Mortgage Market Update: A mixed bag for May & a busy June

The mortgage market in May 2024 continued to present a mixed picture for borrowers.  Here’s a breakdown of the key trends:

Rising Rates and Sticky Inflation

Average mortgage rates have edged up again in May. There has generally been a rise in both two-year and five-year fixed-rate products compared to April.  This is likely due to ongoing concerns about inflation and how soon the Bank of England will start to reduce the base rate.

There had been positive signs at the beginning of the month with reductions in swap rates leading to a number of lenders, notably Barclays, TSB and HSBC, making reductions across their product ranges.   We also had positive news via the International Monetary Fund (IMF) who upgraded their forecast for the UK economy and recommended the base rate be cut to 4.5 – 4.75% by the end of the year.

All was looking bright until the April Inflation figure was announced on the 22nd of May.  Although the 2.3% figure sounded positive and made great headlines, it was still higher than the markets had expected which has led to worries inflation could still take longer to hit its long-term target of 2%.  We have since seen swap rates increase by 0.2 – 0.3% as the markets made their adjustments; this will likely lead to many lenders increasing their products over the coming weeks.

Market Activity Picks Up & Positivity for the Reminder of the year 

Despite rising rates, there are signs of a pick-up in market activity. Mortgage approvals are on the rise, with April 2024 showing a 20% increase year-on-year.  [source: Residential Research update: May 024 – Savills].

Although there have been some recent increases in fixed rates, the expectations are reductions over the long term so, without any external market factors, I would still expect to see lenders reduce their rates over the coming months.  We have continued to see an uptake of 2 year fixed products as clients are more confident of lower rates in the near future.

Looking Ahead for June:

June should be an interesting month for the market.   The upcoming UK election will mean there are likely to be several key statements on future housing policies from both parties and it will be interesting to see how these impact the mortgage market. With Labour heavy favourites now, you would expect any key announcements by them to have a bigger impact.   There had been talk of changes to stamp duty by the current government later in the year, and with this being an easy vote winner, I would not be surprised if both parties make announcements on this in the coming weeks.

The next set of UK inflation figures are announced on the 19th of June, followed closely by the next Bank of England Monetary Policy Committee meeting on the 20th of June.  The first event will surely have a big impact on the second so let’s hope for some good news heading into the Summer.