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Mortgage prices increase amidst interest rate uncertainty

25th Apr 24 7:22 am

Market uncertainty and dwindling prospects of a summer interest rate cut have resulted in continued pressure on homebuyers and those looking to remortgage.

Several of the UK’s leading lenders, including HSBC, Natwest and Barclays, have increased the cost of their fixed-rate products – with the average price of a two-year fixed mortgage rate standing at 5.83%, according to Moneyfacts.

According to David Hannah, Group Chairman of Cornerstone Tax – the nation’s leading property tax consultancy – this week’s news ought to provide a wake-up call to the Bank of England (BoE), urging the monetary policy committee to prioritise the housing market through decisive action at their next meeting.

The price increase of several fixed-rate products puts a pin in the progress of last year’s price war. Following a peak in the first half of 2023, mortgage lenders from across the UK have engaged in a price-war in response to the BoE’s decision to hold the base rate of interest – with the majority of lenders believing that the consecutive increases to rates had reached their apex in September.

However, in the months since, several lenders have increased their mortgage rates due to continued signals from the BoE suggesting that rates will hold as a product of ongoing inflationary pressure, despite prolonged symptoms of economic contraction.

According to David Hannah, last week’s inflation announcement from the ONS, although revealing a smaller-than-expected drop of 3.4% to 3.2%, should still encourage the monetary policy committee to pursue an interest rate cut later in the year.

Hannah asserts that policymakers ought to prioritise first-time buyers and the 1.6m mortgage holders expected to renegotiate this year by reducing the base rate to 4.75%.

Chairman of Cornerstone Tax, David Hannah, said, “March’s inflation figures and mortgage approvals should indicate an overall cooling off of the UK economy.

“If we are to climb out of our current recession this year, then it must be acknowledged by the BoE and to avoid a sudden crash of inflation, will hopefully increase pressure on the MPC to start reducing interest rates sooner rather than later.

“Economies have momentum, with the rate of inflation continuing its downward trajectory towards the BoE’s threshold of 2% – the MPC must start thinking about the optimum time to cut rates.

“Research from Rightmove has found that housing prices are tipped to continue falling by the end of the new year, implying that prospective buyers will still be put off by high mortgage rates.

“I’d urge the MPC to seriously consider cutting the interest rate in their next meeting, even a reduction by a quarter percentage point would signal optimism within the UK economy, with a target base rate of 3-3.5% being the overall goal if the BoE want to truly prioritise prospective buyers in the new year.”

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