Mortgage market sees spring rebound as loan approvals pick up in March: but prices are under close scrutiny ahead of expected rise in base rates
- Mortgage approvals rose 18% in March to 52,000
- The two-year fixed rate mortgage average is 5.28% and the five-year average is 5%
The mortgage market rebounded in March as home loan approvals increased by 18 percent compared to February, according to the most recent data from the Bank of England.
However, this remains below the monthly average for 2022 of 62,700. Total mortgage lending fell to net zero in March – the lowest level since July 2011 – from £0.7 billion in February.
Mortgage rates are down from the high of more than 6 percent they hit at the end of last year, but are still more expensive than they were in early 2022.
Spring bounce: Mortgage approvals rose in March as the market stabilizes this year
However, some believe that they can now rise again. Hina Bhudia, partner at Knight Frank Finance, says: ‘Most indicators suggest that activity will remain robust at least into the summer.
“At least three of the largest lenders raised rates this week and there are now only a handful of mortgages with terms below 4% with five-year fixed terms on the market.
It’s hard to say whether this is the start of a trend of rising rates or if the lenders are simply trying to control service levels by avoiding being the cheapest on the high street.
“Activity is ramping up quite quickly and borrowers are currently extremely sensitive to interest rates, so the cheapest high street lender tends to get swamped.”
However, Bhudia warns that the Bank of England is likely to raise its key interest rate next week and that mortgage rates “will need to rise over the medium term” as a result.
Graham Cox, founder of Bristol-based broker SelfEmployedMortgageHub.com, adds: ‘We certainly saw a noticeable improvement in buyer interest in March and April.
“During the traditional peak buying period of spring and summer, approvals should rise steadily, but they are likely to remain 20 to 30 percent lower than the same period last year.
“And as more base rate hikes are expected, demand is likely to remain weak for now.”
The ‘effective’ interest rate – the interest actually paid – on newly taken out mortgages rose by 17 basis points in March to 4.41 percent, according to the Bank of England.
Mortgage rates have been slowly falling since the start of the year, including a brief ‘rate war’ when fixed deals fell to just 3.75 percent.
The current two-year fixed-rate average is 5.28 percent and the five-year average is 5.00 percent, according to MoneyFacts.
Experts expect the market to remain active throughout the summer, even with a hike in base rates
TSB also this week repriced its two-year fixed remortgage agreements to 75 percent after briefly withdrawing them.
The lender said the move was part of a regular review of its products and external market conditions.
Recent swings in swap rates, the mechanisms that show what financial institutions think the future holds in terms of interest rates, have made it difficult for lenders to price their products and insure against the loans through hedging.
Chris Sykes, technical director at the mortgage broker Private Finance explains that if a lender comes to the end of a pot of money they’ve already hedged, they should be careful about borrowing if they don’t know the cost of the next hedge.
“In addition, lenders will have certain goals for subcategories of companies, for example they want a certain percentage of their company to be remortgaged, within that they want a certain percentage to be remortgaged from 0-75 loan to value.
“If they’re close to a quota on one of these products, they’ll temporarily remove the tariffs while other companies compensate,” he says.