Why are mortgage rates so high and will they go down in 2023?

October, 2022

The UK mortgage market continued to unravel following the double-whammy of the Bank of England’s half-point interest-rate hike and Chancellor of the Exchequer Kwasi Kwarteng’s controversial mini-budget. Mortgage lenders responded by pulling products and some deals for home sales collapsed.

For potential homebuyers and borrowers, the question now is what’s next. Here’s what we know so far.

Why are UK mortgage rates so high?

Mortgage rates are determined by the costs incurred by lenders to provide the loans. They include interest rates involved in borrowing from other banks to fund the mortgages. Those so-called swap rates jumped significantly on the day the mini-budget was delivered. Kwarteng’s statement contained measures seen by many as being inflationary, adding to factors including the Covid-19 pandemic, supply-chain crisis and Russia’s war in Ukraine. That contributed to worries that the Bank of England’s interest rate would go up further and that the government would increase borrowing. Lenders bumped up their swap rates, leading to higher mortgage costs.

How much and when will my mortgage go up?

Unlike fixed-rate mortgages, tracker mortgages follow fluctuations in the market. When the Bank of England raises their policy rate, tracker mortgage rates increase immediately in line with the BOE’s hike. A further percentage point jump in the base interest rate is expected to arrive at the beginning of November. On the other hand, consumers with fixed-rate mortgages don’t feel the impact of unpredictable interest rate until the term ends, but costs for those deals have been rising fast.

What are the current UK mortgage rates?

The average five-year fixed-rate mortgage on a home was 6.28% on Thursday, according to Moneyfacts, and the average two-year fixed-rate deal stayed at 6.46% from the previous day, still the most since August 2008. They jumped from 4.74% and 4.75%, respectively, since the mini-budget announcement less than a month ago.

Will UK mortgage rates go down in 2023?

It could get worse before it gets better. Measures to put inflation under control — and how effective they are proven to be — will be crucial. Bloomberg Economics macroeconomist Niraj Shah said there’s an expectation that the Bank of England will keep hiking the interest rate into next year until it peaks at 4.25% (currently 2.25%). So we may see mortgage rates going up in 2023, but measures like an extension of home loan guarantees could cause them to fall.

Will house prices go down in 2023?

Analysts predicted UK house prices will decline next year because of rising interest rates. According to UBS, more than 40% of household income now goes to mortgage repayments as a result of recent hikes to interest rates. They said that may help to push house prices down by 10% in 2023. Other analysts also see double-digit fall, with Credit Suisse analysts predicting prices will fall between 10% and 15%.

What to do if I can’t pay mortgage?

Contacting the mortgage provider should be the first action to take. They might then offer some options that could include reducing the payment amount, changing the payment timeframe, and adjusting the interest payment depending on individual circumstances. Based on the options provided, borrowers can make an offer to the lender outlining an arrangement that suits their situation.

Government help is available through Home Owners’ Support Fund in Scotland, and mortgage rescue schemes are run by local authorities and housing associations in Wales. In England, recipients of Universal Credit and income-related benefits can apply for Support for Mortgage Interest 39 weeks after they made a claim. The support is a loan which will need to be paid back later.

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