expect of interest rates moving forward?
What to expect in terms of interest rate fluctuations will depend on a variety of factors. The Bank of England has raised the base rate six times so far this year, going from 0.25% at the end of 2021 to 2.25% currently. Many experts say to prepare for the eventuality of a rate of over 5% for the majority of 2023, quite the shock as many homeowners have gotten used to the low interest rates of the past few years.
Potential homeowners can also expect more scrutiny from mortgage providers during the mortgage application process — making it even tougher for many hopeful homeowners to get a foot on the property ladder.
So, if you’re in the market for a new home, don’t hesitate to get the help from us as experts – we can make the journey to homeownership smoother.