The mortgage market and investors

May 17, 2023

While the Bank of England increased the base interest rate again, the mortgage market has remained stable with fixed mortgage rates dropping, providing confidence to property investors.

On Thursday 11th May, the Bank of England decided to increase the base interest rate by 0.25% to 4.5%, which is a 15-year high. This is the 12th consecutive rise to the base rate since December 2021 when rates were at historic lows as the Monetary Policy Committee continues to try to bring inflation down.

The latest increase came as no surprise to many particularly as the US Federal Reserve recently raised interest rates to a 16-year high, while the European Central Bank increased rates in recent weeks as well.

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What’s happening to fixed mortgage rates?

It’s important to keep in mind that an increase to the base interest rate doesn’t automatically push fixed mortgage rates up right away. This increase was widely expected, so lenders had already factored small increases into their pricing in recent weeks.

Because of this, there is unlikely to be any immediate changes to fixed mortgage rates overall. In the short term, fixed deals might fluctuate slightly up or down. But overall rates for these deals have come down slightly over the past month with rates now averaging around 5%, according to Moneyfacts.

The average five-year fixed mortgage rate is currently lower than two-year deals, which may encourage prospective buyers and investors to lock in their rate for longer. But it’s hard to predict what will happen to the mortgage market in the months to come. And as the base rate has continued to increase, there is still an incentive for borrowers to fix.

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What’s being forecast for the rest of 2023?

Both confidence and competition has been returning to the mortgage market. It’s being predicted that we might be near the peak of interest rates. Forecasts from financial markets have predominantly factored in the base rate peaking at 4.75% in the autumn, according to Rightmove.

Inflation levels are impacting the Bank of England’s decisions on what the base interest rate should be. The rate of inflation in the UK has eased for the second month in a row, but it still remains above 10%. However, it’s expected to come down in the second half of the year. The Bank of England has said it expects inflation to fall to around 5% by the end of this year and to meet its target of 2% by late 2024.

As the UK housing market has continued to gain momentum, lenders may look to remain competitive to retain and gain business from borrowers. There has been a steady and sustained increase in buyer demand, which currently sits 14% higher than in 2019. Additionally, the number of new agreed sales is 66% higher than a year ago as the sector is picking up speed.

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What does this mean for property investors?

Despite recent rises to the base interest rate, there remains a healthy amount of demand in the market. To keep up with this demand, there has been an increase in the number of mortgage deals on offer, including buy-to-let mortgages.

This growth in the number of deals available creates more competition among lenders and additional products for borrowers to choose from. And the more competitive mortgage market is providing more certainty and confidence to property investors moving forward.

At the same time, property investors are seeing a growing private rented sector as tenant demand has reached an all-time high. A recent survey by Paragon Bank even found that 67% of landlords experienced a rise in tenant demand throughout the first quarter of 2023. And as a result of this high level of demand, rents have also been on the rise.

So, while mortgage rates are higher than a year ago, there are still lucrative property investment opportunities on offer, particularly as there is such a substantial supply and demand imbalance across the UK. And this is not expected to change anytime soon as there is an ever-increasing level of demand for housing.

At The Prestbury Advisory, our team of experts can provide you with advice and knowledge of the UK housing market, whether or not you’re buying with a mortgage. If you want to speak to us about your next property investment opportunity, give us a call on 01625 725 779, or email us at contact@theprestburyadvisory.com.