The Great rate correction.
Following the ultra low interest rate environment of covid/post covid - 2020-2021, we are now headed into a more sustainable market, as lenders and buyers alike are forced to adjust to our new economic realities.
The ‘Great rate correction’, otherwise referred to as a housing market correction or rate reset, refers to the sharp but wholly necessary adjustment in mortgage and property markets. Categorised by a ‘correction’ in property prices (usually a 5-10% deduction), rather than causing a total crash it is designed to bring affordability back into balance after the post covid years of unsustainable growth.
Key take-homes;
The era of 1 and 2% mortgage rates has officially ended (for now) with rates over 6% in the UK (post 2023)
Higher rates meant higher monthly mortgage payments for borrowers, forcing many to reassess their buying power. First time buyers were suddenly faced with enormous monthly repayments, when previously they would have been able to afford it.
Homes are now typically staying on the market for much longer as buyers become more selective. We have many clients who have their mortgage applications ready to submit but are not managing to sell their homes, so the market is moving much slower.
The correction has been driven by a rapid rise in Bank of England base rates from 0.1% in late 2021 to 5.25% in 2024. This increase was meant to combat inflation caused by post pandemic factors and energy costs.
During the years of 2023-24 mortgage rates peaked up to 6.97% - causing significant affordability issues for homeowners needing to remortgage. Many being faced with increases in their hundreds of pounds per monthly repayment – something not expected and causing a huge financial stress on borrowers.
Between 2023 and 2025 mortgage repossession orders reached their highest in 5 years, and by the third quarter of 2025, homeowner repossessions were over 50% higher than the same period in 2024. A worrying statistic. This rise in repossessions clearly reflects the 6-18 months delay, as borrowers struggled to manage repayments after their fixed rate deals came to an end.
With regards to First time buyers – the reset has proved difficult for many, stretching affordability, forcing some out of the market and requiring others to find smaller and cheaper properties, many choosing the Shared Ownerships scheme to get themselves onto the property market.
So is this good news for homeowners?
It all depends on homeowners and their specific situation, and whether they are looking to remortgage or stay put.
Existing homeowners, if on a fixed rate mortgage you will be protection for a while from these higher rates. If your deal is ending soon you may be looking at higher payments, however some mortgage rates are between 3.5-6% at the moment (this is where you need to speak to your BROKER!) so you may be ok.
To summarise, the rate correction brings stability but with the cost of higher monthly repayments for those refinancing.
My advice, speak to your broker. All of your circumstances are individual, and a broker is able to take these individualities and compare with each lenders current criteria to find the best fit for you. Book your FREE mortgage chat here.