Rising Mortgage Rates UK

The era of ultra low interest rates, formed in the wake of the global finance crisis, is officially over – but does a return to higher rates as the norm change how you should navigate mortgages in the UK? 

It’s official: the days of cheap money, born in the wake of the global financial crisis, are behind us. Yet while some may say mortgage rates are returning to a more normal level by historic standards, the leap in costs from such rock bottom levels leaves millions of homeowners struggling to adapt to a new landscape.

“Interest rates are now about what they were in 2007, before the crash. We have been absolutely spoiled in the period since the financial crisis but that’s now over and it’s time to adapt again” says Marie Dalrymple, Equity Release and Mortgage Specialist at Ascot Lloyd.

Cost of Living Crisis

The effect on mortgage repayments for a generation of borrowers who became accustomed to very low rates was stark. The vast majority of borrowers were and still are on fixed-rate deals, which exposed millions of families to large spikes in their mortgage costs. This at a time when the biggest cost-of-living squeeze in 40 years was already causing a struggle for many households in the UK.

But with mortgage rates now settled and interest rates on a downward trajectory, the worst disruptions to the mortgage market appear to be behind us – until the next financial crisis at least!

“The market is still very uncertain and people are worried,” Dalrymple says. “Rising costs are hard to deal with, particularly for those who borrowed at their maximum capacity. In such circumstances, it is wise to revisit your retirement plans with your financial adviser to find ways to ease the strain in the short and medium term.”

Variable vs Fixed Mortgage Rates

Tracker mortgages are linked to the Bank of England rate while discounted variable rates are linked to the lender’s SVR, meaning they can move up or down. This can deter those who prefer more predictability in their outgoings, via fixed rate mortgages. Others may be attracted to lower rates on offer or are willing to bet the Bank of England will bring interest rates down faster than markets are predicting.

Finding a suitable mortgage can be challenging at the best of times, let alone during periods of market volatility. An independent mortgage adviser with whole of market access, such as at Ascot Lloyd, will be able to analyse your unique circumstances, including objectives, income and expenditure, credit history, future plans and affordability, to find the best product for you.

House Prices

Predictions of a significant drop in house prices caused by the surge in borrowing costs never really materialised. Some economists forecasted double-digit decline in house prices, while Halifax, the UK’s largest mortgage lender, predicted the market would fall by 8% in 2023.

A year later, however, Halifax’s House Price Index once again showed the consensus among economists had been proved wrong. UK house prices in fact increased by 1.7% throughout 2023, Halifax found, attributing the unexpected growth to a shortage of properties for sale as homeowners chose to absorb rising costs and hang tight rather than sell in an uncertain market.

The old adage about the stock market is just as true for housing: there’s no use in trying to time the market, it’s time in the market that counts. As recent years have shown, even the nation’s top economists can’t predict the fortunes of the UK housing market.

Buying a house – as a first step on the property ladder, to move home or even as an investment – should be a decision you make based on your individual circumstances and financial goals, and with the long term in mind. A mortgage adviser will be able to assess your situation, including how much you might be able to borrow, to help you make the right decision for you.

Taking on a mortgage is a big life decision and remortgaging can be confusing. At Ascot Lloyd, we source products from the whole of the market, with access to special rates which are not available direct to you. Get in touch to find out how we can help.