Mortgages
The most recent mortgage approvals data shows a continued slowing in activity, with levels below the 2019 average in June. They fell to 63,276, down from 65,681 in May and this represents a consistent drop off across Q2 with levels now the lowest since June 2020, when the market was just coming out of the pandemic shut down.
This quarterly fall was the first since the end of the Stamp Duty Holiday last year. In contrast, re-mortgaging approvals rose for a tenth consecutive month, suggesting borrowers are locking in low fixed rates in anticipation of interest rates rising further.
With the BofE continuing to raise the interest rate to combat inflation, mortgage rates have accordingly been increasing. Indeed, the average effective interest rate on mortgages advanced by 20bps to 2.15% in June, up from 1.5% last autumn. Quoted rates, which lead the effective rate by a few months, now range from 2.9% on a 60% LTV loan to 3.5% on a 95% LTV loan, so the effective rate will rise further, especially following the most recent BofE rate hike.
Comparing weighted average mortgage rates to interest rates shows that the spread is now the narrowest since 2007 and suggests there isn’t really any scope for banks to absorb impact in their margins any further. The implication of this is that we now expect mortgage rates to continue to rise meaningfully in line with monetary policy which will have a cooling impact on the market, although not enough to derail it.
INTEREST ON 2-YEAR FIXED RATE MORTGAGES
August 2021
Analysis of average quoted rates in September shows that this situation is beginning to improve with rates falling across all high LTV mortgages, reflecting the improved economic environment and increased risk tolerance from lenders.
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