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The role of fixed mortgage rates in the UK economy – Fryers

by: Paul Fryers, managing director at Zephyr Homeloans
  • 04/10/2023
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The role of fixed mortgage rates in the UK economy – Fryers
According to UK Finance, just over 80 per cent of mortgage holders are on a fixed-rate deal. That compares with just a third of property owners in 2003.

Between February 2022 and August 2023, interest rates have risen consistently. Despite the rate remaining unchanged in September, the Bank of England’s monetary policy committee revealed that decision was based on a narrow margin (5-4).  

Achieving market-wide agreement on what a uniform interest rate should be is proving challenging when holders are on differing mortgage rates and therefore experiencing different cost pressures.  

For an increasing number of property owners, the cost of food and housing—not to mention the impact on homeowners transitioning off fixed low-rate mortgage rates onto rates that are often four or even five per cent higher—is taking a significant toll.

The ONS (Office for National Statistics) reports that more than 1.5m borrowers are due to come off their fixed-rate periods by the end of 2024.  

If interest rates continue to stay high (as many have predicted) substantial increases in mortgage costs may prove difficult.  

The change may be especially challenging for those who, for example, obtained two-year fixed deals at 1.5 per cent two years ago and could be looking at tripling their mortgage expenses, directly impacting disposable income.  

Turning to buy-to-let borrowers, it’s estimated that around 43 per cent of landlords own one property. A growing number of these landlords are feeling the pinch, with interest rates putting pressure on their margins.   


Withstanding challenges 

Whilst the market is currently undergoing a challenging period characterised by uncertainty, high interest rates and, potentially, structural change, it is important to remain optimistic about the industry’s resilience.  

Since the onset of the pandemic, the UK’s buy-to-let market has demonstrated greater robustness than initially anticipated, largely owing to the high proportion of landlords who own their residential or buy-to-let properties outright.  

Those who also fixed their mortgage before interest rates started rising—and who typically have two to three years left on their deals—are also effectively experiencing higher disposable incomes. 

Brokers are also working tirelessly to adapt to the changing landscape and are finding ways to help their landlord customers navigate current market conditions. 

2023 continues to be a year of recalibration. Whilst we all recognise the need for stability, it is impossible to predict what is in store.  

The industry has done well to weather the storm so far and has the potential inbuilt resiliency to deal with further issues as they arise. 

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