UK mortgage rates rose at a faster rate for a decade in the six months to May, according to data from the Bank of England, fueling expectations that the country’s real estate market is cooling after a boom induced by the pandemic.
Figures released on Friday showed that the average interest rate on new mortgages rose 13 basis points to 1.95 percent in May. That’s 46 basis points above the November rate, marking the fastest six-month increase since 2012.
The average rate quoted for a two-year fixed-rate mortgage with a loan-to-value ratio of 75% rose to 2.63% in May, from a low of 1.2% eight months earlier. fastest increase during this period from records. began in 1995.
The rate on existing mortgages also rose 2 basis points to 2.07 percent in May.
The data confirms that mortgage providers are transmitting the interest rate hikes implemented at the last five BoE meetings.
Markets expect the BoE to continue to raise rates from its current 1.25% to 3% in February next year, as the central bank faces the fastest pace of inflation in four decades. which suggests that the real estate market will soon lose momentum.
With rising interest rates and rising cost of living, Oxford Economics consultancy predicts that from the end of next year, house price growth will fall from the current 10% in negative territory and will contract until 2024.
Rising mortgage rates, along with record house prices, make the share of income of new buyers engaged in monthly mortgage repayment “soaring,” said Samuel Tombs, chief economist of the UK from Pantheon Macroeconomics.
Separate data from the Nationwide mortgage provider shows that payments have already increased relative to the payment, reaching 32% in the second quarter of this year, compared to 27% in the third quarter of 2020.
Given the intense pressure on household disposable income due to rising commodity cost and the current record low level of consumer confidence, “the number of home buyers is likely to decline in the second half of this year.” , added Tombs.
For now, however, house prices are backed by the UK’s strong labor market, low housing supply and buyers rushing to get mortgage deals before rates rise further.
“With the prospect of higher mortgage rates on cards, buyers are taking advantage of the last remaining lower rates before the inevitable rise, with them desperately re-mortgaging themselves to lock in a fixed-term mortgage during as long as possible, ”Tomer Aboody said. director of the real estate lender MT Finance.
This is evidenced by BoE data, which showed that net mortgage debt rose to 7.4 billion pounds in May, from 4.2 billion in April, and above the 12-month average before the pandemic. until February 2020.
The data also showed that approvals for home purchases rose to 66,200 in May from 66,100 in April, just slightly below the pre-pandemic average of 66,700 in the 12 months to February 2020.
“Rates are rising at a knot rate and people are getting in there while they can, and it’s fixed as much as they can, either by buying a house or a mortgage,” said Andrew Montlake, general manager of the agent Coreco mortgages.
FT Survey: How do you bring inflation higher?
We’re exploring the impact of rising living costs on people around the world and we want to hear from readers about what you’re doing to combat costs. Tell us about it in a short survey.