Mortgages, Finance

Are mortgages rates ever going to fall?

Mortgage Rates: Outlook for UK Homeowners

Current Landscape

Mortgage rates remain a key concern for many homeowners. With the UK grappling with its highest inflation levels since the 1980s, the question of when mortgage rates will decrease is top of mind. On November 3rd, 2022, the base rate was raised to 3% in an attempt to tackle inflation, which has added to the already unstable market. As a result, 1.8 million homeowners with fixed-rate deals expiring next year may face significant hikes in their monthly payments.

Advice for Homeowners

Brian Murphy, Head of Lending at Mortgage Advice Bureau, recommends that homeowners struggling with payments reach out to their lender for guidance. Options such as extending the mortgage term, switching to a new fixed-rate, or transitioning to a tracker rate mortgage may be available. Seeking professional advice is crucial in understanding available options and making well-informed decisions.

Advantages

Despite a temporary reduction in mortgage products following the mini-budget, they are gradually returning to the market. Average mortgage rates are slowly decreasing, with more options for tracker rates and discounted variable rates now available. Some lenders have reduced their rates by 0.5%, and many mortgage products are now priced below the 6% mark.

The recent interest rate hikes have been a boon for savings accounts, encouraging more people to save. According to Moneyfacts, average savings rates for one-year fixed-rate bonds are at their highest in a decade. This is positive for savers, with nearly 50% of consumers saving 5% or less of their monthly salary.

Additionally, the ongoing stamp duty cut remains in place, allowing homeowners to save up to £6,250 on their home purchases, potentially stimulating interest in relocation. As a result, consumer sentiment around spending may improve.

There are also early signs of stability in the pound, government bond yields, and natural gas prices, which should help stabilise the market. These factors have had a positive effect on swap rates, a key indicator of mortgage rate trends, potentially boosting buyer demand and stabilising house prices and housing market investments.

Challenges

Following the latest base rate increase, the average fixed-rate mortgage stands at around 5-5.6%. However, lenders have begun reducing their rates for the first time since the recent base rate hikes, suggesting that the latest increase has already been factored into current and future pricing. Rates are expected to settle between 4-5% by next year.

On the housing market front, the number of homes available for sale remains below average, with buyer demand considerably weaker than usual. Zoopla predicts that higher mortgage rates could lead to a 5% reduction in residential property values.

Looking Ahead

The UK housing market is likely to undergo a period of adjustment as mortgage rates stabilise. Although the current situation may be difficult for some, there are positive signs of improvement emerging in the market.

According to Savills, house prices are expected to rise by 1% in 2024, with a larger increase of 7% anticipated by 2026 if mortgage rates decrease over the next year and the base rate falls mid-2024, in line with declining inflation.

Further Reading

  1. Bank of England: The official UK central bank site offers up-to-date information on base rates and their effects on the economy and housing market.

  2. Moneyfacts: A trusted independent financial service provider, Moneyfacts compares various mortgage and savings products in the UK and provides insightful market news.

  3. Zoopla: A leading UK property portal that provides detailed market data, trends, and housing market insights.

  4. Savills: A global real estate services provider that produces comprehensive market reports and forecasts for the UK and beyond.

  5. Mortgage Advice Bureau: A well-regarded mortgage broker offering expert advice and support for homebuyers and homeowners looking to remortgage.

Common questions about mortgage rates

Mortgage rates can be affected by a number of factors including inflation, economic growth, government policy, and global events. Inflation has a direct impact on mortgage rates, as higher inflation leads to higher interest rates to combat inflation. Economic growth can also affect mortgage rates, as a strong economy leads to higher demand for credit and can push rates up. Government policy, such as the Federal Reserve’s decision to increase or decrease interest rates, can also impact mortgage rates. Finally, global events such as war or political instability can lead to changes in mortgage rates.

Mortgage rates can change daily, or even multiple times per day, depending on market conditions. Lenders set their rates based on the current market, and as the market changes, so do the rates.

It can be tempting to wait for rates to go down before getting a mortgage, but it’s important to remember that rates are unpredictable and can change quickly. Instead of waiting for rates to go down, it’s better to focus on getting the best rate you can at the time of your mortgage application, as rates may not be any better in the future.

To get the best mortgage rate, it’s important to shop around and compare rates from multiple lenders. It’s also important to have a good credit score, as this can help you qualify for a lower rate. Other factors that can affect your rate include your down payment, the type of loan you’re applying for, and the length of your loan term.

Yes, it’s possible to negotiate your mortgage rate with your lender. This can be done by getting pre-approved for a mortgage from multiple lenders and using these offers to negotiate a lower rate with your preferred lender. It’s also important to have good credit, a steady income, and a substantial down payment to increase your chances of getting a better rate.

Whether to choose a fixed-rate or adjustable-rate mortgage depends on your personal financial situation and goals. A fixed-rate mortgage offers a predictable payment over the life of the loan, while an adjustable-rate mortgage offers lower initial rates that can fluctuate over time. If you plan on staying in your home for a long time and want predictable payments, a fixed-rate mortgage may be the better option. If you plan on moving or refinancing within a few years, an adjustable-rate mortgage may offer a lower rate in the short term. It’s important to discuss your options with a lender or financial advisor to determine which type of mortgage is best for you.