What is happening in the mortgage market?
The mortgage market has been in turmoil over the recent weeks. Fixed rates for mortgages have increased, meaning borrowers have to pay more for their mortgage per month. The lenders are pulling rates and offers off the table as leaving them on would put them at a loss with the interest rate they're borrowing at increasing.
Why is it happening?
This happened for two reasons:
There is a thing called swaps that is an average rate that banks use to lend each other money (cost of borrowing for banks). Last year it was as low as 0.2%, it's since increased to just over 5%. The banks charge this rate + a margin to make a profit. Anything lower than this swap rate will lead to a loss.
The second reason is that the tax cut that the chancellor proposed drove down the value of the pound, making it more expensive as a whole for the UK to borrow money. Therefore meaning the Bank of England had to raise interest rates, as a lower pounds adds to inflation as people have to spend more for the same items.
What should we expect going forward?
Nobody knows what to expect going forward. There are two scenarios:
The fixed rates mortgages stay at the rate they currently are or climb higher, leaving borrowers poorer for the term of their fixed rates, meaning they pay more of their income to their mortgage payments and house prices fall as less people buy.
Fixed rates end up coming back down as the bank of England steps in and a recession happens, so rates are dropped back to 0.1 in an emergency measure to stop a recession. The only issue with this option is, inflation is already at 10%+ (the rate at which your money is eroded each year).
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