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Article information Author: Nick Edser Role: Business reporter, BBC News
July 1, 2024
Nationwide said high mortgage rates meant buying a home remained “tough” for many home buyers.
The building society said that while incomes have risen faster than house prices in recent years, they have not been enough to offset the impact of rising mortgage costs.
The bank commented that house price growth was “broadly stable” in June, rising 0.2% from the previous month.
The average house price is currently £266,064, according to lenders.
While prices rose 1.5% year-on-year, Nationwide said housing market activity had remained “broadly stable” over the past 12 months, with the number of transactions down about 15% compared with 2019.
The bank said mortgage rates have started to rise since the Bank of England began raising its key interest rates in the second half of 2021, and the market is still feeling the effects of this.
Robert Gardner, chief economist at Nationwide, said mortgage rates “remain well above the lowest levels recorded in 2021 due to the pandemic”.
“For example, interest rates on a five-year fixed-rate mortgage for a borrower with a 25% down payment were 1.3% in late 2021 but have been approaching 4.7% in recent months.
“As a result, home buying remains difficult.”
Nationwide's figures are based on building societies' own mortgage lending and do not include cash buyers or buy-to-let buyers, who account for around a third of home sales.
The impact of rising borrowing costs is evident in the fact that mortgage transactions have fallen by around 25% over the past year, according to Nationwide.
Meanwhile, the number of cash real estate transactions is about 5% higher than pre-pandemic levels.
Across the UK, Northern Ireland saw the biggest price increases, up 4.1% year-on-year.
Wales and Scotland both saw annual increases of 1.4%. Prices in England rose by 0.6%, with northern regions generally seeing bigger increases than the south.
According to financial information service MoneyFact, the average interest rate for a two-year fixed mortgage is 5.95%, while the average interest rate for a five-year fixed mortgage is 5.53%.
All eyes are now on whether the Bank of England's Monetary Policy Committee (MPC), which sets interest rates, will decide to cut rates at its next meeting on August 1.
“If the Bank of England cuts interest rates, buyers may regain momentum,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
“This could happen as early as August, but given stagnant services inflation and wage growth, it may have to wait until the autumn.”
“Either way, we don't expect mortgage rates to fall significantly overnight, so the reaction is more likely to be a gradual uptick in sentiment rather than a wave of overwhelming optimism.”
These are homeowners who signed mortgage contracts before banks started increasing interest rates in 2021.
Those deals are expiring, with the bank saying most will close by the end of 2026.
The bank said that for a typical household looking for a new deal, monthly mortgage repayments are expected to increase by around £180, or about 28%.
However, about 400,000 households could see their monthly payments increase by more than 50%.
However, the data showed mortgage borrowing fell significantly to £1.2bn in May from £2.2bn the previous month, although this does not include refinancing of mortgages with the same lender.
How to make your mortgage more affordable
Pay early. If you still have a low fixed-rate term, you may be able to pay more now and save later. Switch to an interest-only mortgage. Even if you're not paying off the debt you incurred when buying your home, you can still make monthly payments that are affordable. Extend the term of your mortgage. While 25 years is the typical mortgage term, 30 and even 40 years are now available. Contact us
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