Mortgage Interest Rates: What’s Going On, and What’s Next?

Mortgage Interest Rates: What’s Going On, and What’s Next?

Alright, let’s have a bit of a chat about mortgage interest rates. If you're like most folk, you've probably been keeping an eye on the news or your bank account with a fair bit of trepidation lately. Interest rates have been all over the place for the past couple of years, and if you're looking for a mortgage or trying to remortgage, it feels like you’re riding a bit of a rollercoaster, doesn’t it?

What’s Happening with Mortgage Rates Right Now?

Right now, mortgage interest rates are still fairly high compared to where they've been in recent years. After a few sharp increases over the past two years — driven mainly by the Bank of England's efforts to control inflation — rates have stablised a bit.

To give you a rough idea, if you’re looking for a fixed-rate mortgage at the moment, you might be looking at something around 4% for a decent deal, depending on your levels of equity and your credit score. It was 5-6% not that long ago.

Now, these rates are not just plucked out of thin air; they’re influenced by all sorts of things. But one of the big drivers, particularly for the deals available to you as a consumer, is something called swap rates.

What Are Swap Rates, and Why Do They Matter?

I hear you asking, "What on earth are swap rates?" Well, swap rates are essentially the interest rates that banks charge each other for borrowing money over a set period of time (like 2 years, 5 years, 10 years). When banks are pricing up mortgages, these swap rates are a major factor in how they set their own interest rates for fixed-rate deals.

If swap rates go up, you’ll typically see mortgage rates go up as well, because it costs lenders more to borrow the money they need to lend to you. And if swap rates go down, mortgage rates might come down too, as it’s cheaper for the bank to get the money they need.

The tricky bit here is that swap rates can be a bit volatile, and they’re often influenced by broader market forces. Things like expectations of future interest rate hikes (or cuts) by the Bank of England, inflation worries, and global financial trends can all have an impact. UK Swap Rates have gone up a little in the last couple of weeks.

What’s the Outlook for Interest Rates in the UK?

Now, if you're wondering where things are headed next — you're not alone. Everyone’s got their ear to the ground hoping for a bit of certainty, but the truth is, no one knows for sure.

Last week the Bank of England lowered the base rate to 4.75%, most of the lenders are already lending at rates below this so I think the base rate needs to come down a bit more to help stimulate the economy. The difficulty for them is they are tasked with trying to keep inflation down at 2% and interest rates are pretty much their only tool. The recent budget by Rachel Reeves has imposed, what I think are, inflationary taxes on employers. Namely the increase in employers national insurance and an increase to the minimum wage. For employers already struggling with increasing costs these increasing taxes are going to mean either redundancies or increases in prices. It is all early days and still uncertain but my money is on lending rates not coming down quite so quickly, if at all in the next couple of years.

So, What Does This All Mean for You?

If you’re looking to buy a house or remortgage, it’s a bit of a balancing act at the moment. Mortgage rates are still higher than we've been used to, but they're not necessarily going up much more in the short term. That means if you can lock in a decent deal now, you might be in a better position than if you wait and hope rates drop — because the reality is that rates could stay higher for a while yet.

For anyone coming to the end of a fixed-term deal, now’s a good time to review your options. It’s also worth thinking about whether a fixed-rate deal or a tracker mortgage makes more sense for your circumstances, depending on whether you think rates will go down or stay level.

Final Thoughts:

It’s a tricky time for anyone looking at mortgages, whether you're buying your first home, looking to remortgage, or just trying to keep up with all the financial mumbo-jumbo, the key is to stay informed and make sure you’re getting the best deal for your circumstances.

And as always, if you’re in doubt, a good mortgage broker can be worth their weight in gold to help you navigate these tricky waters.

Bank of England Governor Andrew Bailey Hints at Big Rate Cuts – What This Means for UK Mortgages

Andrew Bailey, the Governor of the Bank of England (BoE), has strongly hinted that interest rates may soon come down significantly. For those keeping a close eye on the economy and their finances, this could be a major turning point, particularly for homeowners and those with mortgages. Let’s break down what’s going on and what it means for you.

What Did Andrew Bailey Say?

In recent reports, Bailey suggested that the era of high interest rates might soon be behind us. After raising rates steadily over the last couple of years to fight inflation, he hinted that the BoE could now start to bring rates down—and potentially quite quickly. This is a shift from the previous stance, where rates were pushed higher to control skyrocketing inflation. Now, with inflation showing signs of cooling, it seems there’s room to ease up.

How Could This Impact UK Mortgages?

