Mortgage rates in the UK were on a downward trend for more than a decade, improving the affordability of housing loans but also fueling demand and price growth. Under the pressure of
, the Bank of England started a series of interest rate hikes in 2022, leading to a
. Higher interest rates make it harder for homebuyers to get on the property ladder and are an issue for homeowners with loans up for renewal. That was the case for 1.4 million fixed-rate mortgages with a
. Most homeowners are expected to face a monthly increase of repayments of less than 99 British pounds. Nevertheless, for more than a million borrowers this figure is
Importance of the mortgage market
Mortgages have been around for centuries. They are a major macroeconomic driver and a crucial mechanism for the transmission of monetary policies. Without the mortgage market, acquiring a home would be impossible for most people aspiring to have one of their own. Although the
UK has one of the lowest homeownership rates in Europe, it is
the largest residential mortgage market. That comes as no surprise since
the predominant share of homeowners relies on a mortgage for home financing. In 2022, there were just over 1.1 million mortgage sales in the UK, with remortgages accounting for the largest share of loans, followed by first-time home purchases and repeat purchases. The
average mortgage loan size has increased in recent years and stood at just over 190,000 British pounds in the third quarter of 2023. Mortgages vary in their interest rate and return period. A fixed interest rate is simply a mortgage with a fixed repayment rate, while the variable rate fluctuates over time depending on an underlying benchmark defined by the lender. Generally,
the majority of UK mortgages are at a fixed rate.
How is the market going to develop in the coming years?
The rise in mortgage rates has naturally led to the market contracting and new mortgage lending decreasing. Over just a few months between August 2022 and January 2023, the number of mortgage approvals, including house purchases and remortgaging,
halved. That downward trend is forecast to continue until 2024,
affecting both private individuals and landlords. However, how the market develops is mainly dependent on inflation and the
base interest rate.
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