Falling Mortgage Rates

Mortgage rates have been affected by changes in the Bank of England's base rate and more prominently uncertainty about what the BoE will do to control inflation.

The recent fall in fixed-rate mortgage deals can be attributed to a decrease in the estimated peak of the Bank base rate, leading to lenders re-pricing their fixed rates. However, it's important to note that the predicted increase in the base rate this year will likely have a greater impact on tracker-rate mortgages rather than fixed-rate mortgages, as the market has likely priced in this increase.

The Bank of England's base rate does have an impact on mortgage rates, as it serves as a benchmark for pricing. However, other factors such as market uncertainty can also play a role in driving mortgage rates.

Following the change in the top jobs of government (again), some confidence was restored to UK financial markets and so the financial tools that back fixed rates, came down in price allowing lenders to reduce the cost of fixed rates, a situation that has continued and continues, resulting in lower and lower fixed rates, although many are thinking we are now nearing the bottom of where they will fall back to. The Bank of England base rate has little direct impact on this process, so the fixed rate will often be priced independently of the base rate, as long as the Bank doesn't give the markets any nasty shocks. Demand from buyers has remained relatively stable, it's been an increase in the number of remortgages that has been keeping most mortgage brokers busy so far in 2023, which most of us are expecting to continue for the rest of the

The economic and political uncertainty of late 2022 caused mayhem and panic across the industry for borrowers and lenders. People rushed to secure 5 yr fixed deals due to fear and further expected rate rises, this coupled with a naturally quieter period of year certainty affected confidence. We saw lenders hike rates circa 1.5% overnight, with some deals exceeding 6%. I believe as the following base rate jump was only .75 lenders had overpriced and issued corrections or reductions as a result. Now with Rishi at the wheel, (albeit with no seat belt) the UK is enjoying more confidence and stability with positive signs ahead such as more competition across lenders and further reductions. Our purchase enquires have increased as more buying options available. Will we see a base rate REDUCTION on the day of this being published? Let’s hope so!

The BoE had to raise the base rate to control rocketing inflation. There was no clear end but the worst-case ceiling was thought to be 6%. Lenders moved to cover a sudden and unexpected risk creating a race to the top which dominated media coverage and a fear level of pandemic proportions. As inflation shows signs of falling back, lenders have confidence to competitively reprice in a more predictable market landscape. Buyers know what the likely top end of their repayments will be so can budget accordingly and the panic to grab rates on the way up has certainly subsided. As these rate drops continue, brokers can improve deals for their clients and we are seeing hundreds of pounds a month coming off the repayments and going back into their pockets.

Perception and confidence in the market are everything. Instead of having 3 months of continuing news of rates rising we have seen 3 months of rates reducing and this continuing positive news has seen buyers come back to the market quicker than expected.
Rates look set to be stable this year unless we see the base rate increase beyond 4.5%, if inflation falls quickly over the next few months we may even see the base rate below 4.5% and subsequently interest rates should slightly reduce again.
Keep the good news coming and the buyers will flood back.

Our job as mortgage brokers in the last few months has as much been about educating our clients on what drives mortgage interest as actually advising on mortgages. Despite the negativity of the mainstream press - buyers are again bucking the trend of increasing inflation and interest rates and proving that the UK Economy is driven by individuals desire to own their own homes.

Although we are expecting another small rise in the Bank of England Base Rate, swap rates have continued to gradually settle and these are more directly linked to the rate we pay for mortgages. Couple that with lenders resetting targets for 2023 and i am expecting the next few months to be a mini rate war from the high street trying to lure first time buyers and homemovers.

One of the head honchos at a highstreet lender told me that they were planning for a 0.5% rise this first quarter and then a slow steady slope down over the next couple of years. Not a lot, just a couple of points off every couple of months.
I think the market, albeit being more expensive, is actually going to be relatively steady now.
Rates have little effect on first time buyers as they just want a house, movers and remortgages will be affected though, in fact, anyone coming off a 5 year fix this coming year will have a shock, myself included!

The reason for the fall in fixed-rate mortgage deals could be due to the actions of the Bank of England. The bank has the mandate to keep inflation under control and it may have taken measures to lower interest rates, which could have led to a decrease in fixed-rate mortgage deals. Additionally, there could be an increase in competition among lenders as well as a change in the market conditions as a result of Brexit that could affect the mortgage market.

It's also important to note that the mortgage market is always fluctuating and it's not uncommon for rates to rise and fall. It's important to keep track of the market changes and compare different options to find the best deal that suits your needs.

I personally believe fixed rates are falling due to confidence returning after the infamous ‘mini-budget’. The swap rates that dictate them have been steadily falling. Along with a new year and new targets for the banks they will be competing for business.

I’m not convinced that the base rate will rise by 0.50% to 4.00% but we will find out. If it does rise, fixed rates may be fine so long as the swap rates don’t increase too much.

With the steady drop in interest rates and house prices seeming to settle, I have had my busiest January. People are looking to buy again in addition to the remortgage clients looking to fix again on a lower rate than was on offer in December.

Hopefully this continues over the next few months until things truly settle.

We have seen a significant reduction in the cost of long-term borrowing, and all the talk of expected rate rises will have been factored in. People forget at the end of the day lenders need to compete against each other to win business as that's how they make money. Most market-leading rates have very similar underwriting criteria so will win business on rates, I feel the future rates should remain quite similar to where we currently are.

The general public understandably worry that BOE rate increases = mortgage fixed rate increases; given the mini-budget fiasco.

This is not necessarily the case. The BOE rate is 1.25% higher than it was in September 2022 , yet current fixed rates are around 1% lower now.

Mortgage fixed rates are priced around swap rates - the rate at which lenders agree to themselves borrow money at a fixed price.

After the mini-budget, BOE, swap and mortgage fixed rates all went up, all the face of an economic policy gaffe.

Recent months demonstrated it perfectly possible for the BOE to go up whilst swap rates and fixed rates go down.

Unless there is some other nuclear fallout behind a new BOE rate rise, this should be more business as usual of recent times; Increased confidence > more competition > cheaper fixed rates.

My clients in our money coaching sessions are openly panicking about their mortgage payments. Those who are due a review this year or next are willing the rates down. Without them coming down, doom is on the horizon for many. Mortgage payments being over 60% of the household budget just doesn't work without having to dig into savings or investments.