UK Mortgage Market Stalls Amid BoE Decision to Hold Interest Rates at 4%

The UK mortgage market has stalled as the Bank of England held interest rates at 4%. Most lenders kept their offers steady, but two moved in opposite directions - Santander raised its rates, while Nationwide made cuts. The average rate for a two-year fixed mortgage rose to 4.75%, while the average five-year fixed deal came in at 4.95%, according to data from Uswitch. Homebuyers hoping for further rate cuts may face higher monthly repayments and reduced affordability.

The UK mortgage market has experienced a notable slowdown as the Bank of England (BoE) maintained its interest rates at 4%. Most lenders have kept their offers steady, but two key players, Santander and Nationwide, have moved in opposite directions. Santander increased its five-year cheapest deal, while Nationwide reduced its best two-year fixed rate further. The average rate for a two-year fixed mortgage rose to 4.75%, and the average five-year fixed deal came in at 4.95%, according to data from Uswitch UK mortgage market stalls as interest rates held at 4%^[1].

The BoE's decision to hold interest rates steady at 4% has dealt a significant blow to mortgage holders and borrowers across the UK. The primary inflation measure, the consumer price index (CPI), rose to 3.8% in the 12 months to August, remaining above the BoE's 2% target UK mortgage market stalls as interest rates held at 4%^[1]. This decision has left homebuyers hoping for further rate cuts facing higher monthly repayments and reduced affordability.

Fergus Allen, head of bridging at Clifton Private Finance, commented, "For homebuyers hoping for further rate cuts by year-end, this may come as a blow. It’s likely lenders will hold firm on current mortgage rates, meaning those coming to the end of a fixed term or looking to buy for the first time could face higher monthly repayments, reduced affordability, and fewer products to choose from" UK mortgage market stalls as interest rates held at 4%^[1].

Expats looking to return to the UK may also feel the pinch. Mortgage approvals can already be challenging for expats without a recent UK address or credit history, and with rates remaining high, lending criteria may become even more stringent UK mortgage market stalls as interest rates held at 4%^[1].

Those relying on bridging finance to purchase a home may also feel the impact. Bridging loans can be a useful option when funds are needed quickly, but with higher interest rates, they become more expensive and can cause problems if a sale is delayed or there is no clear exit strategy in place UK mortgage market stalls as interest rates held at 4%^[1].

Homeowners on interest-only mortgage deals could see their monthly repayments soar by a staggering £788 as historically low fixed rates come to an end, according to Lloyds . For those with interest-only loans, the shift from low fixed rates to a lender’s standard variable rate (SVR) could have a serious impact. In late 2020, borrowers securing five-year fixed-rate mortgages at 2.4% would have had monthly payments of just £420. But with these deals set to mature, many will be moved to SVRs, where the average rate has now climbed to 6.9% . Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, advised, "Anyone coming off an old deal would be wise to lock in a new product rapidly rather than wait for borrowing conditions to ease further" .

The mortgage rates have fluctuated in recent weeks amid uncertainty around the future path of interest rate cuts. That volatility may continue, particularly in the run-up to the Budget, as policymakers will be keen to assess the impact of any new tax measures the Chancellor will roll out .