After experiencing several weeks of continuous increases, mortgage interest rates in the UK have now stabilised. According to a report from Moneyfacts, the average two-year fixed-rate residential mortgage stands at 6.78% today, showing no increase from last Friday. Additionally, the average five-year fixed-rate residential mortgage remains steady at 6.30%. This is the first time in almost two months that the average fixed-rate mortgage has not risen.
In recent days, market expectations for rate hikes have eased. The current forecast for the UK’s benchmark interest rate by early next year is 6.25%, slightly lower than the previously predicted 6.5%. The previous surge in rates has dampened market enthusiasm, resulting in a slight decline in asking prices for houses, as reported by Rightmove. Meanwhile, the total wealth of UK households has experienced the largest post-war decline, with cash holdings decreasing by £2.1 trillion.
However, at the same time, the Resolution Foundation suggests that young people may become the net winners in this high-interest-rate environment. Lower property prices mean a lower entry barrier for homebuyers, and they are also more likely to accumulate pension funds. The significant increase in borrowing costs helps cool down the real estate market, leading to more houses being listed for sale, and buyers becoming more reluctant to take out loans to purchase property. As a result, first-time buyers may have the opportunity to find lower-priced properties and save up for a down payment in a shorter time frame. For instance, they currently need 14 years to accumulate the necessary funds, but this period could be reduced to ten years under the longer-term high-interest-rate scenario.
Young workers also benefit from the higher interest rates in terms of their pension savings, as they can save less but still receive greater returns than before. As a reference to the low-interest-rate period before the pandemic, individuals needed to contribute £5,000 annually to their pension accounts to save up an amount equivalent to two-thirds of their income for retirement. Now, with interest rates on the rise, they only need to contribute £3,000 per year to achieve the same result.
Therefore, the younger generation are being called the ‘true winners’ in the current high-interest-rate and low-wealth situation. As high-interest rates are expected to persist for some time and may even continue to increase the benchmark rate, the younger generation will have a longer period to benefit from these conditions.