Mortgage Rates Remain Steady in the UK as Housing Market Prepares for Crucial Year

The cost of a fixed-rate mortgage is stabilizing in Britain as homeowners and landlords brace for a pivotal year in the nation's housing market. This comes as a relief to many who were worried about the potential for rising costs.
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The average two-year fixed rate home loan was 5.79% on Friday, according to Moneyfacts Group Plc. This is near the 5.8% level that it has been hovering around for the past three weeks. The rate had jumped to a 14-year high of 6.65% on Oct. 20, when then-Prime Minister Liz Truss’s mini-budget sent rates spiraling.
The average five-year fixed-rate mortgage deal remained at 5.63% in November, after reaching highs of more than 6.5% in October.
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Mortgage rates in the UK have fallen below 6% after reaching 14-year highs in October. This decrease in rates is welcome news for homebuyers who have been struggling to afford their monthly payments. With rates remaining relatively low, now is a good time to consider purchasing a home.
Steady rates may provide some relief for buyers and landlords as they brace for a year that is expected to see the first annual drop in home values in a decade. UK house prices fell for a fourth consecutive month in December, the longest downturn since the financial crisis. Economists expect properties to lose as much as 10% of their value next year.
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According to Daniel Chard, a conveyancing solicitor at Bird & Co Solicitors, the recent increase in mortgage rates and decrease in house values suggests that there are more risks for landlords in 2023.
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The Office for Budget Responsibility said last month that mortgage costs are likely to remain elevated for a few years, meaning that people who remortgage in the next 12 months may see their payments double. A report by broker Savills Plc indicates that UK buy-to-let investors are likely to be among the most affected by the rapid change in Britain’s home loan affordability.
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Mortgage rates in the UK are expected to remain relatively stable over the next decade, with predictions suggesting they will stay near 5% until at least 2028. This is good news for potential homeowners who have been saving up for a deposit, as it gives them a longer window to get onto the property ladder.
This is supported by Bank of England Deputy Governor Jon Cunliffe, who this month predicted that some of Britain's 2 million buy-to-let owners will be forced to sell "and take capital profits" since the vast majority are on interest-only deals.
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A financial crunch for buy-to-let landlords would have a direct impact on rental stock, which is already in limited supply. According to property portal Zoopla, the cost of a new rental agreement rose 12.1% in the 12 months to October, far outstripping the average annual wage growth of around 6%. This would make it even more difficult for people to find affordable rental properties.
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Rents are expected to rise at a slower pace next year, as landlords will be unable to continue putting pressure on tenants' budgets during a cost-of-living crisis, according to the report.
According to Chris Norris, policy director for the National Residential Landlords Association, rising interest rates could force many landlords to make a loss on their rental properties. This could make it difficult or even impossible for them to continue operating in the market.
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Homeowners may find some comfort in Cunliffe's claim that a pandemic-driven house price boom means even a 20% fall in values would not cause distress to most homeowners. According to Savills, house price losses will be reversed by 2026.