Two year fixed rate mortgages sub-6%: A housing market boom?

Two-year fixed rate mortgages have dipped below six per cent for the first time since June this year.

Back in June there were 54,700 mortgage approvals for new purchases: by October, the most recent data, this had fallen to 47,400. 

There’s the chance lower rates could encourage approvals to pick up – which would bode well for the property market in early 2024. 

ONS House price data on completions appears to move three or four months after mortgage rate changes, so the October figures will reflect higher rates during the summer, which peaked at 6.85 per cent at the beginning of August: therefore we may not see the impact of lower mortgage rates hit house prices until the spring.

Sarah Coles, head of personal finance at business consultancy Hargreaves Lansdown, says: “Two-year mortgage rates have dropped through the psychologically important level of 6.0 per cent. This could help bring a chunk of buyers back to the market. I

“It would be balm for the agony suffered by sellers over the past few months, as their properties sit unseen on the market and their for-sale signs collect grime. However, we can’t expect to see the impact in house price figures until the spring.

“Mortgage rates have had a torrid year. They shot sky-high in the aftermath of the mini-Budget at the end of 2022, so spent the first few months of the year gradually dropping back. This slowed as inflation’s downwards path proved bumpy, and then reversed, climbing gradually from late April.

“In May, when April’s inflation data revealed core inflation had risen, they rose more quickly, and in June, when May’s inflation rate didn’t move at all, they continued their rapid ascent. They peaked at 6.85 per cent at the beginning of August, but have fallen as the market has started to believe we have passed peak interest rates.

“The rapid ascent of mortgage rates put the brakes on mortgage approvals There were 54,700 approvals for purchases in June, they then fell for three months to 43,000 in September. They have made some of that ground back – to 47,400 in October, as borrowers had faith that the worst of the mortgage rates could be over.”

Coles says there’s a good chance that the six per cent threshold could be psychologically important for a number of buyers, who may decide it’s a good time to take the plunge.

But she insists that it’s not going to be a seismic shift. Given that rates are expected to fall further from here – and that drops will accelerate once rate cuts are on the cards, there are plenty who will decide to wait and see. However, in a property market this sluggish, an influx of new buyers will provide some welcome relief for those who have had their home on the market for months without interest.

Coles continues: “House prices may not react so fast. In the past year, mortgage movements have tended to take around three or four months to feed into the official house price figures – partly because of the time it takes to complete a sale. Sales figures for the rest of the year are likely to reflect higher mortgage rates over the summer and autumn, which are unlikely to be particularly spectacular. 

“Crossing the six per cent threshold means we could see mortgage approvals pick up towards the end of 2023 – but house prices are likely to take to the spring to warm up.”