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Rates Rise Again But Demand is Still High Posted: 6th November 2022

Last week the Bank of England put up interest rates once again. They went up by 0.75% from 2.25% to 3% to tackle rising inflation.

However, the outlook for mortgage rates remains unchanged, with a high likelihood that mortgage rates could even be lower by the end of 2022. The outlook for mortgage rates has improved following the recent increase because of the sharp rise after the Mini budget in September.

Fixed-rate mortgages are used by 90% of borrowers in the UK, and the rate is set based on the markets and the Government’s borrowing costs which change over time. The Bank of England has raised interest rates to try and control inflation which hit a new record this year. If inflation comes down, so will interest rates.

The money market benchmark hit a record high after the mini-budget, and this underpins five-year mortgage rates. After the September budget, most lenders pulled their mortgage products from the market and put them back on at a higher rate. This has fallen by over 1.25% in the last few weeks, and at present, we can expect to see mortgage rates of just over 5% later this year.

Presently, homeowners fall into two camps – those waiting to see and holding off making plans and those pushing ahead with a move in anticipation of interest rates going even higher.  As a result, buyer demand has continued to fall and is currently down 40% since the mini-budget. In addition, we are approaching the usual winter slowdown as people concentrate on the run-up to Christmas and New year.

The good news is that in some areas, such as East Renfrewshire, demand is still higher than supply, which continues to underpin house prices in the area.

Looking towards 2023, high loan-to-value mortgage rates are higher than borrowers were paying last year, and this could affect buyer demand next year.  However, it’s worth remembering that 30% of home buyers use cash and 18% use smaller-sized loans, so these people will be less affected by higher borrowing costs.

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