High interest rates hit remortgaging as property market stalls

The number of homeowners taking out a new mortgage with another lender is at the lowest level since 1999, as high financing costs cause turbulence.

With inflation stubbornly high at 6.7 percent, the Bank of England is expected to keep interest rates at 5.25 percent on Thursday, raising hopes that they have peaked.

The interest rate remained unchanged last month, after having been increased fourteen times from 0.1 percent since December 2021.

But it looks like rates will remain at these levels for a while, with investors betting the first cut won’t happen until August.

Higher borrowing costs have reduced demand, putting a stranglehold on the real estate market.

Inflation battle: Bank of England expected to keep interest rates at 5.25% on Thursday, raising hopes they have peaked

Only 20,600 homeowners had a remortgage deal approved with another lender last month, as more people are staying with existing providers because they would not meet the affordability criteria of a new one.

Mortgage applications have fallen for the fourth month in a row, to the lowest level since January, according to data from the Bank of England.

Only 43,300 were approved in September as buyers hope interest rates will fall and prices will continue to fall.

House prices have fallen 1.1 percent in the past year, according to property search website Zoopla, as high mortgage rates have suppressed buyer demand.

Lenders have cut mortgage rates since the Bank of England halted its series of rate hikes.

However, many of those who take out fixed rates are still facing an increase in monthly repayments as they are locked into higher deals.

According to interest rate monitor MoneyfactsCompare, the average mortgage interest rate with a fixed term of five years was 5.87 percent yesterday.

Halifax, Nationwide and Santander all cut rates in October.

The effective interest rate paid on new mortgages in September rose to 5.01 percent from 4.82 percent in August, the Bank of England said.

Alice Haine of investment platform Bestinvest warned that interest rates remain expensive for owners. She said: ‘Many people coming out of the cheap deals they got before the tightening cycle are still facing a significant jump in repayments.’

The Bank of England is closely monitoring the labor market to see whether inflationary pressures persist or start to ease.

Governor Andrew Bailey has warned not to expect interest rates to fall until there is “hard evidence” that inflation is slowing.