“I just quoted someone a five-year fix at 4.55 per cent on a £800,000 loan. Payments are £4,000 a month over 31 years,” he explained.
The client had a budget of £3,000 a month, but interest payments have driven their monthly up by £1,000. The price of the house was £1mn, but originally the client was looking at £1.2mn properties.
“£1,000 more a month and a reduced price can only lead to a fall in property prices soon,” said Lawlor.
“Less people are able to afford these normal family homes in the area I cover in north London [Finchley]."
Is a ‘price war’ on the cards?
With some lenders “far from market leading rates”, it has left some brokers wondering whether there might be a price war.
Managing director at Altura Mortgage Finance, Rob Gill, said dips in activity could be what pushes lenders to reduce their interest rates further.
According to the latest Money and Credit report, in November last year mortgage approvals for house purchases dipped to their lowest level since June 2020.
We could even see a base rate cut later this year if inflation recedes and the recession starts to bite.Rob Gill, Altura Mortgage Finance
“Despite bond yields and other money market rates having dropped below pre-’mini’ Budget levels, mortgage rates remain stubbornly higher,” said Gill.
“However, we expect this gap to close as lenders compete for business in the new calendar year, in what looks to be a more challenging environment than 2022.
“A slow start to the year could even see a mortgage price war break out as lenders compete for business."
Looking ahead, Gill said the future of the base rate “is far from certain”.
He continued: “Inflation seems set to slow with underlying energy costs having sunk significantly in recent weeks.
“The UK is almost certainly in recession already, a recession the Bank of England has predicted will last up to two years.
“This is an unusual environment for the central bank to be hiking the base rate so any rises might be smaller than many expect. We could even see a base rate cut later this year if inflation recedes and the recession starts to bite."
Most borrowers locked in until year-end
The market is bracing for a 4.5 per cent base rate in the coming months.
Leamington Spa-based broker Rachel Dixon said she would expect the February base rate increase to ease inflation pressure.
“We’ll start seeing the fixed rate markets stabilise and drop by summer and the autumn,” she added.
