Mortgage Costs: The Biggest Challenge for Homeowners

Mortgage costs are still the biggest challenge facing homebuyers and those coming to the end of fixed-term deals, according to the UK’s biggest mortgage lender, Halifax. The squeeze caused by higher interest rates is likely to ease gradually as incomes rise and house price growth remains subdued.

House prices in the UK

The average UK house price was relatively flat in June, falling by 0.2% from the previous month, according to Halifax’s latest figures. Prices were up 1.6% from a year earlier, echoing recent figures from the Nationwide building society.

The market is “delicately balanced” and sensitive to how quickly any changes may be made to the Bank of England’s base rate, said Amanda Bryden, the head of mortgages at Halifax. The Bank’s base rate currently stands at 5.25%, the highest level in 16 years.

Mortgage rates on the rise

Many homeowners coming to the end of a fixed-rate deal are now facing mortgage rates much higher than they have become used to. Last week, the Bank said that about three million households are set to see their mortgage payments rise in the next two years.

The current average rate for a two-year fixed deal is 5.93%, although this is lower than last year’s peak of 6.86%. Major lenders have been cutting rates in recent days, and Leeds Building Society has introduced a wave of rate reductions across a number of its fixed rate products.

Leeds Building Society drops fixed mortgage rates

The society has reduced selected residential rates by up to 0.15%, shared ownership by up to 0.20%, and limited company buy-to-let rates by up to 0.50%. It has also introduced new product launches, including new 2-year and 3-year residential mortgages at 65%, 75%, and 85% loan-to-value.

Labour’s housing plans

Labour has pledged to “get Britain building again”, creating jobs across England, with 1.5 million new homes over the next parliament. It has said it will support local authorities by funding additional planning officers and strengthening planning obligations to ensure new developments provide more affordable homes.

The party has also promised to prioritise the building of new social rented homes and better protect the existing stock. It aims to empower renters to challenge unreasonable rent increases and abolish section 21 “no fault” evictions.

First-time buyers

Labour plans a Freedom to Buy scheme, as well as giving first-time buyers first dibs on new developments. Its housebuilding plans may also help some aspiring homeowners who have been struggling to buy.

The party has pledged not to increase national insurance or income tax rates and has said it will address “unfairness” in the tax system “so that everyone who makes their home here in the UK pays their taxes here”.

Pensions

Labour has promised to retain the state pension triple lock, which guarantees the state pension rises each year in line with inflation, earnings, or by 2.5% - whichever is higher. It has also said it will undertake a review of the pensions landscape to consider what further steps are needed to improve pension outcomes and increase investment in UK markets.

The party’s housing plans and pledges on mortgages, pensions, and tax may bring some relief to homeowners and first-time buyers, but the road ahead will be challenging, and the new government will need to navigate the complex landscape of the UK’s housing market.