The policy response to the pandemic included a cut in interest rates, which reduces the long-term cost of a house purchase, and a stamp duty holiday for properties up to £500,000 in price.
The result has been a buoyant housing market, with prices broadly rising.
The stamp duty holiday came to an end on June 30 2021, increasing the cost of purchasing a property, something which would also happen if interest rates were to rise.
The cut in the UK base rate has been accompanied by reductions in the rates charged by banks, with Nationwide offering the first sub-1 per cent mortgage interest rate in the UK in July 2021.
David Hollingworth, associate director at L&C Mortgages, says there has been more to the housing market boom than the government policies. He told FTAdviser mortgage rates are likely to remain low, regardless of government policy changes. The lower interest rates have been accompanied by the policy of QE, which serves to boost house prices.
Hollingworth adds: “With the base rate at a historic low, it's little surprise that mortgage rates have also been at very low levels. That’s been true for some time of course and when base rate dipped again in response to the pandemic it opened up room for rates to sharpen.
"As we emerge from the impact of the pandemic all eyes will be on how the BoE responds. Inflation was always going to spike and that would generally be met with an expectation of some tightening in monetary policy.
"However the BoE has so far held firm and indicated that it’s prepared to look through higher inflation for now. Nonetheless, the talk of whether base rate could go negative has now turned towards when it is likely to rise."
Despite mortgage rates having hit new lows, with both two and five-year rates dipping below 1 per cent, the level of competition in the market has driven lenders to keep sharpening their deals, leading to what Hollingworth describes as "something of a price war" breaking out.
Hollingworth adds: "Although the lowest rates are on offer to those with larger deposits, the much improved range of options open to those with as little as 5 per cent to put down has quickly resulted in rates reducing at high LTVs as well.
"With lender competition high and good funding availability there seems little to suggest that mortgage rates will rise radically in the near term. As a rate rise begins to look more likely or imminent we may start to see a reversal of the cut price deals. But competition levels currently should ensure that borrowers will have a great opportunity to lock in at levels not seen before.”