When the Bank of England cuts its base rate, it directly affects mortgage rates. Here’s how it breaks down:

1.  Variable-Rate Mortgages: If you have a variable-rate mortgage or a tracker mortgage (which directly follows the BoE base rate), you could see your monthly payments drop almost immediately. With lower interest rates, the cost of borrowing decreases, meaning you’ll pay less on your mortgage every month.

2.  Fixed-Rate Mortgages: If you’re locked into a fixed-rate mortgage, the base rate cuts won’t impact you straight away. However, if your fixed-term deal is coming to an end soon, you may find yourself securing a better rate when you remortgage. This could result in lower future payments, compared to what you might have been expecting if rates had stayed high.

3.  New Mortgages: For first-time buyers or those looking to buy a new property, lower interest rates generally make mortgages more affordable. This can increase borrowing power, meaning you might be able to afford a bigger loan without your monthly payments ballooning.

What Are Swap Rates, and Why Do They Matter?

You may not have heard much about swap rates, but they play a crucial role in setting the mortgage rates offered by banks. Essentially, swap rates are the rates at which banks lend to each other over a fixed period of time, and they are used by lenders to hedge against interest rate risks.

When swap rates are high, banks have to pay more to hedge against the risk of interest rate fluctuations. This cost is often passed onto consumers in the form of higher mortgage rates. Currently, swap rates have been relatively elevated because of uncertainty around how long interest rates would stay high.

But if the Bank of England starts cutting rates aggressively, swap rates could drop too. As a result, banks may be able to offer lower mortgage rates without taking on as much risk. For borrowers, this could mean better deals on both fixed and variable-rate mortgages in the near future.

What’s the Catch?

While the idea of lower rates sounds great, there are a few things to keep in mind. The Bank of England will only cut rates if they’re confident inflation is under control. If inflation spikes again, we could see rates rise once more.

Additionally, while lower rates can ease pressure on mortgage holders, they can also have mixed effects on savings accounts and pensions. If you’re saving for retirement or holding onto cash, lower rates might mean lower returns.

In Conclusion

Andrew Bailey’s hints at aggressive rate cuts are welcome news for many homeowners and prospective buyers in the UK. Lower interest rates could bring relief to mortgage holders, especially those on variable or tracker deals, and might make it easier for others to get onto the property ladder.

However, it’s important to keep an eye on how things develop with inflation and swap rates, as these will influence how mortgage rates adjust. If swap rates fall in line with the Bank of England’s base rate, we could see more attractive mortgage deals in the months ahead.

Stay tuned—this is likely just the beginning of an important shift in the UK’s economic landscape!

Should I fix my mortgage now?

Is it better to fix now and if so for 2 years or 5 years? This has been one of the most common questions among our clients and in the mortgage industry over the past six months.

Personal circumstances alone often don't provide a clear direction. This is where our Fixed Deal Comparison tool proves invaluable.

The tool considers several key factors when providing an outcome:

1)     Length of the deals being compared (e.g. 2 vs 5 years, 3 vs 5 years, etc.)

2)     Remortgage costs

3)     Overpayments

4)     Movements in Loan-to-Value (LTV)

5)     Property price changes

6)     Historic relationship between Bank of England rates and Fixed Mortgage rates

By combining clients’ personal circumstances with a solid analytical approach to financial planning, backed by strong understanding of macroeconomic undercurrents help us to deliver the best outcomes to our clients.

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Let’s have a look at the case study to illustrate the process.

The Client: First-time buyer, single

Dilemma: as it was their first mortgage, fixing for 5 years (the cheapest option at the time) felt daunting. She was unsure about managing finances, now that she will be living alone. While the budget suggested that she could comfortably afford to service the debt and make some overpayments on both, 2- and 5- year deals, she was unsure how much potentially worse off she could be over the longer-term if she fixes the rate for just 2 years and then spend time and money on remortgaging again.

Case study details (March 24):

Property value: £250,000

Loan amount: £200,000 (LTV 80%)

Loan term: 34 years

OUTCOME:

Over 2 years, she would pay £2,735 more on a 2-year deal vs. a 5-year deal.

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At this stage we ask three key questions:

1)     What will your financial situation likely be after 2 years?

2)     What mortgage rate would make you at least as well off as the 5-year deal available today?

3)     How likely we are to see that rate in 2 years’ time?

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The client wanted to look at the two scenarios.

Scenario 1: Overpaying around 5% of the debt over the next 2 years

OUTCOME: Based on the below assumptions the fixed rate deals should be 4.63% or less at LTV of 75% to make her better off over the 5-year period.

