Mortgage Rates on the Rise: What It Means for UK Homeowners
The UK’s housing market is bracing for impact as mortgage rates are set to increase, affecting hundreds of thousands of homeowners. Virgin Money, a major high street lender, has already raised its two- and five-year fixed-rate mortgages by 0.2%, with similar hikes to some of its remortgage deals.
Economic Uncertainty Drives Up Borrowing Costs
Concerns over the UK’s economic outlook have led to a sell-off in UK government bonds, pushing up borrowing costs and suggesting that interest rates may not fall as quickly as expected. The 10-year gilt yield has reached its highest level since 2008, hovering around 4.88%.
Impact on Homeowners
The short-term effect of rising mortgage rates will be felt by borrowers whose current deals are set to expire this year. With hundreds of thousands of borrowers affected, experts advise securing new rates now to avoid further hikes. Matt Smith, mortgage expert at Rightmove, notes that an anticipated uptick in property transactions could see lenders retain more favorable borrowing costs, at least in the short term.
Ripple Effect on Home Prices
Higher mortgage rates will also have a knock-on effect on home prices. Zoopla warns that higher-for-longer rates could alter its 2025 price growth forecasts. If mortgage rates were to move higher, it could see a return to flat prices and even modest, single-digit price falls.
Home Sellers Feel the Pinch
Home sellers in England and Wales made their lowest returns in over a decade last year, with the average seller making 42% in gross profit in 2024. The market has cooled significantly since its peak in 2022, and experts predict that higher mortgage rates will only add to the pressure.
What’s Next for UK Homeowners?
As the UK’s economic outlook remains uncertain, homeowners are advised to stay vigilant and prepare for potential rate hikes. With mortgage rates on the rise, it’s essential to secure the best deals possible and plan for the future.
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