Fear of further interest rate rises fuels searches for 10-year fixed-rate mortgages - InterestRate.co.uk

Fear of further interest rate rises fuels searches for 10-year fixed-rate mortgages

Fears of continued interest rate rises have fuelled a growing volume of searches for 10-year fixed-rate mortgages. Many home buyers and those looking to remortgage are now searching for deals that enable them to fix their rates for a decade as experts predict further interest rate hikes from the Bank of England.

Since December 2021, there have already been four rate hikes from the central bank as it strives to tackle soaring inflation, which has risen to its highest level in decades. The Bank of England’s base rate has gone from the record lows seen over recent years to 1%. Moreover, some predict that the base rate could hit 2.5% within a year.

Dealing with financial difficulties

financial difficulties

With households already facing financial difficulties due to the soaring cost of food, energy, and other costs, many are not in a position to handle continued increases in mortgage repayments. As a result, many are being pushed toward looking for fixed-rate deals, and 10-year fixed mortgages are fast gaining popularity, according to MoneySuperMarket.

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The most recent interest rate hike to 1% had an impact on mortgage rates, with figures showing that there was a nine basis-point increase to 1.82% on rates for new mortgages.

Adrian Lowery, an investment expert, said, “Further hikes to the Bank Rate are expected in coming months as the Bank of England seeks to rein in soaring inflation. And fears of further mortgage rate rises have been pushing more and more homebuyers and remortgages to look for longer-term fixed-rate mortgages.”

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Data from MoneySupermarket.com shows that there has been a huge surge in searches for 10-year fixed rate deals, which have risen from 2.9% to 14.2% of all searches. Officials believe that part of the appeal, in addition to greater financial stability, is that the rates on these longer fixed mortgage deals are not much higher than five-year ones.

Mortgage approvals also fall

further interest rate

Bank of England data showed that mortgage approvals fell to 66,000 compared to 69,500 the previous month.

In addition, the data showed that net borrowing of mortgage debt by individuals dropped to £4.1 billion during the month, which was a sharp drop from £6.4 billion in March. This has sparked speculation over whether borrowing and mortgage approvals will continue to fall moving forward.

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Discussing the figures, Mr Lowery said, “This data could be taken as the latest sign that nervousness over inflation and household finances is starting to drag on what has been an overheated sellers’ property market. Online portal Zoopla revealed this week that one in 20 listed properties reduced their asking price by 5% or more in April to mid-May, more than in previous months. It added that buyer demand remains high but there are now signs that the market is softening, and price growth is set to slow. And it estimated that the average price reduction across the UK is 9%.”

According to the Bank of England, both mortgage approvals and borrowing were slightly down from the pre-pandemic levels seen in February 2020.