Mortgage rates in the UK were on a downward trend for more than a decade until late 2021, improving the affordability of housing loans but also fueling demand and price growth. Under the pressure of
and a heavier financial burden for homebuyers. Higher interest rates make it harder for homebuyers to get on the property ladder and are an issue when borrowers need to renew their loans. That was the case for 3.9 million
. Most homeowners were expected to face a monthly increase in repayments of less than 99 British pounds. Nevertheless, for more than a million borrowers, this figure is projected to exceed 300 British pounds.
The effect of changing mortgage conditions on homebuyers
Mortgages are crucial for homeownership in the UK. In 2023, nearly
31 percent of 45- to 54-year-olds in England relied on a mortgage, versus only nine percent of outright owners. With the cost of housing rising steadily over the past decade, Brits are buying their first house later in life, borrowing larger loans, and stretching out repayment for longer. In the third quarter of 2024, the
average mortgage loan exceeded 196,000 British pounds, about 47,000 British pounds more than a decade ago. In 2023, over 40 percent of
new mortgages had a duration of over 30 years, up from just 18 percent in 2015.
How is the market going to develop in the coming years?
The housing affordability constraints have naturally led to fewer home purchases and reduced mortgage lending. In 2023,
new mortgage sales reached a 10-year low, in line with the dramatic decline in market sentiment. That downward trend is forecast to continue well until 2025, affecting both private individuals and landlords. Although the
Bank of England’s recent interest rate cuts are positive news for the mortgage markets, that does not guarantee an immediate decline in mortgage interest rates for borrowers. In October 2024, inflation picked up above the two percent target, suggesting the need for policymakers to remain cautious. For homebuyers, that means the prospects for substantial reductions in mortgage rates will remain uncertain for longer.
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