Have we seen the end of mortgage rate rises?

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Whilst it's great news to see some reductions, there's a long way to go before rates are even at the level they were in late June. I feel we'll see them fluctuate in both directions for the foreseeable, with service levels being a big factor.

This week I had to put my notifications on silent, such was the influx of emails from lenders about their rate changes. These reductions (and the occasional increase) seem like good news, but I worry this is just the Honeymoon period before next month's Bank of England base rate decision.

Sentiment over substance remains the driving force behind how things are perceived and so it’s definitely encouraging to see a smattering of reductions from some lenders perhaps starting to change the tone.

It remains the case that - even with this weeks reductions - the average rates are considerably higher than earlier in the year but with the direction of travel appearing to now be heading downwards, the same rates that were being perceived as worryingly high for many are already being noticeably more positively received by clients when it feels like the top of the rate mountain may already have been scaled.

If inflation numbers can maintain a positive trend, then - as with any climb - the descent that can now be reasonably anticipated to follow over the coming months, is unlikely to be without hazards, pauses and be by slow and steady steps, but it is welcomed and definitely does feel like there may be a glimmer of light with a period of relative rate stability or falls.

I think it is too early to make assumptions. We were seeing rates drop to below 4% not that long ago, and now we are getting excited that they have dropped below 6%. If the last 9-12 months have shown anything, it is that the mortgage market is volatile and the slightest change in service levels, base rate or SWAP rates has a massive impact. I am advising clients on what is happening right now rather than what might happen in the future. That is all we can do! If rates reduce prior to the completion of their mortgage then we can switch products accordingly :)

It’s too soon to say that we’ve seen the end of mortgage rate rises. As a lender, we’re anticipating further volatility – a few conservative increases and a few reactionary decreases – before a steady downward trend takes hold. Inflation might be slowing in the UK, but it’s accelerating in the US, and this is likely to impact our own market outlook. Many banks have also been taking losses on mortgage rates by pricing in line with swaps over the last several months, and may not readily kick off another “race to the bottom” like we saw earlier this year. So, if we are to be cautiously optimistic, it’s possible rates will continue to fall, but it’ll happen slowly. The days of 1% rates are certainly over.

After the turbulence of the past few months, it appears there is a glimmer of hope that rates have perhaps peaked. With inflation falling last month, all eyes will be focused on the Bank of England's MPC meeting next month. If the members decide to increase the base rate, lenders will increase their rates in tandem as the underlying cost of borrowing will increase.

It may not quite be the end of mortgage rate rises altogether, and this is unlikely to be the case until the Bank of England Base rate reaches its peak. But, with lenders expecting to have already priced in for an anticipated smaller base rate rise of 0.25% next week, it is likely at least that mortgage rates won't jump straight back up. This week of rate reductions has at least, however, provided a glimmer of hope to homeowners coming off their fixed deals in the next 6-12 months that the end of mortgage rate rises for a longer sustained period, is hopefully not too far away.

Definitely more optimism in the market, I have been informing my client base on the recent reductions and am having many more come back to me to re-assess figures or re-check affordability as they continue to fall.

If inflation continues to fall, my view is that lenders want to lend and there is still pent up demand from buyers and we will see a race to the bottom among lenders trying to get business through the door before the end of the year.

Right now, it is still a precarious position mortgage borrowers find themselves in. Have rates peaked? For now yes, but currently its best to take things week by week, month by month. If inflation continues to fall in line with predictions and we have positive inclination from the Bank of England then it is likely we may see some further reductions. However, if inflation does stay high then we are likely to see rates increase again.

With the current state of the UK economy, it is inflation figures that are driving base rate expectations and therefore mortgage rates. The below expectation figure of 7.9% in the last release on July 19th in turn raised hopes the Bank of England will hold off on a further 0.5% hike at their next meeting in early August, and this in turn has caused mortgage rates to fall. All eyes will then be on the next inflation figure due on August 16th. If the downward trend is confirmed, we may well have seen a peak in mortgage rates.