Knight Frank: Mortgage rate rollercoaster is ending

The mortgage rate rollercoaster is finally winding down but pressure will remain on the property market, Knight Frank claims.

New commentary from the agency brand’s head of UK residential research Tom Bill highlights that Bank of England Governor Andrew Bailey has hinted that the “corkscrews, hairpin turns and double dips” are behind us.

He said the rate rises of recent months have made anyone buying or re-mortgaging a property feel like they are on a roller-coaster train.

But Bill suggests it is “finally heading back into the station after a year-long white-knuckle ride.”

He highlighted comments made by Bailey to the Treasury Select Committee earlier this month, where he said: “There was a period where it seemed to me to be clear that rates needed to rise going forwards, and the question for us was how much and over what time frame. But we’re not I think in that place anymore and that’s why we shifted our language to being much more evidence and data-driven.”

Bill acknowledges that the evidence hasn’t been hugely positive for inflation since the meeting, with UK wages growing at the fastest pace on record in the three months to July.

Bill added: “Tackling core inflation, which has been driven by a strong labour market, has been a priority for the Bank of England as it increases the cost of borrowing.

“August saw the 14th consecutive rise and house prices and transaction volumes have come under pressure as mortgage rates have climbed. The Nationwide reported a 5.3% decline in UK prices in the year to August, the weakest rate since July 2009. The RICS also put out some gloomy numbers last week.

“However, it hasn’t been a steady ascent for interest rates, which would have given everyone time to adjust.”

It comes as it is almost a year since the mini-Budget caused “the equivalent of the initial steep climb that a roller-coaster makes”, Bill adds.

He said: “The two-year swap rate, which is used to price fixed-rate mortgages of the same length, quickly rose above 6%. It has peaked above that level twice since thanks to some worse-than-expected inflation data.

“There were accusations that the Bank of England had done too little, too late to tackle the spiralling cost-of-living.

“In part thanks to Andrew Bailey’s words earlier this month, the two-year swap rate was trading at just under 5.5% by last Friday.

“Opinion is divided on whether the Bank will stick or raise by a further 25 basis points when it meets on Thursday.

“Economists think central banks are nearing the end of their current cycle of rate hikes, which the European Central Bank signalled last week.

“While the downwards pressure on prices and sales volumes won’t disappear any time soon, some stability would certainly help sentiment, that all-important lubricant in the housing market.”

It comes as the latest Moneyfacts data shows the average two-year fixed rate mortgage has increased from 6.62% at the end of last week to 6.66% on Monday, while the typical five-year fix is down from 6.11% to 6.08%.