Have we seen the end of mortgage rate rises?

.

Some experts believe that the end of mortgage rate rises could come in 2023, while others believe that it could be later in 2024. It is important to remember that interest rates are unpredictable, and it is impossible to say for sure when they will start to fall, that said long may the trend of downward rates continue, which we have seen recently.

Here are some factors that could affect the end of mortgage rate rises:

The level of inflation: If inflation continues to fall, the Bank of England may be less likely to raise interest rates, which in turn means lenders will follow suit
The war in Ukraine: If the war ends, it could help to bring inflation down.
The global economy: If the global economy starts to slow down, it could lead to lower interest rates.

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.

It all seems positive news for mortgage rates at the moment, with inflation coming down faster than the experts had anticipated. Lenders are reducing rates, expecting the Bank of England to pause its crusade for higher and higher monthly payments. However, we do have a governor with cognitive dissonance and will look for any information to continue to inflict pain on homeowners so I wouldn't be betting my house that we have reached the terminal peak just yet.

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.

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.

We'll see some shuffling around as lenders vie for the top spot if they need to get more business in however, it's likely fixed rates will hold broadly steady rather than any significant reductions. What we will see is lenders offering bigger incentives, such as higher cashback amounts, rather than moving their rates.

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.