5% mortgage rates (again)

[Twiglets1]

Following on from the previous two of these threads both with 6% mortgage rates in the title, I think it's more realistic to return to 5% for this one.

According to this Rightmove article, the current average mortgage rate for a five-year fixed rate mortgage is 4.84%, up from 4.85% last week. The current average rate for a two-year fixed rate mortgage is 5.23%, which is unchanged from last week. The lowest available five-year fixed rate is 4.13%, and the lowest available two-year fixed rate is 4.46% – both unchanged from last week.

On 27th March, the average 5 year fixed rate mortgage for someone with a 60% LTV was 4.35%.
For someone with a 75% LTV it was 4.72% whereas 80% was 4.79%.

For someone with a 90% LTV it was 4.98% whereas 95% was 5.47%.

Two year fixed rate mortgages are slightly higher.

https://www.rightmove.co.uk/news/articles/property-news/current-uk-mortgage-rates/

Luckily we will be okay with a rise as we’ve been overpaying our current mortgage to get used to higher payments. We are fortunate though. I just don’t know how those saving for a first-time deposit etc have any hope. I’m also curious about house prices and selling as I want to have an idea of what to expect should we put our house on the market. Properties just seem to be sitting on Rightmove for ages.

From the historical perspective, we're only just getting back to normal rates. The recent low interest rates were an aberration and we shouldn't hope to go back there. It would mean that the country was in dire circumstances. But rightly so, house prices should moderate to reflect the new reality. Who knows if they will.

Is there any data on average house price to average income ratio over time? I had a little look but couldn’t find much

I think many FTBs have lost all hope. The ones that are buying are mainly either those with high salaries or those with large gifted deposits or often both.
I've seen a very large increase in properties being marketed in my area in the last month. Nationally, there has definitely been an increase, although that doesn't mean it applies to every area. As you say, properties in many areas are sitting on Rightmove for ages. That's exactly because of what you have said about the numbers simply not adding up. This will gradually force house prices down. There are likely to be other financial and geopolitical events happening at some point which may exacerbate this situation.

Tab 1c

https://www.ons.gov.uk/peoplepopulationandcommunity/housing/datasets/ratioofhousepricetoworkplacebasedearningslowerquartileandmedian

Ration has gone from 3.5 in 1997 to a peak of 9 in 2022. Now dropping.

This is a useful site too:

https://www.economicshelp.org/blog/5568/housing/uk-house-price-affordability/
Note, the graphs only extend from between 2020-22 so not up to date.
The mortgage as a % of take home pay, for example, is obviously much worse than it was in 2020.

The market is pretty stagnant in most areas although there are regional variations. If in your area you have noticed properties sitting on Rightmove for ages, you know that when you come to put your own property on the market, it is vital to put it on at a competitive price.

EAs normally seem to urge sellers to put properties on at an optimistic price initially to "see how much interest we get" as "you never know". This can be a good tactic in a strong sellers market but it is not a good tactic in the current market. In a stagnant or falling market it normally leads to houses languishing on the market for ages as they gradually reduce their price.

I would list it realistically from the start and explain to your EA that you want a quick sale. To know what is a good price for your area you will need to do your own research though & not just trust what the EA tells you. They will tend to give high valuations as that's what most sellers want to hear and they are under pressure to get the listing.

And on the other topic of FTBs getting on the property ladder, I agree it is pretty hopeless now particularly in expensive areas, for anyone that doesn't have family money to give them a big deposit.

Thank you this is really helpful

Following, because we're up for renewal in August, having bought our first house in 2022.
We've just locked in a 2-year tracker at 0.46% above the base rate, with no early exit fee. Our plan was to switch to a fixed rate "when" the rates come down later this year... but that's feeling like a pretty scary gamble now.
The other option - to fix at the current rates - is completely unaffordable, though. I don't know what we'll do if the rates don't come down, it's so stressful.

Oh dear, I do feel for you and hope that fixed rates do come down a little before you have to commit to anything (though the BoE rate is only expected to fall by small amounts not to return to anything like the low rates we have had recently).

It's pretty unusual to hear of anyone on Mumsnet considering trackers at the moment, as the base rate seems high. But I can see the benefit to having no early exit fee. Wouldn't like to bet on whether you will end up paying more money or less by going down that route, it's a gamble either way.

The wage to price ratio is historically high, so house prices will adjust, no doubt about it, just like it always has. Reversion to mean. Some on here just can’t contemplate that.

The other alternative is wages outstrip inflation, and we haven’t the growth to achieve that, especially going into stagflation/recession. So house price correction it is.

Lots will be caught out unfortunately, the younger generation more susceptible as mentioned before. They were led to believe (and encouraged by government schemes) that property was a one way bet and the boomer generation took advantage of them with their leverage.

Lots will have overpaid with the premium on shared ownership new build flats, with ever spiralling service charges let alone cladding certificates that they’ll have no hope of avoiding negative equity.

Twiggy thinks the BoE will cut rates regardless of the Fed, she also thought rate cuts would be well and truly here by now. If the BoE cut rates against the Fed then it means our £ nosedives. The BoE and government prop up the housing market at all costs, but they won’t sacrifice the £ to do it as the knock on effect is too great.

If the BoE cut rates against the Fed then it means our £ nosedives. The BoE and government prop up the housing market at all costs, but they won’t sacrifice the £ to do it as the knock on effect is too great.