The graph below displays historical data featuring the monthly averages of 2-year (blue) and 5-year (purple) mortgage rates. These are overlayed with the Bank of England's base rate (green).* A target mortgage rate is represented by a straight pink line across the chart.

*Source: Bank of England Database: Monthly Interest rates of UK monetary financial institutions (excl. Central Bank).

OUTCOME: Last time we saw this level of fixed rates was in January 24 when BOE rate was 5.25% with a positive economic outlook.

This gave the client a high level of confidence that, if she can contribute around 5% of the debt, going for a 2-year deal would be advantageous. 

Scenario 2: Not overpaying and using disposable income to save and invest

OUTCOME: Fixed-rate deals need to be 4.21% or less at an LTV of 80/85%  to make her better off over the 5-year period.

OUTCOME: Last time we saw this level of fixed rates was in September 22 when BOE rate was 2.25% with a negative economic outlook.

The client didn’t believe that this rate outcome was achievable in 2-years’ time under normal economic conditions. 

Ultimately, the client decided to commit to overpayments and felt very comfortable choosing a 2-year deal.

“…The tools Maria used helped me understand my financial circumstances, organise my documents and model the impact of the various mortgage options. The transparent and knowledge driven process empowered me to make the best decision for my circumstances….” Francia, May 2024

Choosing the right fixed deal requires careful thought. Don't navigate this complex decision alone. We are here to support and bring you more confidence in your final decision.

Contact us to schedule your consultation and make the best choice for your unique situation.

Maria Dankova

CeMAP qualified Mortgage and Protection Adviser

MSc in Economics

Navigating and maximising opportunities in today’s mortgage market

Finding the right mortgage deal has become increasingly challenging. The current market, shaped by constantly changing deals and record-high product availability, presents a unique set of opportunities and challenges for borrowers. This environment is poignant for those thinking of getting a mortgage.

Whether you're a first-time buyer daunted by the myriad of choices or a homeowner weighing the benefits of remortgaging, understanding the current mortgage landscape is the first step towards making empowered financial decisions. 

Individuals looking to secure their mortgage are discovering that the most attractive deals are quickly disappearing. Moneyfacts reported on the 14th of March that the typical availability of the best mortgage product has dropped sharply to just 15 days, a significant decrease from 28 days at the beginning of February last month.

This marks the lowest average availability recorded in six months and is actually approaching the all-time low of 12 days seen in July 2023, during the peak of mortgage rates. The news might surprise you, especially as inflation is slowing down and the Bank of England has maintained the base rate at 5.25% since August, suggesting the market should be steadier.

Recently, five lending institutions announced rate increases, including major UK banks like Santander, NatWest, Co-op Bank, and Principality Building Society, with Halifax also set to raise some of its rates. Nicholas Mendes, Mortgage Technical Manager at John Charcol, mentioned that mortgage rates are in constant flux, sometimes to the point where lenders adjust rates twice in a single week, often giving barely any notice of these changes.

Mortgage brokers have been advocating for a minimum 24-hour notice commitment to allow clients a fair chance at securing the best deals, aligning with consumer duty principles. However, this has mainly seen agreement from building societies, with NatWest being the notable bank to recently commit to providing 24 hours' notice or as much warning as feasible.

Why are lenders withdrawing mortgage offers?

Deals are being withdrawn by lenders, due to SONIA swap rates, which reflect market expectations and pricing for fixed mortgage rates. These swap agreements are crucial for mortgage lenders to mitigate the interest rate risk associated with offering fixed-rate mortgages. In simpler terms, swap rates provide a glimpse into lenders' expectations for future interest rates and heavily influence their pricing strategies.

Currently, two-year swap rates stand at 4.46%, while five-year swaps are at 3.85%. This is an increase from the beginning of the year, which saw two-year swaps at 4.04% and five-year swaps at 3.4%. 

Karen Noye, a mortgage expert at Quilter, described navigating the mortgage market right now, as challenging due to the continual shifts and updates. She mentioned that the primary driver behind the changes in mortgage products is undoubtedly the swap rates. Even though inflation and the base rate have stabilised, market forecasts and predictions about future interest rates and inflation are constantly evolving, which then influences market rates.

Lenders also tweak their products based on their capacity to process applications. If there's a surge in applications causing delays, they might adjust their rates to moderate demand. However, in the current market climate, with transactions remaining low, this scenario is less frequent. For borrowers and brokers alike, the current market conditions are proving to be challenging. Delays or hesitations in submitting applications could lead to significant disappointment, with borrowers missing out on rates they assumed were locked in.

