For the first time since mid 2022, the average rate on a five-year fixed mortgage has fallen back to 4%. This milestone offers a measure of relief to prospective homeowners after several years of higher rates. Yet the respite may prove short-lived if global tensions push borrowing costs higher again.
Although mortgage costs remain well above their pre-2022 levels, the recent decline represents a modest improvement in affordability compared with the peaks reached in the aftermath of the rate-hiking cycle.
Other forces have also helped to ease the strain. Wages have continued to rise and lenders have grown more willing to offer larger income multiples, allowing buyers to stretch further. Together, these trends have provided some support to housing demand.
But these gains may prove fragile. Escalating geopolitical tensions in the Middle East threaten to stir fresh inflationary pressures, which in turn could keep interest rates higher for longer.
Such global shocks feed quickly into Britain’s mortgage market. Pricing for fixed-rate loans is closely tied to swap rates, which capture investors’ expectations for future interest rates. The latest data, as of March 9th, already show swap rates edging higher. Should tensions persist, the result could be a renewed uptick in mortgage costs, reminding borrowers that the era of cheap money remains firmly in the past. Source: Dataloft by PriceHubble, Bank of England, Invest.com. Analysis is based on 5 year fixed mortgage rate at at 75% loan to value.