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Are mortgage rates ever going to fall?

Sponsored feature | Rachel Sackel, Mortgage Advice Bureau

Are mortgage rates ever going to fall?
Are mortgage rates ever going to fall?

While news surrounding the current mortgage market changes from one day to the next, something that doesn’t seem to alter is the trajectory of mortgage rates, which has - up until now - continued to increase.

As the prospect of the nation going into recession looms ever closer and the UK faces its highest rate of inflation since the 1980s, it seems as if there’s no end in sight to the instability and uncertainty surrounding mortgages and the UK housing market. But the real question on many of our minds at the moment is: when can homeowners expect a fall in mortgage rates?

What’s the latest in the mortgage market?

Following Rishi Sunak’s instatement as Prime Minister, the proposed tax cuts announced in Liz Truss and Kwasi Kwarteng’s mini-budget have now been reversed and/or axed. However, as of today, the base rate is standing at 4.25 per cent, seeing some of the largest base rate hikes since October 1989.

By raising the base rate, the cost of borrowing has once again increased, with the aim of reducing demand from consumers and slowing down the economy. Despite the more positive intentions behind this latest base rate increase, it hasn’t done much to settle what is an already turbulent market. This poses an additional worry for the 1.8 million homeowners whose fixed rate term is due to end this year, which potentially means that customers will be paying hundreds more on their new mortgage deal than they were previously.

According to Brian Murphy, head of lending at Mortgage Advice Bureau, things will continue to worsen before they get better. “Expectations are that the industry will continue to see an upwards trend of defaults on mortgage payments in the coming months,” said Brian. “It’s recommended that anyone fearing that they may struggle with mortgage payments go straight to their provider for guidance.”

It’s not all doom and gloom…

While the initial response to the mini-budget was an immediate reduction in the number of mortgage products, these are slowly showing signs of returning. Average rates are falling marginally, while tracker rates are becoming more readily available, as well as discounted variable rates. In some cases, lenders have cut rates by 0.5 per cent, with many products now falling below the 6 per cent threshold.

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The increase in interest rates is ideal for savings accounts, as it encourages them to spend less and save more. Average savings rates for one year fixed rate bonds are at 10-year highs, according to Moneyfacts. This is great news for savers, with 49 per cent of consumers in a survey held by Yapily admitting to saving 5 per cent or less of their salary each month.

In addition, while the vast majority of policies in the mini-budget have now been axed, cuts to stamp duty were not, meaning homeowners could save up to £6,250 on their home purchase. This may give those looking to relocate the encouragement they need to move, which is great news given current consumer sentiment around spending. In fact, 95 per cent of consumers admit that the cost of living crisis is a real worry, with nine out of 10 having used money saving and management tools in the last year.

The pound is beginning to show signs of stabilising, with gilt yields and the price of natural gas also stabilising, all of which should contribute to the market settling. This has also had a knock-on effect on swap rates, which serves as a leading indicator for mortgage rates. All of this will begin to boost buyer demand levels, stabilising house prices and investment into the housing market.

Light at the end of the tunnel?

Despite the latest increase in the base rate, it does seem as if we’re at the cusp of a turning point in terms of the state of the mortgage market. Although the average fixed rate mortgage now stands at around 5-5.6 per cent, the latest base rate hike means lenders have actually cut their rates for the first time compared to the other base rate increases. This indicates that lenders had already factored in the latest base rate rise and any future increases, and it looks like rates should settle around the 4-5 per cent margin by next year.

In terms of the housing market itself, according to Zoopla, higher mortgage rates could reduce residential property prices by up to 5 per cent. Buyer demand is much lower than usual, with the number of houses for sale below average. On the whole, the housing market in 2023 mainly looks set to be one of re-adjustment as the UK returns to more consistent mortgage rate levels. In the longer term, Savills expects house prices to grow by 1 per cent in 2024, followed by a larger increase of 7 per cent in 2026 if mortgage lenders cut rates over the next 12 months and the base rate declines from mid-2024 as inflation falls.

So how does this leave current, new and prospective homeowners for the time being?

“In this enduring period of rising interest rates and inflation, homeowners should prioritise future-proofing their mortgage and property ownership plans,” adds Brian. “Advisers have now helped clients through eight months of consecutive rate rises, and though the situation is far from ideal, at least it puts them in the best possible position to offer advice to clients that will stand the test of time.”

We’re here to help

While returning to the lower mortgage rates of recent years seems unlikely, it’s hoped that the reversal of the majority of the mini-budget measures will slowly increase consumer confidence within the housing market. In the meantime, if your mortgage term is about to renew and you’re worried about what to do next, or you’re a first time buyer unsure about your options, make sure you get in touch.

On hand to support you every step of the way, we will provide you with clear-cut guidance to help you navigate the rapidly changing market. Get in touch today - call 07375 886347 or visit our website.

Because we play by the book we want to tell you that your home may be repossessed if you do not keep up with repayments on your mortgage. There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances, but a typical fee is up to 1 per cent of the amount borrowed.

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