Expert Guest Article
James Keable
Finance and Mortgage Services Director
Capital Private Finance
In the ever-evolving landscape of the UK housing market, the trajectory of mortgage interest rates has recently taken a pronounced upward turn, raising questions about the possibility of a sustained period of elevated rates. Against the backdrop of a rapid rate hike over the last two years, a number of global and domestic factors have converged to shape this trend and understanding the dynamics of this scenario is paramount for both homeowners and prospective buyers.
Over the past two years, the landscape of mortgage rates in the UK has undergone a significant transformation. The low-interest environment that characterised the post-financial crisis era has generated a new phase, marked by a series of rate hikes. This change has been driven by a number of global and domestic influences.
Global forces
The global economy operates as a vast interconnected ecosystem, where ripples in one part can reverberate across borders. One such factor influencing UK mortgage rates is the US economy. Over the past two years, the US has experienced periods of robust growth coupled with inflation concerns. As the US tackles these dynamics, these actions send shockwaves through the international financial system, impacting borrowing costs in the UK.
Simultaneously, geopolitical tensions have introduced an element of uncertainty and risk into the equation. These tensions have disrupted global supply chains, leading to fluctuations in product and energy prices. Such price volatility has cascading effects, contributing to inflationary pressures and influencing the Bank of England's decisions to raise interest rates.
Domestic landscape
In the political arena, the UK has experienced changes in government administration and shifts in fiscal policies during this period. Transitions in leadership bring new priorities and approaches to economic management. The policies introduced by these governments have had a direct bearing on the trajectory of interest rates.
Changes in fiscal policy, shown by shifts in taxation and government spending, can influence inflation levels. Inflation is a critical consideration for central banks when determining interest rate policies as it can prompt them to adopt a tightening stance, resulting in higher borrowing rates.
Impact on housing affordability
The rise in mortgage rates carries profound implications for housing affordability. As borrowing costs increase, monthly mortgage payments also rise, potentially straining the finances of homeowners and discouraging prospective buyers. This shift in affordability dynamics can exert downward pressure on housing demand and in turn prices, particularly for those at the margin of affordability.
However, the dynamics of increased inflation also come into play. While rising prices might change the purchasing power of consumers, they can also lead to wage increases as employers respond to higher costs. In the context of the UK, where wage growth has often lagged behind inflation in recent years, the uptick in wages that we have been seeing recently is helping to mitigate the impact of higher mortgage costs, supporting overall affordability.
Looking ahead
The question on the minds of homeowners, buyers, and economists alike is whether this era of higher mortgage rates is a passing phase or a longer-term trend.
Geopolitical tensions will continue to determine global economic conditions. The ability of governments to effectively manage inflation through a balance of fiscal and monetary measures will also shape the interest rate landscape. Central banks, including the Bank of England, will closely monitor these factors as they make crucial rate-setting decisions.
The landscape of UK mortgage rates has experienced a notable upheaval over the past two years, reflecting a convergence of global and domestic influences. While the exact trajectory of rates in the future remains uncertain, the factors driving this shift are complex and connected.
As homeowners assess their financial obligations and prospective buyers ponder their entry into the housing market, it's vital to recognise the dynamic nature of these influences. Those looking to make informed decisions should remain familiar with these complex forces as they navigate the world of home financing.
If you would like to discuss your ability to buy or remortgage, Capital Private Finance are here to help. Contact one of our experts today by visiting capitalprivatefinance.co.uk
Get expert mortgage and protection advice tailored to you
The experts at Capital Private Finance have access to a vast array of mortgage products and can access a range of specialist products not available to all brokers. This means that if it is possible to arrange finance, then we should be able to help you achieve your goals.
Contact Capital Private FinanceALL MORTGAGES ARE SUBJECT TO STATUS AND LENDER CRITERIA. MORTGAGE PRODUCTS CAN BE WITHDRAWN AT ANY TIME.
A FEE WILL BE PAYABLE FOR ARRANGING YOUR MORTGAGE. YOUR CONSULTANT WILL CONFIRM THE AMOUNT BEFORE YOU CHOOSE TO PROCEED.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU RE-MORTGAGE.
Mortgages available through Capital Private Finance. Capital Private Finance is an Appointed Representative of Mortgage Intelligence which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance and consumer credit mediation activities only. Registered Office: Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP. Registered in England & Wales under number 07552028.
