UK lenders, including NatWest, have significantly cut mortgage rates this Monday, following an unexpected drop in the annual inflation rate to 6.7%. The move is seen as a precursor to the Bank of England’s imminent interest rate decision. NatWest has made substantial cuts of up to 0.31 percentage points on its fixed residential and buy-to-let mortgages, offering five-year fixed-rate deals as low as 5.14%. This series of home loan reductions has spurred intense competition among lenders, triggering a full-scale mortgage price war in the UK.
Despite the recent cuts, UK homeowners are dealing with increasing mortgage rates, potentially spending up to 80% of their income on monthly repayments due to consecutive Bank of England base rate increases over the past two years. The rate hikes have slowed down recently, with five-year home loans now being offered at less than 5% interest. High mortgage rates are pushing homeowners to deplete savings and reduce pension contributions.
Legal Bricks, a conveyancing technology specialist, analyzed regional salary, house price, and mortgage data to forecast how further interest rate changes might impact affordability across England. Oxford homeowners could be hardest hit as the average fixed rate deal climbs to 6.41%, making Oxford the priciest place to live in the UK. Bath and London follow closely with households expected to allocate 77% and just over 75% of their income on mortgage costs respectively.
Nationally, a couple earning a joint pre-tax salary of £63,000, which is the national average, and owning a house worth around £297,000, also the national average, could be spending about 42% of their income on mortgage repayments with a 6.41% fixed-rate deal. Oxford’s house prices are almost double the national average at just under £600,000 while combined salaries are only slightly above average at £66,618.
Mike Connolly, director of Legal Bricks, highlighted the struggle for homeowners who are dealing with rising mortgage costs along with increased food and energy expenses. Some homeowners even have to find an extra £1,000 monthly. Considering lenders usually apply a 4.5 income multiplier, homeowners in costly locations could face difficulties when remortgaging. Meanwhile, Darlington emerged as the most affordable place to live in the UK, followed by Hartlepool and Middlesbrough.
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