Why Have Mortgage Rates Surged?

In the housing market, the unpredictable and unprecedented have happened on such a regular basis that so many first-time buyers have only ever engaged in a market that has rocketed to unprecedented highs or faced unpredictability.

On the face of it, the mid-year House Price Index showed prices fall by just £82, whilst estate agents in Sutton have noticed price increases but not at the same absurd rates as was seen in 2020 and 2021.

However, what makes this situation much stranger than the figure would suggest is the circumstances surrounding it, as mortgage rates increased exponentially from less than five per cent in April to over six per cent less than two months later for a two-year fixed mortgage.

Part of this can be explained by yet another increase to the Bank of England’s base rate up to 4.5 per cent, a mechanism used to lower inflation (a decrease in the real-term value of the pound) and remove money from the economy.

This strategy has had a considerable knock-on effect for many would-be house buyers and people looking to remortgage in the near future, as both groups of people have noticed their monthly repayments increase significantly.

The last time the mortgage rates were this high was the result of the now-infamous September 2022 fiscal event and its immediate aftermath, which led to a significant change in policy.

As with much of the past few years in the housing market, exactly what happens next is uncertain, but as of 20th June 2023, interventions have been ruled out with the logic that cutting the rate of inflation is a greater priority and may help homeowners in the long run.

With that said, the fiscal event eventually forced a change in approach and this may end up being the case here, particularly if people are squeezed into default.