The Bank of England has issued its latest snapshot of the mortgage market, affecting millions of households across the UK
The data reflects a mixed picture for borrowers, with new rates easing slightly but overall costs still elevated.
The Bank of England has revealed that whilst mortgage rates for new borrowers edged down in May, existing homeowners are continuing to face higher costs.
New figures from the Bank’s Money and Credit release show the effective interest rate on newly drawn mortgages decreased to 4.47 per cent in May from 4.49 per cent in April. However, the rate on the outstanding stock of mortgages increased slightly
The report said: “The ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages decreased to 4.47 per cent in May from 4.49 per cent in April.
“However, the rate on the outstanding stock of mortgages increased slightly, to 3.87 per cent from 3.86 per cent.”
This means that while new mortgage deals are getting slightly cheaper, people already on mortgages, especially those coming off fixed-rate deals, are being moved onto more expensive options, like higher variable rates or new fixed rates.
The gap between new and existing mortgage rates shows the pressure many homeowners are under, both in London and across the country.
Even a small rise in existing rates suggests that many borrowers finishing fixed-rate terms are now facing much higher monthly repayments.
This situation particularly affects those on fixed mortgages reaching their term end, as well as the approximately 1.1 million homeowners on variable-rate mortgages linked to the Bank of England’s base rate.
Standard variable rates currently average 7.48 per cent, according to Moneyfacts data, whilst two-year tracker mortgages cost an average of 4.91 per cent.
The Bank’s figures emerge as the Monetary Policy Committee prepares for four more meetings in 2025 to review the base rate, scheduled for August, September, November and December.
Any potential rate cuts would generally benefit mortgage borrowers, though lenders consider multiple factors including swap rates and broader market conditions when setting their rates.
The Bank of England held interest rates at 4.25 per cent in its last meeting
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Despite these challenges for existing borrowers, the mortgage market showed signs of recovery in May with a notable increase in remortgaging activity.
Remortgaging approvals jumped by 6,200 to 41,500, marking the largest increase since February 2024, according to the Bank’s data.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Remortgaging numbers jumped by 6,200 in the month, suggesting that borrowers are keen to shop around for better deals even if it means the hassle of applying to another lender.”
The mortgage market faces continued uncertainty, with some lenders raising rates whilst others reduce them.
Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that fixed-rate deals face “a strange combination of factors” including expected rate cuts and rising bond yields pushing costs up.
The estimated 1.6 million households whose fixed deals end this year face particularly difficult decisions in the current unpredictable rate environment.
David Hollingworth, associate director at mortgage broker L&C Mortgages, advises homeowners to begin reviewing rates several months before their current fix expires.
“Locking in a rate now will offer protection against any future increases, and if rates fall before your current fix ends, you can switch onto the lower rate,” he explains.
However, he cautions borrowers to check the time window for securing new deals, as some lenders have reduced this to just three or four months.
Net mortgage approvals increased by 2,400 to 63,000 in May
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Rachel Springall, finance expert at Moneyfacts, says: “It’s essential for borrowers not to delay finding a new deal, particularly if they are sitting on an expensive SVR.”
Despite the pressure on those ending fixed deals or sitting on variable rates, the mortgage market showed encouraging signs in May with approvals for house purchases rising for the first time this year.
Net mortgage approvals increased by 2,400 to 63,000 in May, marking the first month-on-month rise since December 2024, according to the Bank’s Money and Credit report.
Gross lending also surged from £16.9 billion in April to £20.4 billion in May, whilst repayments decreased slightly to £17.6 billion.
Several lenders have recently adjusted their mortgage affordability assessments following Financial Conduct Authority clarification, potentially enabling some borrowers to access larger loans.
The uptick in approvals suggests buyer confidence may be returning despite the challenging interest rate environment affecting existing mortgage holders.