UK Mortgage Rates Stabilize Ahead of Pivotal Year for Housing Market

The cost of a fixed-rate mortgage is stabilizing in Britain، as homeowners and landlords brace for a pivotal year in the nation’s housing market.

The average two-year fixed rate home loan was 5.79% on Friday، near the 5.8% level around which it hovered for the past three weeks، according to Moneyfacts Group Plc. The rate had jumped to a 14-year high of 6.65% on Oct. 20، when then-Prime Minister Liz Truss’s mini-budget sent rates spiraling. 

The average five-year fixed-rate deal remained at 5.63%، after reaching highs of more than 6.5% in October.  

Steady rates may provide some relief for buyers and landlords as they brace for a year that will likely see the first annual drop in home values in a decade. UK house prices fell for a fourth consecutive month in December، the longest downturn since the financial crisis. Economists expect properties to lose as much as 10% of their value next year.

“The sudden increase in mortgage rates and house values falling suggests there are more risks materializing for landlords coming into 2023،” said Daniel Chard، conveyancing solicitor at law firm Bird & Co Solicitors. 

Mortgage costs are likely to remain elevated for a few years، the Office for Budget Responsibility said last month، meaning people who remortgage in the next 12 months may see payments double. UK buy-to-let investors are likely to be among the most affected by the rapid change in Britain’s home loan affordability، according to a report by broker Savills Plc. 

That’s backed up by Bank of England Deputy Governor Jon Cunliffe، who this month predicted that some of Britain’s 2 million buy-to-let owners will be forced to sell “and take capital profits” since the vast majority are on interest-only deals. 

A financial crunch for buy-to-let landlords would have a direct impact on rental stock، which is already in limited supply. Property portal Zoopla reported that the cost of a new rental agreement rose 12.1% in the 12 months to October، far outstripping the average annual wage growth of around 6%. 

Rents are likely to increase at a slower pace next year because landlords won’t be able to pile even more pressure on tenants’ budgets in the middle of a cost-of-living crisis، the report added.

“Growing interest rates will lead many landlords، especially those renting just one or two properties، facing the very real risk of making a loss on the properties they let،” said Chris Norris، policy director for the National Residential Landlords Association. “In such circumstances it would simply be unviable for them to continue in the market.”

Homeowners may find some comfort in Cunliffe’s claim that a pandemic-driven house price boom means even a 20% fall in values would not cause distress to most homeowners. Savills also predicts house price losses will be reversed by 2026.