If the pound loses value, imports to the UK will get more expensive. When you consider how much we import, especially food, that will fuel inflation and worsen the cost of living crisis.

Whether it’s a good idea to follow the Fed or not is a different question to whether we will follow the Fed or not.

As with most things, time will tell but just because it may not be a good idea in your opinion, doesn’t mean it won’t happen. Andrew Bailey himself has indicated the UK may cut rates before the Fed.

Exactly. It would be a v risky thing for the BOE to do because of the UK's economic vulnerability. The BOE are well aware of this.

https://uk.finance.yahoo.com/news/santander-increases-mortgage-rates-second-101425166.html

If fixing at current rates "is completely unaffordable" I would be putting the property on the market not gambling on a tracker.

If rates do go down, they are not going to go down much, not in the foreseeable future.

If rates go up, your tracker will go up and any fixed rates will too making you even worse off.

I'd get the lowest fixed rate possible and try 🤞and sell up.

You may well lose money selling now though, if you bought at peak. Depends on your area and how quick sales are moving.

Independent article: Bank of England not yet ready to cut UK interest rates

The Bank of England’s Monetary Policy Committee which sets the level of UK interest rates, will announce its latest decision on Thursday. Economists are widely expecting the committee to keep rates at the current level of 5.25%, which it has been held at since August last year.

Andrew Goodwin, chief UK economist for Oxford Economics said it is likely to be a "close call" on whether the MPC decides to cut rates in June or August.
Investec’s Mr Shaw said he expects CPI inflation to have fallen to the target 2% level in May, which would prompt the MPC to cut interest rates to 5% when they next meet in June.
Economists at HSBC are also expecting the first rate cut to come in June.

The Bank of England will shed more light on its predictions for the economy and the path of interest rates when it publishes the latest Monetary Policy Report alongside the rates decision on Thursday.

https://www.independent.co.uk/news/uk/home-news/bank-of-england-interest-rates-b2539960.html

Barclays has announced it will be reducing interest rates on a selection of its fixed mortgage product range this week.

The changes will impact the bank's two and five-year deals on its residential purchase range and will come into effect on Wednesday, May 8.
Amongst the reductions is Barclays' Two Year Fixed Rate at 85% Loan to Value (LTV) mortgage with an £899 product fee, which will drop from 5.23% to 4.99%.

Meanwhile, its Five Year Fixed Rate mortgage with the same terms will be reduced from 4.92% to 4.78%

Barclays slashes mortgage rates on fixed deals ahead of Bank of England decision (msn.com)

That’s nice to see some 4s on the front from one of the big banks.

I see RICS now reporting that in buyer enquiries are also now falling, in addition to prices. There is some possible good news in the report though - the majority of respondents are expecting a recovery to growth by early next year or possibly towards the end of 2024.

https://uk.finance.yahoo.com/news/property-market-rebound-hit-higher-mortgage-rates-050054336.html

I'm not so sure. If listings are rising but buyers are subdued that usually has one effect. We'll see.

https://www.rics.org/content/dam/ricsglobal/documents/market-surveys/uk-residential-market-survey/UK-Residential-Market-Survey_April-2024.pdf

When we bought our house in 2009 it was about 4.1% then. For a 5 year fix via Royal Mail.

Our mortgage is up at the end of this month and we pinned down a rate of 4.18% in Feb but totally assumed then, that the BofE would have made a rate cut by 1st June and the banks would be clamouring to lower them in competition with each other.

Now August seems to be the prediction for the first rate cut but I’m glad we got it when we did. I so nearly didn’t bother.

Sky News - Interest rate held for sixth consecutive month - but edges closer to cut soon

The Bank of England has edged closer to a cut in interest rates, with another member of its nine-person Monetary Policy Committee (MPC) voting for lower borrowing costs this month. While the MPC voted 7-2 to leave UK interest rates on hold at 5.25%, the change in the vote will be seen as a further sign that they could be coming down soon - perhaps as soon as next month.

Alongside its rate decision, the Bank published new forecasts for the UK economy, which show that gross domestic product (GDP) is projected to be stronger this year and unemployment and inflation rates lower than previously expected. It said that the CPI rate of inflation was likely to drop to its 2% target imminently - though it would bounce a little higher afterwards.

Governor Andrew Bailey said: "We've had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months. We need to see more evidence that inflation will stay low before we can cut interest rates.
"I'm optimistic that things are moving in the right direction."

https://news.sky.com/story/interest-rates-held-for-sixth-consecutive-month-13132096

Express article: Interest rates cut could come in the summer, Bank of England's Huw Pill hints

The Bank of England's chief economist has suggested that the Bank could consider cutting interest rates over the summer, if inflation continues to ease.
Huw Pill, speaking at an online event organised by the accountancy body ICAEW, said: "I think it's not unreasonable to believe that through the summer we will begin to see enough confidence in the decline in persistence that bank rate will come into consideration."

Bank governor Andrew Bailey said last week that a rate cut in June could not be "ruled out", although he stressed it was not a "fait accompli". His comments came as the Bank held rates at 5.25%, keeping them at the highest level since 2008, but were widely seen as strengthening the case for a cut.

Interest rates cut could come in the summer, Bank of England's Huw Pill hints (msn.com)