House prices have fallen by 3.4% in May, the fastest annual rate since the financial crisis of 2008/9, new figures from the Nationwide Building Society reveal. The Guardian reports that under growing signs of pressure on the housing market, mortgage borrowing is also at the lowest levels since records began in 1993.
The persistently high levels of inflation are being blamed for the slump, as the Bank of England (BoE) has made a series of interest rate increases in an attempt to bring inflation nearer to its target level of 2%. It is currently at 8.7%, which is down from its peak of 11.1% in October, and lower than the March figure of 10.1%.
However, economists predicted that inflation would fall further than it has done so far, and the BoE responded by putting up interest rates for the 12th time in a row, to 4.5%. The surge in prices for fuel and food is to blame for record inflation levels, spurred on by the war in Ukraine, which has seen supplies fall.
The rise in interest rates has had a knock-on effect on mortgage rates. In December 2021, the base rate was 0.1%, and it is currently 4.5%, and widely expected to rise to 5% or even 5.5% by the end of the year. In response, banks and building societies have pulled more than 800 mortgage deals from the market in the past week.
The average two year fixed term mortgage now has a rate of 5.49%, while a five year fixed rate deal is now 5.17%. This has led to a drop in demand for new mortgages, and caused concern that current homeowners who are coming to the end of a two or five year fixed deal may not be able to find an affordable new deal.
Anyone who is concerned about being able to meet mortgage repayments is advised to discuss their situation with the lender in the first instance. For those coming to the end of a fixed term deal, the advice is to shop around for the most suitable product rather than risk being moved onto a standard variable rate.
Martin Beck, a chief economic adviser, told The Guardian: “The numbers point to a housing market struggling in the face of pressure on household finances and higher mortgage rates. And rates could head up further, putting more pressure on housing market activity.”
Robert Gardner, the Nationwide chief economist, commented: “If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-budget in September last year.”
The cost of remortgaging is thought to be almost 40% higher than it was at the beginning of 2019. Therefore, it is more important than ever that existing mortgage holders should seek expert professional advice from a broker to help them find the best rates.
If you are looking for bad credit mortgage brokers in the UK, please get in touch with us today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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