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Mortgage rate outlook

Journalist: Melissa Lawford, The Telegraph

ended 28. July 2023

What do you think will happen to mortgage rates over the next few weeks? Are we likely to see more reductions on fixed rate deals if the Bank of England raises interest rates by only 25bps? What have lenders priced in? Are lenders who are making rate reductions getting overwhelmed with demand, or do they need to compete with each other for business?

15 responses from the Newspage community

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The beginning of the year has been markedly unfavorable for lenders, and there's a pressing need to recoup their losses while also avoiding excess risk. Even though a base rate increase is expected in the upcoming week, market predictions suggest the apex of the rate rise will be less than what was initially anticipated. Taking into account the projected positive inflation data for August, there is a hope that this trend of rate decreases will persist. An encouraging development is that these rate reductions are being extended not only to residential borrowers but also to those investing in buy-to-let properties.
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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.
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The next few weeks are going to see mortgage lenders holding steady, and any fluctuations in interest rates are likely to only be to manage workflow. I think we need to see a few more months of steadily reducing inflation before any real confidence in meaningful and consistent rate reductions can be expected.
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The Bank of England is almost certain to increase the base rate again on 3rd August despite positive inflation data. However, the good news is that these expected increments in base rate are not as sharp as economists predicted a few months ago and this has already been reflected in swap rates and lender fixed rates stabilising and reducing recently. As long as the Bank of England doesn't raise the rate beyond the expected margin, I would expect fixed rates on offer to remain stable and hopefully continue to reduce as the base rate now nears its peak over the coming months. All homeowners across the country are hopeful that we have now been through the worst.
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The reduction in rates may indicate that mortgage lenders feel that they have over-priced and that a 25bps increase is now more likely than 50bps at the next Bank of England meeting. I would be surprised if they deviate from their principle drive to hammer down inflation by taking a softer approach but all the indicators are they may well just do this. Some high street lenders are off target year to date on their mortgage lending, so pricing reductions are one of the many levers they can pull to attract more business and achieve lending targets.
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It's been a great week for mortgage interest rates, subject to inflation dropping further I think we can start to see further rate decreases in the near future as lenders start to become more competitive.

I think most banks have already accounted for a marginal Bank of England rate rise next week so I don't think we will see many rate increases in the coming weeks.

It's very rare to see one particular bank with headline mortgage rates, most days there is a different bank taking top spot which is a good sign, I think this does help with the process of mortgage applications and service levels.

With this positive outlook, first time buyers and homeowners can start to gain a little confidence again.
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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.
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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.
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We saw a very similar situation to what is happening now at the end of last year, rates spiked and then there was competition among lenders who then started to reduce rates frequently while at the same time the base rate was increasing.

Now that some of the bigger lenders have jumped in with reductions, it is going to encourage competition and we should see, providing inflation continues to fall, more and more competitive rates being introduced
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As a lender, we’re anticipating further volatility – a few conservative increases and a few reactionary decreases – before a more steady downward trend takes hold. A 25 bps increase in the base rate is already factored into swap rates, which means if anything, we may actually see an increase in mortgage rates following the Bank of England's next announcement as some believe that inflation is still quite entrenched. This would mean the BoE will need to take more aggressive action further down the line. Eventually, the volatility will settle. Cautious optimism might have us guess that a gradual decrease in rates is on the horizon, but it's really just that: a guess.
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The sight of High Street lenders now pricing in their fixed rates at a lower level is great to see. We believe that the fixed rates in the past 6 weeks have been pitched by UK lenders at too high a level and this adjustment is very welcome, and we expect to see more of it. We are hoping that the Bank of England will take a pause in increasing the base rate next week and wait and see what the latest CPI (inflation) data shows for us. We are still seeing a reasonable level of applicant interest however since the last BOE increase things have slowed some.
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Central Banks are acting with more predictability which means the market makers have more confidence in their forecasting and all that means better pricing. It does not mean, necessarily, wholesale reductions but perhaps the scramble to reprice is abated, for now. It is too early to draw any conclusions as inflation is still stubbornly high, but, perhaps we will see a period of minor adjustments as lenders drop in and out of the market. However, as always, predictions are either lucky or wrong.
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Even with a predicted BOE base rate rise of 25bps next month, I can see many lenders "tweaking" and reducing rates, as they would have predicted base rate rises. Let's not forget historically this time of year - without the car crash of inflation and cost of living crisis we have all experienced - summer periods are always down in mortgage business, compared to other months - lenders have loan books to fill, with investors and shareholders to appease, so next few weeks I can see the "hokey cokey" of deals coming to market, and then quickly withdrawn, once lenders shopping baskets are full. Until we see at least a 3-6m downward trend of inflation figures, with SWAP rates reflecting, only then can we see any consistent rate reductions that have longevity, instead of a lender flash sale that we have been all too familiar with.
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The near term outlook for rates will hinge as usual on the inflation indicators maintaining a positive trend but it seems likely that the next few weeks will continue to see measured reductions across all lengths of fixed term deals.

After an initial splurge of repricing by mainstream lenders in the next few days, expectation is for a period of stability in lieu of the next ONS inflation data in mid-August.

Beyond the influence of the data, service levels and capacity will certainly impact on individual lenders pricing policy in the coming weeks, but with many having in effect almost withdrawn from the market by overpricing, there are clear signs already of a greater appetite to lend now from the majority.

Whilst the short term swap rates may remain volatile, it will be interesting to note whether the mid term and arguably underserved 3 year fixed deals become more attractive to clients looking for a halfway house option when locking in their next deal.


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Right now, it is still a precarious position mortgage borrowers find themselves in. Have rates peaked? For now yes. It is still likely that the Bank of England will increase rates. If it is only 0.25% and the forecast they give is more positive then we may see further reductions. Lenders will react and reduce rates to try and attract first time buyers and home movers back to the market. Alternatively if inflation doesn't fall next month or the Bank of England's rhetoric is to continue rising rates we may see mortgage rates hold or even increase again.