The property market is always hurtling forward. Keeping pace can be tricky, but when we zoom out, clear patterns and trends emerge.
It is true that the state of play has changed.
After a prolonged period of low fixed rate deals, we are now stepping into a new era.
The return to fixed rates at an average of between 5 and 6 per cent is less of a disruption than a correction and is likely set to stay.
Many aspiring buyers and existing homeowners will feel worried about their place in the market.
In the current rate environment, advisers will have an enhanced responsibility to contextualise the new normal, taking full advantage of mortgage technology and directing concerned clients towards the right mortgage from the expansive range of products available.
There is a path forward, providing customers and advisers walk together, hand in glove.
But what does this new chapter hold? How did we get to this point, and what can advisers do to start this new era in a strong position?
Contextualising the current state of play
It is important to refer back to history to give context to interest rates as they stand now.
Following the global financial crisis of 2008, the Bank of England base rate consistently stood below 0.5 per cent before it crept to 0.75 per cent in August 2018.
Homebuyers with fixed rate mortgages enjoyed interest rates and mortgage payments at remarkable lows for around 10 years before the Covid-19 pandemic.
In December 2010, the average two-year fixed rate mortgage stood at 3.5 per cent, while the average five-year fix stood at 4.76 per cent.
This slowly decreased to an all-time low of 1.2 per cent for a two-year fix and 1.29 per cent for a five-year fix in September 2021, following the BoE reducing the base rate to 0.10 per cent, a historic low.
However, inflation and the cost of living surged by 5.1 per cent in the 12 months to November 2021, up from 4.2 per cent the month before – its highest level since September 2011. This forced the BoE to raise its rates for the first time in three years.
Since then, the BoE has increased the base rate from the historic low of 0.1 per cent to 5.25 per cent in August 2023, the highest it has been since February 2008.
Largely, the consistent increases were in response to price rises caused by the so-called "mini"-Budget, supply chain issues during the Covid pandemic, and the Russian invasion of Ukraine, which pushed up food and energy costs significantly.
Despite 14 consecutive base rate rises, inflation has been particularly stubborn in the UK compared to other economies, meaning we may not have seen the peak of interest rates yet.
How the land lies
With the historical context of interest rates in mind, we now look at the lay of the land regarding mortgage rates.
Since the latest BoE rate decision, which broke its long-running rate-rising cycle, mortgage rates have begun to softly fall.
