MORTGAGE MATTERS – JUNE

Inflation fell to just 2.3% in the 12 months to April 2024, close to its 2% target (ONS). As the economic outlook improves, consumer confidence in May reached its highest level since December 2021 (GfK Consumer Confidence Tracker). However, with a 4th July election announced, market expectations for the first bank rate cut have shifted to August as opposed to June.

Despite higher borrowing costs compared to the ultra-low rates a few years ago, recent stability and the removal of the threat of future rises, has given homeowners a little more confidence in their ability to afford a mortgage. This confidence will further take hold as the Bank of England rate starts to fall. Alongside improving economic conditions helping ease household financial pressures, mortgage approvals rose to 61,140 in April, a 26% annual increase on last years low levels (Bank of England).

Despite concerns that an election could slow market activity, the anticipated first interest rate drop is expected to have a much larger impact on activity this year. With no major policy changes yet announced that affect the housing market, the election is unlikely to disrupt the seasonal transaction patterns which typically peak in July and August (Dataloft (PriceHubble), HMRC). The sales pipeline is robust, 3% higher than the same time last year (Zoopla), and those already engaged in the sales process
are unlikely to withdraw.

Due to delayed expectations of the Bank Rate cut, swap rates (off which mortgages are usually priced) have been rising slightly in recent days. Despite this, many lenders are bringing rates down to bring in business, and whilst some of these sometimes then revert higher, there are good deals to be had for those who are vigilant. The average two-year fixed rate mortgage is currently at 5.93% and the five-year is at 5.50%, close to the levels recorded in early May and more than half a percentage point below the record highs seen in July 2023 (Moneyfacts). However, Bank of England data shows that with a good loan-to-value, five-year fixes of around 4.5% are currently available. There are an increasing number of people opting for a two-year fix, with the expectation that rates will drop soon. The market space remains highly competitive, and lenders have been bringing rates down for existing customers to retain business.

There are more than 6,600 residential mortgage products available, including almost 3,000 buy-to-let deals (Moneyfacts). A small number of lenders are pulling higher loan-to-value mortgages from sale. However, they are relaxing their other lending criteria and offering innovative products, including improvements to new-build loan-to-values.