Mortgage Interest Rates Showing Signs Of Improving
After what has been a tumultuous few months for homeowners, there are now signs that interest rates are beginning to normalise and become more competitive again. Indeed, the average 2-year fixed rate has dropped to 5.99% – the first time it has been below 6% since the disastrous mini-budget in October.
Following then Chancellor Kwasi Kwarteng’s announcement, average rates for 2-year and 5-year fixed rates peaked at over 6.5%. But the best rates today are now as low as 4.55% with some lenders.
Where are the rates at right now?
The table below gives a snapshot of some of the best fixed mortgage rates today (14th December):
|Nottingham Building Society||5 years||4.64%|
|Skipton Building Society||5 years||4.65%|
|Leeds Building Society||3 years||4.99%|
|Coventry Building Society||3 years||5.03%|
|Bank of Ireland||2 years||5.05%|
|Clydesdale Bank||2 years||5.15%|
What is the Bank of England expected to do?
The Bank of England (BoE) recently raised the base rate to a 14-year high of 3.5% (15/12/2022) as the battle against rising inflation continues. Despite this, economists expect the downward trend in fixed rates on mortgages to continue into the New Year and beyond.
This is because fixed rates are largely determined by predicted future borrowing costs. Subsequently, once it becomes obvious that the BoE base rate has reached its peak, the future cost of borrowing becomes lower, and lenders are able to offer more competitive rates.
This is already evident with increasing numbers of mortgage providers offering fixed-term deals below 5%.
Are variable rates a better option right now?
That depends on your needs, circumstances and appetite for risk. Recent months have seen an increase in the number of borrowers choosing variable rate mortgages as a short to medium term measure while they wait to see what happens with interest rates.
But with further base rate increases expected in the new year – most market analysts now expect the base rate to peak at around 4.5% during the next 18 months – and lenders lowering their offers on fixed rate deals, we’re likely to see variable and discounted tracker rates catch up with the costs of fixed term borrowing.
Some experts are predicting that average rates on a 5-year fixed deal will be around 4.48% by December 2023 – putting them below the anticipated base rate.
What to do if your fixed term is ending soon
Those with fixed term deals set to end soon are advised to seek advice from a mortgage broker to help ensure they make the best decision for the short and long term. One possible solution is a switch to a fixed tracker deal.
For many borrowers, this provides the best of both worlds. They benefit from the low rates currently available with a tracker rate but can switch to a fixed rate at any time without paying an early repayment charge.
With rates expected to fall steadily over the next 18 months, buying time could prove to be a wise move. This is particularly true for homeowners reluctant to tie themselves into a deal at over 5% only to regret it if rates fall below 4% early in 2024 as predicted.
Certainly, for those coming to the end of their fixed deal, doing nothing is not likely to be an option. The base rate hikes have sent standard variable rates soaring to over 6.5%. So, action is required in one form or another to avoid unnecessarily overpaying.
What impact will the recession have?
Let’s not forget the impending recession will hit everybody – including mortgage lenders. The housing market is expected to move slowly in 2023 with low numbers of first-time buyers. And this is good news for existing homeowners.
As lenders compete for the reduced level of demand, they will look to offer more competitive rates to secure business. If the predictions about long-term borrowing cost come true, giving mortgage providers confidence, we could see ever-lower fixed rate deals on offer regardless of BoE base rate increases.
There are green shoots of recovery in the mortgage market for existing homeowners. But, while economists are broadly in agreement about the future of interest rates, there can be no guarantees. Other financial factors at home and around the world can have a significant impact on the UK economy and housing market.
Over the past few years, borrowers have benefitted from consistently low rates. But the reality is that we’re not going back to those rates any time soon.
You can only take the deals on offer at the time you need to remortgage and the trick is to find the best product and lowest rate you can according to your circumstances. And the shrewd way to do that is to enlist the help of an experienced broker who can scour the whole of the UK mortgage market on your behalf.