Fixed rate mortgage expected for the UK property market

  • June 20, 2022

Fixed rate mortgage expected for the UK property market

UK housing is one of the most resilient markets around the world that has proved its mettle during and after the COVID-19 led global pandemic. Though the prices of UK properties increased the investment trend continued to shoot up. The mortgage rates are constantly increasing and the cost of lending is also rising. The upsurge will impact the bottom line of borrowers and homeowners alike.

Mortgage rates are already two percentage points higher than at the beginning of the year and it is the biggest quarterly climb in 28 years in the history of the UK housing market, in the first quarter. In other news, the UK government has lately been exploring new ways to allot borrowers large mortgages for the long term – which is expected to encourage more buyers to buy UK properties. Currently, the decision is under consideration and will be made public in the next few weeks.

According to a few industry experts, the Treasury and the Department for Levelling Up, Housing and Communities will jointly review and consider introducing 30-year fixed rate mortgages – with the debt worth almost 100 percent of the property and a new approach to blend renting and owning a property in the UK.

UK government focuses to ease the property financing

Another highlight of the current under-review proposal is that the UK government has been emphasizing financing the property rather than building new homes to fix the shortage of UK houses. The government’s manifesto pledge was to construct 300,000 new properties per year, which was not yet attained and was also hindered by the temporary yet several shutdowns during the global pandemic in the country.

Experts are forecasting that the 30-year, fixed-mortgage rate will vary from 4.8 percent to 5.5 percent by the end of 2022. In general, mortgage rates are expected to be at 5.0 percent by the end of 2022, which will start declining gradually by 2024.

Average property prices growing in the UK

The UK property prices have defied all economic forecasts and curbs on risky lending and supply, since the financial crisis. Average prices grew by 11.2 percent annually in May – making it more difficult for potential end-users to buy properties in UK, who will now have to find high deposits and meet price-to-income limits.

“We will undertake the first comprehensive review of the mortgage market for a decade, to boost access to finance for first time buyers including low-cost, low-deposit mortgages,” said the DLUHC in an emailed statement. “The review will deliver recommendations in autumn 2022 and will be supported by officials from HM Treasury.”

More guarantees will be needed

The under-review terms of reference will be announced shortly and they are expected to consider the ways to create mortgages worth around 98 percent of the total value of the property. It will be done by offering a state guarantee or creating commercial insurance products for the riskiest types of loans. Remember, 95 percent mortgages were announced in 2021 with a state guarantee to boost demand for the UK houses, after the global pandemic.

Every time the mortgage rates inch up, the number of borrowers starts declining who will be able to save money by refinancing. However, now the idea of introducing decades-long fixed rate mortgage will be an exciting step of the UK government. It will allow tenants to become property owners.

**Note: **Currently, home loans in the UK are typically fixed for two or five years. A few UK property experts are of the view that introducing longer loans – spanned over 30 or 40 years, can be a difficult step in the UK unless the government creates state-backed entities.