The United Kingdom’s mortgage market is currently witnessing a remarkable trend: mortgage rates are falling to their lowest levels since the infamous Truss mini-budget. This change marks a significant shift from the previously high rates that burdened many homeowners and potential buyers. The Truss mini-budget, a pivotal event in the UK’s economic history, had previously influenced a spike in mortgage rates, creating a challenging environment for the housing market.
Now, as we venture into 2024, there’s a palpable sense of relief as these rates begin to decline, heralding potential benefits for homebuyers and the economy at large.
Why were mortgage rates rising?
The trajectory of the UK mortgage market has been anything but linear. Over the years, it has been shaped by various economic policies, global events, and domestic financial decisions. The period leading up to 2024 was particularly tumultuous, marked by political uncertainties and economic upheaval.
The Truss mini-budget, introduced by the short-lived government led by Prime Minister Liz Truss, had a profound impact on the UK’s economic. Its ambitious fiscal policies, including significant tax cuts and borrowing plans, were met with skepticism by financial markets. This skepticism quickly translated into higher borrowing costs for the government, which inevitably rippled into the mortgage sector.
Mortgage rates soared as lenders grappled with the increasing cost of borrowing and the uncertain economic outlook, putting additional financial pressure on homeowners and dampening the housing market’s prospects.
Why are mortgage rates falling now?
Mortgage rates are significantly influenced by broader economic factors, including inflation, the Bank of England’s policies, and market competition. HSBC’s recent decision to lower its five-year fixed remortgage rates to 3.94% is a strong indicator of the current trend??. Other major lenders like Halifax have also made similar moves, signifying a potential shift in the market dynamics. Now, for the first time since 2022, mortgage rates are falling drastically.
Here are the current rates (as of January 2024):
| Loan to value (LTV) | Term | Interest Rate (HSBC) | Max Loan |
| 95% (5-10% deposit) | 2-year fixed | 5,49% | £ 500,000 |
| 95% (5-10% deposit) | 5-year fixed | 4,99% | £ 500,000 |
| 75% (25% deposit) | 2-year fixed | 4,69% | £ 2,000,000 |
| 75% (25% deposit) | 5-year fixed | 4,32% | £ 2,000,000 |
| 60% (40% deposit) | 2-year fixed | 4,59% | £ 5,000,000 |
| 60% (40% deposit) | 5-year fixed | 4.24% | £ 5,000,000 |
Source: https://www.hsbc.co.uk/mortgages/first-time-buyers/rates/
This competitive environment among lenders can be beneficial for borrowers seeking lower rates??.
What’s Next for First-Time Buyers and Homeowners?
The current trend of decreasing mortgage rates could be particularly advantageous for first-time buyers, as lower rates generally mean lower monthly repayments. This suggests a potentially more accessible housing market for new entrants in 2024??. Homeowners looking to remortgage might also find this an opportune time to secure more favorable rates.
Here are some of the benefits of being a first time home buyer
| Benefits | Explanation |
| Lower Costs | With the decline in mortgage rates, the cost of mortgages is expected to decrease. First-time buyers may be able to afford homes they may not have been able to previously. |
| Lower Down Payments | The lower risk environment created by falling rates may also enable lenders to relax their requirements on down payments. |
| Mortgage Affordability | Lower mortgage rates translate to lower monthly repayments, making mortgages more affordable. |
| Easier Access to Credit | Financial institutions might be more willing to lend to first-time buyers given the lower risk of rising rates. |
| Room for Negotiation | The competitive environment among lenders could offer first-time buyers leverage in negotiating for even lower rates or better terms. |
The potential to get a favorable mortgage, meaning a mortgage with a lower interest rate, depends on several factors. Borrowers who have the following characteristics are generally more likely to qualify for lower mortgage rates:
- Credit Score: Those with higher credit scores are viewed as lower risk, which can qualify them for better rates
- Large Down Payment: A larger down payment decreases the loan-to-value ratio (LTV), making the loan less risky for the lender. Borrowers who can make a down payment of 20% or more typically get better rates.
- Low Debt-to-Income Ratio: A low debt-to-income ratio indicates that a borrower is not highly leveraged and has a good balance between debt and income, allowing for potentially better rates.
- Stable Income: Proof of a stable and reliable income stream reassures lenders that the borrower can make mortgage payments on time.
Last thoughts
In conclusion, while there’s cautious optimism about the continuation of falling mortgage rates into 2024, it’s essential to stay informed and prepared for any shifts in the economic landscape.
The real estate market remains dynamic, and these changes could have significant implications for both existing homeowners and prospective buyers.
