In 2023, the cost of living was on the rise and affecting investors at a global level and one of the most significant shocks to household budgets last year was UK mortgage costs. We’ve paid close attention to UK mortgage rates and what this means for clients with UK property going into 2024.

The normalisation of interest rates has been a relief for retired investors seeking income from bonds. As yet, the world economy has absorbed higher interest rates without a recession which has been good news for investors in the equity market. However, for those that have relied on low interest rates to finance their homes, it has been stressful to an unprecedented extent. While this is mostly focused on UK-based individuals, the principles are applicable to almost all regions where the Sable International Group operates.

You only have to open the newspaper or glance through newsfeeds to see examples of ordinary hard-working families thrust into financial stress as they come off fixed mortgage rate agreements and face their new reality. In some cases, we have seen mortgage rates change from 2% to 7% from one month to the next. In recent months, as the mortgage lenders look forward to lower interest rates in the future, we have seen a notable softening with the best rates now around 4%. Rates available depend on many factors such as borrower financial position and levels of deposit provided.

Following the Bank of England’s 2023 Financial Stability report, they expect just under 1 million households in the UK will see their monthly mortgage payments increase by more than £500 per month between the Q4 2023 – Q4 2026, with upward of 2 million seeing increases of between £200 to £499. This is a significant financial impact to households cashflow and in turn their financial plans especially when considering the higher cost of living households are experiencing across all areas of expenditure.

However, there are current positive forward-looking expectations when looking at the UK Gilt Yield Curve. We at Sable International believe this is one of the best proxies when considering forward-looking mortgage interest rates. This shows a current expectation of interest rates reducing by up to 1.25% over the next five years.

(Source)

This brings heightened consideration to households when deciding on a mortgage product type and length of term. Currently, there is a significant premium when choosing a tracker rate product over a fixed rate product which brings into question if the Bank of England will reduce the base rate fast enough over the product period to deliver any savings to households when choosing a tracker. A wide margin continues to remain when looking at a two-year fixed over a five-year fixed with rates often around 0.5% more expensive for the shorter-term fixed rate products.

It is also good to see that the predicted large drop in property prices once interest rates rose has not been experienced in the market although some softening is starting to show with price inflation nationally down 1.4% up to October 2023 in England.

(Source)

Mortgage advice is a vital part of your financial plan

Mortgage advice should form part of your financial plan. Understanding the impact of higher mortgage rates empowers you to make informed decisions that can affect outcomes for you and your family now and in the future. As a Mortgage and Financial Adviser at Sable Wealth, I partner with clients to build a sustainable financial plan, looking after you from start to end.

Should you have any questions, please do not hesitate to reach out, I would love to help you plan!

We are a mortgage brokerage and independent financial planning firm that specialises in whole of market, cross-border wealth advice. Our primary aim is to make your transition to UK property ownership as easy as possible by sourcing you the best deal with the highest chance of success.

You can get in touch with our London and South African offices at +44 (0) 20 7759 7519 (UK), +27 (0) 21 657 1540 (SA) or by emailing us at mortgages@sableinternational.com.

The information contained herein is for informational purposes only which is subject to change and should not be relied upon. You should seek advice from a professional adviser before embarking on any financial planning activity.

We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you'll do so with the backing of experienced local experts.