Mortgage Rates

Following the news of inflation reducing yesterday, it is great to see average rates dipping, too. We also had the first lender email us yesterday to announce rate reductions, some up to 0.6%. You could argue these products were maybe priced too highly to begin with, but it may also be a positive move in the right direction, which other lenders will hopefully follow. Time will tell and I think we will need to wait for a few more weeks to see whether the tide is starting to turn. No doubt brokers like ourselves will be waiting with bated breath to finally give clients some good news.

In my opinion, it is premature to determine if this marks the beginning of a downward trajectory. However, I believe that lenders, who have excessively priced their present offerings, are more inclined to adopt a cautious approach and observe the developments concerning SWAP rates, MPC policy, and August inflation data before making any substantial commitment to substantial rate reductions.

Hopefully, the early signs of fixed rates dropping over the past couple of days are the start of many more to come. Our personal view is that these rates have all been overcooked for the past three weeks so it's overdue. If the Bank of England are listening to the general public and the financial adviser community, they will think long and hard about a rest in the rate increases in their meeting on 3rd August. We'll see.

Could this be the start of market stabilisation? Today's dip in average fixed mortgage rates, coupled with the drop in five-year swap rates from 4.864% to 4.660% in 24 hours, suggests rising confidence. Inflation rates pulling back is a game-changer, possibly more so than the Bank of England's next move. Some lenders are already cutting their rates this morning. Perfect timing in this market? Always tricky, but brighter days for borrowers might be just around the corner. As for the 3rd August Bank of England meeting, will rates rise or hold? It's difficult to call.

The good news is it's likely mortgage rates will continue falling in the coming dayd and weeks as inflationary fears recede. If next month's figures confirm the downward trend, that could be the catalyst for the Bank of England to pause its series of rate hikes, and mortgage rates to fall back to levels last seen in the Spring.

Whilst average rates may be falling, some mortgage lenders are still actually increasing rates. And whilst my email inbox is receiving fewer mortgage rate increase updates from banks than in previous weeks, it's still early days following yesterday's inflation print. A deeper dive into the figures show that inflation figures for food and
housing were are at 17.3% and 12% respectively. These are the figures that should ultimately be grabbing the headlines as we head into a stagnating market where many can't afford to spend money on anything else, as the essential costs of living, food and keeping a roof over our heads continue to rise. How the markets respond to that data may still take a few days to come out in the wash.

The positive inflation data has given mortgage borrowers a glimmer of hope. A move in the right direction has been signalled, but it is unlikely that there will be any significant reduction in rates from lenders in the near future. A positive statement from the Bank of England in August, however, could see average rates dip and stabilise below 6% heading into the final quarter of the year. The impact of higher rates on the housing market is arguably yet to be felt, however, and most likely to manifest in the latter part of the year. It's also unlikely that once peaked, the Bank of England will risk reductions in the base rate swiftly so tracker options gambling on rapid rate reductions will likely remain too high risk for most and the stability of a fixed rate for household budgeting is likely to remain the preference of the majority.

So far, I have only seen one lender reducing their interest rates on offer. Lenders have still been emailing this week to advise of rate increases, so I think it is too early to breathe a sigh of relief just yet. Sentiment may have improved but, for now at least, it hasn't translated into a major lender repricing downwards.

It certainly feels like we've turned a corner now much like at the back end of October where lenders had priced in worst-case scenarios which then looked a bit unlikely. What then followed was around 6 months of steady rate decreases form. Perhaps we might see the same again.

While the current dip in mortgage rates offers a much-needed sigh of relief for homeowners seeking to remortgage, I expect this to be a temporary reprieve. Whilst there are positive signs that inflation is falling, it still remains a long way off the 2% target set by the Bank of England. Many experts are predicting interest rates to rise in the coming months, which unfortunately are likely to exert upward pressure on mortgage rates once again.