Will mortgage rates fall by Christmas? Brokers say they could be a "little lower"

Will mortgage rates fall by Christmas? Brokers say they could be a “little lower” as rates start to come down again this week, with one expecting fixed rates to be 0.25% to 0.35% lower.

According to Moneyfacts, the average five-year fixed mortgage rate reached 6% on 5 October, while the average two-year fixed rate hit 5.98%.

This week, HSBC has cut some fixed mortgage rates by up to 0.14%, with deals starting at 4.96% for two years and 4.99% for five years. 

NatWest has also reduced selected rates by up to 0.17%, with five-year deals starting at 4.95%.

Experts told Newspage that fixed mortgage rates could be modestly lower by Christmas as lenders compete more aggressively for business and respond to any improvement in wholesale funding costs.

But brokers said borrowers should expect gradual reductions rather than a dramatic fall, with volatile swap rates, inflation and geopolitical events all capable of reversing recent progress. 

They warned against delaying a mortgage in an attempt to time the market perfectly, as some recent cuts merely reverse increases introduced earlier in October.

How much could mortgage rates fall by Christmas?

Thomas Boughton, Founder at London-based Artillium Real Estate Finance, believes competition between lenders could drive reductions in the coming months, provided there is no fresh economic shock.

He said: “I personally think we're in line for lower rates by Christmas. Most lenders we speak to are desperate to lend. HSBC has announced rate reductions this week. I wouldn't be surprised to see other high-street lenders follow suit in quick succession to remain competitive. 

"Banks have become far more agile with their pricing, meaning even relatively small movements in swap rates can be reflected in mortgage products shortly afterwards. Of course, nobody has a crystal ball and the outlook can change quickly.

“However, I believe much of the current economic uncertainty is already priced into the market. Unless we see another significant shock, I think we could start to see some recovery in the coming months, with mortgage rates gradually moving in a more favourable direction."

Stephen Perkins, Mortgage Broker and Managing Director at Norwich-based Yellow Brick Mortgages, also expects a modest improvement but warned against reading too much into recent cuts.

He said: "I think average fixed mortgage rates could be a little lower by Christmas, but I would not read too much into this week’s reductions. Some major lenders increased selected rates by 0.15% to 0.30% at the start of October, and many of the residential cuts we are now seeing are closer to 0.08% or 0.10%.

“Giving borrowers part of an increase back a week or two later is hardly a victory; it may simply show that lenders reacted too aggressively to the earlier volatility. If funding costs remain relatively stable, competition should gradually pull fixed rates down from their recent highs, but I would expect small steps rather than a dramatic fall. 

"The market has shown repeatedly this year how quickly pricing can reverse, so borrowers should not try to perfectly time Christmas. Secure something suitable when needed and keep reviewing it if rates improve."

Should I wait to fix my mortgage?

Jamie Alexander, Mortgage Director at Romsey-based Alexander Southwell Mortgages, said he is not expecting any drastic changes.

He added: “A little lower by Christmas is my best guess. The Bank of England has room to cut if inflation continues to behave and the economic data gives them enough cover to move. Markets are already pricing in at least one more reduction before the end of the year and lenders tend to get ahead of that. 

"But I would not expect anything dramatic. Swap rates have been volatile and any geopolitical flare-up or surprise inflation number can undo weeks of progress in a matter of days. We have seen that happen repeatedly this year. 

"The direction of travel is downward. The pace is the unknown. Borrowers sitting on the fence waiting for a significantly cheaper rate before Christmas are probably going to be waiting a long time. A small improvement is realistic. A step change is not.”

Elliott Benson, Owner at Leeds-based Sett Mortgages, is already feeling festive.

He added: “I am thinking positive. I reckon by Christmas, slightly lower rates. Some lenders reducing currently and I think the overall appetite is for them to come down. That's what I want in my stocking.”

Steven Greenall, Mortgage and Protection Advisor at Dunmow-based Protect & Lend, predicts that rates will continue to slowly come down.

He added: “I anticipate rates to be a little lower than now, at around 0.25% to 0.35% lower than where they are currently for two and five-year fixed. This assumes fairly standard 80% loan to value and clean credit.”

ENDS