Karen Noye advises those considering a new mortgage, to start by getting your paperwork sorted to avoid any delays in application or securing a rate. Lenders' notices for rate withdrawals can be incredibly short, sometimes just a few hours. Consulting with a mortgage professional is more important than ever for navigating the market and finding a deal that fits individual circumstances well. Noye also emphasises not rushing into accepting a deal out of panic; getting proper advice is key to avoiding costly mistakes. Also, preparing at least six months ahead can be particularly beneficial, especially for remortgaging.

Mortgage Options hit a 16-year peak

Despite the rapid changes in the availability of top mortgage deals, the breadth of options in the market has hit a 16-year peak, reports Moneyfacts.

The total number of mortgage options available climbed month-over-month to 6,004, marking the highest point since March 2008. Rachel Springall, a finance expert at Moneyfacts, observed that this past March saw the most significant rise in mortgage choice in six months, with the total number of mortgages available to borrowers surpassing 6,000, a figure not seen in 16 years.

A closer look at different loan-to-value (LTV) categories brings encouraging news, especially for those with smaller deposits. Specifically, the selection of products at 90% LTV increased by 80 options month-over-month, reaching its highest level in four years (since March 2020) with 779 deals. After a previous decline, this rebound in product choice (which dropped to 681 in February 2024) is particularly noteworthy. 

Furthermore, for those able to provide only a 5% deposit, the market now offers over 300 mortgage deals at 95% LTV, the most since June 2022. However, Springall notes a caveat for first-time buyers, who still face hurdles with affordability amidst fluctuating house prices and a scarcity of affordable housing. This challenge is compounded by the current average rates for two-year fixed deals at 90% and 95% LTV, which stand at 5.99%.

In today’s changing mortgage market, highlighted by a surge in options to a 16-year high and rapid adjustments in deals, the importance of expert advice has never been clearer. The current market offers both opportunities and challenges for those wanting to get a mortgage.

Mortgage Brokers are here to provide you with the personalised advice needed to make well-informed decisions. Whether you’re exploring your first mortgage, remortgaging, or navigating rate changes, I’m here to align your financial goals with the current market conditions, explain the documentation needed and help you get the best deal possible. 

If you’re interested, please do reach out, and let’s talk about securing the best deal for you.

Mortgage News UK: Could this pique your interest?

Keeping up with the latest mortgage news is crucial for anyone looking to buy a home or refinance their mortgage in the UK. It's a very competitive marketplace with frequent changes in interest rates, new lending criteria, and the overall direction of the housing market are major factors that have a big impact on making the right financial decisions. With the Bank of England's recent actions and the wider economic environment influencing the mortgage landscape, it's important to have access to the latest information from across the market, and that's one of the ways that we can help to make things easier for you. In this article, we'll cover the essentials, from updates on mortgage rates to insights into the local housing market, aiming to provide clear and useful information to help you navigate your mortgage options with confidence.

Pause in Mortgage Rate Dive

It looks like the rollercoaster ride of mortgage rates is taking a brief pause after months of diving down. Since October, lenders have been on a bit of a spree, slashing fixed mortgage rates left, right, and centre. But as we stepped into February, the trend hit a slight snag. The average two-year fixed rate mortgage, which was chilling at 5.56 per cent at the start of the month, started to nudge up to 5.59 per cent, source Moneyfacts. And it's not going solo; the five-year fix has also crept up from 5.18% to 5.23%.

Mark the date, 2nd February, because that's when Nationwide Building Society decided to shake things up a bit, bumping up rates on some of its deals by up to 0.30% points. But don't get too jittery yet—it seems like lenders are more in a 'let's wait and see' mood rather than signalling a full-on rate hike tsunami.

Rewind to last year, and you'll remember a series of base rate hikes and less-than-cheery inflation news pushing the average two-year fixed mortgage rates to a peak of 6.86% during the summer, Moneyfacts points out, with five-year fixes not too far behind at 6.37%.

However, the tide began to turn as inflation started to ease off, and the Bank of England kept the base rate steady at 5.25% since September. This prompted a wave of rate cuts from mortgage lenders, a trend that boldly continued into 2024. January was particularly buzzing, with over 50 mortgage lenders cutting their residential rates, some even going for round two.

Even though average rates have inched up over the past week, the cream of the crop deals are still hanging around where they were at January's end. For those hunting for bargains, the lowest rates are flirting with just below 4% for a five-year fix or a smidge above 4 per cent for two years.

In the grand scheme of things, today's mortgage rates are still playing in the higher leagues compared to the good old days before 2022 threw us a curveball. Cast your mind back just over two years, and you'd find the average rates for a five-year fix lounging at a comfy 2.5%, with two-year fixes even more snug at 2.25 per cent.

