Mortgage rates fall for first time since May

Cautious optimism is a phrase I've been using a lot in the last 24 hours, it sums up my feelings about the recent inflation and swap rate data perfectly; I'm happy that we are seeing decreases in both, but I'm also old enough and wise enough to have seen false dawns before, so I'm not going to say Winter has passed until I see several drops across a few months, but I'm enjoying these few rays of sunshine.

Mortgage rates are still incredibly high compared to what we have seen since 2020. I haven't yet seen lenders offering lower rates in the last few weeks but I hope that will change soon. With most clients we are submitting their remortgages or product transfers 6 months before the current deal ends as many are so panicked that rates will continue to rise and we are monitoring the rates on offer, intending to switch to a lower rate if they become available before the current deal ends. It's a struggle for clients to jump from a 1.5% rate to a 6.5% rate.

The jury's still out on whether mortgage rates have peaked, but whilst I wouldn't bet my house on it, I suspect they have. With inflation now showing early signs of retreating, there's every reason to be hopeful that mortgage rates could return to below 5% by the end of the year.

Whilst averages fall, some mortgage lenders are still actually increasing rates. And whilst my email inbox is recieving less mortgage rate increase updates from banks than in previous weeks, it's still early days following yesterdays inflation announcements.

A deeper dive into the figures, show that inflation figures for Food and
Housing were are at 17.3% & 12.0% 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 a roof over our heads, continue to rise.

A few weeks ago a large building society was telling me their economists expect the Bank of England base rate to peak at 6%. How the markets respond to that data, may still take a few days to come out in the wash... Is now the time to move onto a tracker rate? Given the regularity of upwardly revised predictions, I'm not sure I would bet my house on it...

It's certainly fantastic to see the dip in average fixed rates rather than what seems to have been a constant increase recently. It is also nice to see the recent dip in 5 year swaps to 4.65% down from 4.9% in June. Until now the 1 & 2 year swaps have been increasing so to see these drop is certainly promising activity.
As much as we'd all like to see a strong decline in rates, I think we still have longer to wait but these are certainly promising signs and hopefully might be enough to limit the approaching increase on 3rd August to only 0.25bp or even hold off the anticipated rise.

The positive inflation data feels at last like a real chink of light for mortgage borrowers. Anything else could have been catastrophic for the second half of 2023 for many but thankfully things feel a little lighter now that a move in the right direction has been signalled.

It is just a chink however and realistically it would seem unlikely that any significant reduction in rates from lenders will be forthcoming in the next couple of weeks but a positive statement - almost irrespective of the associated and expected 0.25% base rate increase - could well see average rates dip below the 6% mark and beyond heading into the final quarter of the year.

Impact on the housing market of the higher rates is most likely to manifest in the latter part of the year, however, and alongside the reality that lender rate reductions are likely to trickle rather than deluge and base rates are unlikely to move lower anytime soon, means that tracker options will remain too high risk for most.

Hopefully, the early signs of fixed rates dropping over the last couple of days are the start of many more to come - our personal feelings are that these rates have all been overcooked for the past 3 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.
Our advice to clients is to commit to a fixed rate now, and before completing the transaction in the weeks to come, check for a more appropriate rate being available.

We all want to believe this is the turning point but history teaches us to be fearful until the good news becomes consistent and a downward trend appears.

Two and five year fixed averages are still not below the Truss Kwarteng October budget levels and the housing market is staggering around like a punch drunk journeyman boxer.

Good, stable governance coupled with strict, stoic policy decisions are the order of the day to ensure a strong grip is placed on the economy.

This feels very much like October when the market shook off its jitters and we then saw around 6 months of steady rate decreases for new mortgages. Just as the markets got spooked back then by a rogue PM outlasted by a lettuce, they also didn't like the recent nasty looking inflation data. The good news is that the latest inflation data was better than expected meaning there is less pressure on rates to keep going up as high or for as long so lenders can price their deals cheaper again.

It's certainly positive news that rates have fallen slightly, however, I think lenders are still holding out to see how the Bank of England is going to play it when they next meet on 3rd August. It feels to me like lenders are still "pricing in" a rate rise of 0.5% so if they decide not to increase them by this much, we could see a small drop in fixed-rate mortgage deals. Watch this space, we will be!