Falling longer-term interest rates could lead to cheaper mortgages

Falling longer-term interest rates could lead to cheaper mortgages and improve the affordability position of potential buyers – especially if wages rise, latest research from Nationwide suggests.

The building society’s latest affordability report makes for grim reading and outlines that saving for a deposit will still remain difficult for many with the cost of living set to outpace earnings growth.

SCOPE

Andrew Harvey, Nationwide’s Senior Economist, says: “There is some scope for affordability to improve a little in the year ahead.

“Longer-term interest rates, which underpin mortgage pricing, have fallen back towards the levels prevailing before the mini-Budget.

“If sustained, this should feed through to mortgage rates and improve the affordability position for potential buyers, albeit modestly, as will solid rates of income growth, especially if combined with weak or negative house price growth.”

But Harvey adds: “The overall affordability situation looks set to remain challenging in the near term. Saving for a deposit will still be a struggle for many. The cost of living is set to outpace earnings growth by a significant margin again this year, while labour market conditions are widely expected to weaken.”

RISING

Rents have also been rising at their strongest pace on record which Harvey says will be a further drag for those currently renting who are looking to buy a home.

He adds: “The Help to Buy Equity Loan scheme that helped those with a smaller deposit buy a newbuild property is due to end in March. However, the mortgage guarantee scheme which helps to secure the availability and lower the cost of higher LTV mortgages has been extended until the end of 2023.”

This is a confusing moment for anyone buying a property.”

Tom Bill, Head of UK Residential Research at Knight Frank, says: “This is a confusing moment for anyone buying a property.

“Mortgage rates are three percentage points higher than they were this time last year but are also falling.

“After 13 years of ultra-low borrowing costs, monthly outgoings will rise by hundreds of pounds at a time when cost-of-living pressures are already biting.

“The message in 2023 is stay close to your mortgage broker.”