And get this – back in October 2021, you'd have stumbled upon mortgage rates that were practically giving it away, ducking under the 1% mark. Reminding us just how much has changed in a relatively short span.

The Ups and Downs of UK Mortgage Rates

Mortgage rates in recent years have been a rollercoaster, starting with a rise in late 2021 due to inflation, prompting the Bank of England's base rate hike. September's unfunded tax cuts by Chancellor Kwasi Kwarteng caused market turmoil, but when Prime Minister Liz Truss resigned in October and new Chancellor Jeremy Hunt reversed policies, stability returned. However, 2023 brought more twists, with high inflation forecasts pushing rates up. Yet, a June inflation report surprised, leading experts to adjust peak rate predictions to below 6%. The narrative highlights the unpredictability of mortgage rates amidst economic and political changes.

With subsequent positive inflation readings, the market consensus now pegs the base rate peak at 5.25 %, aligning with current levels. With eyes now set on 2024, the markets are abuzz with talks of base rate cuts. It's a tale of anticipation, showcasing the unpredictable ebbs and flows of the UK's mortgage rates saga.

How Future Base Rate Expectations Shape Today's Mortgage Rates

If you're in a fixed-term mortgage deal, fretting over today's base rate is a bit like watching last week's weather forecast – interesting, but not immediately useful. What really matters is where the financial soothsayers predict the base rate is headed down the line.

Banks and lenders are a bit like fortune tellers with their crystal balls, trying to predict the base rate's next moves. They adjust their fixed mortgage rates based on where they reckon the base rate will max out and how long they think high inflation will stick around like an unwelcome party guest.

Predictions for the base rate's peak have cooled off from a scorching 6.5% down to a more temperate 5.2%. As 2023 was packing up its bags, the market was betting on six base rate cuts in 2024. Following a hotter-than-expected inflation report at 4% (the markets had their money on 3.8%), the expectations have been adjusted.

These forecasts are mirrored in something called swap rates which give us a sneak peek into the banking sector's predictions for interest rates.

As of 5 February, the swap shop tells us five-year rates are sitting pretty at 3.56%, with two-year swaps a touch higher at 4.15% – both figures lounging comfortably below the current base rate. It's a slight uptick from the start of the year but a dip from the 17 January spike, when the latest inflation news sent swap rates to 3.75% and 4.29%, respectively.

Yet, rewind to the summer of 2023, and you'd find five-year swaps flexing above 5 per cent, with two-year counterparts pushing 6%. It's a reminder that in the world of mortgages, the only constant is change – and keeping an eye on the future can make all the difference.

Stability Amid Predictions

Starting in 2023, there were many predictions of a severe downturn in the housing market due to high mortgage rates and inflation. Yet, the expected crash hasn't happened. Depending on the house price index you look at, property prices throughout 2023 either decreased only slightly or increased a bit.

The Office of National Statistics (ONS) reports a 2.1% decrease in the average sold price in the year to November 2023. In contrast, Halifax, based on its mortgage approvals, observed a 1.7% increase in house prices over the year to December.

Nationwide saw house prices in January rise by 0.7%, with the average property price moving from £257,443 to £257,656. Predictions for the next year vary, with some expecting a further decline in prices by up to 5% in certain areas. However, there's also a positive outlook from some quarters.

Knight Frank, earlier this week, revised its forecast from a 4% decline to a 3% increase in house prices this year, citing falling inflation leading to lower interest rates as a key factor. This sentiment is shared by some estate agents who note a change in the market due to decreasing mortgage rates.

Simon Gerrard of Martyn Gerrard estate agents mentioned a noticeable increase in buyer interest, with a 20% rise in registrations compared to last year. Alex Lyle from Antony Roberts estate agency also highlighted a significant improvement in market sentiment since the start of the year, attributed largely to the adjustments in mortgage rates.

In summary, despite early fears of a downturn, the housing market has shown resilience, with a mixed but cautiously optimistic outlook for the future.

How can a Mortgage Broker help?

As we look ahead, it’s clear that change is the only constant in the mortgage market. For borrowers, this means being prepared, staying informed, and ready to adapt to whatever comes next.

Clearly, there are a lot of moving parts when it comes to the current trends of UK mortgage rates. It’s a lot to keep up with and can be confusing for those who don’t understand the details or have access to all the latest information, that’s why Mortgage Brokers are here to help. 

As your mortgage broker, I'm here to understand your needs, break down options, and make the mortgage process less confusing. My goal is to make things easy for you and provide peace of mind in what can be a daunting experience. With over 20 years of experience, I've helped countless clients navigate through market ups and downs to find the best solution for them.