Mortgage rates - The i

Whilst everyone is hoping the prediction of an inflation drop from the budget turns into a reality, this wouldn't be the first time they have got it wrong - so it will be interesting to see how this year pans out. I feel the market needs stability and although we would love to see rates reducing, the market having a spike in interest could push inflation up again. I feel we may see one more base rate increase, then a steady stable road of very little movement with interest rates until Winter. Hopefully by then santa will arrive early with curbed inflation a falling base rate.

I don't believe that the Bank of England will be in a position to reduce the base rate before 2024. Although it has been predicted inflation will fall fairly quickly this year these predictions have been incorrect before and the predictions still currently show that inflation will be above the target of 2%.

This will mean the Bank of England does not have much headroom in relation to reducing the base rate as they will be very fearful of stimulating the economy too much and thus driving inflation higher again. Looking at the predictions we currently have I believe it will be more like mid 2024 before the base rate begins to fall.

The failure of Silicon Valley Bank and the panic around Credit Suisse earlier this week will likely add a huge influence on how the Bank of England voted regarding the base rate last week. This combined with the recent budget expecting inflation to fall dramatically towards the end of this year gives us a strong indicator that we could be close to the end of base rate rises and once inflation is fully under control we could see rates slowly fall. However, what we have learnt in the last 6 months is that the dynamics can change in a blink of an eye so nothing is certain just yet.

Let’s face it. It’s a total guessing game, and anyone claiming to know how things will go is guessing also. In only the last week we’ve seen things sway once again with the collapse of SVB. Regardless of what happens with the BoE base rate, I’ll think we’ll see rates yo-yo for the next few months, with no major reductions nor disasters. If inflation does indeed calm down as per the predictions, I’m quietly optimistic we may see better rates by the end of 2023 compared to today. One thing’s for sure though, there’ll be some challenges along the way.

Rates have seen some reasonable stability over the past couple of months in what seems like the new norm with lenders. The Swap rates which is a key tool for lenders to price mortgages have also seen a level of stability compared to the end of 2022, although higher than recent times.

What will 2023 into 2024 look like? With the positive focus on the cost of living and the push to create more stability for the public from the government lead actions, we hope the stability remains in place. However, the world is a volatile place with banks struggling and the global economy creaking and cracking at times, we only need one of the financial power houses to catch a cold to bring the rates spiraling out of control.

In the current economic climate, the Bank of England is faced with a delicate balancing act. Based on my analysis, it is likely that interest rates will experience a gradual increase, with a projected high of 4.5% by the close of the year.

However, it is important to note that any further increase beyond this level could potentially hinder growth and borrowing in the marketplace.

Moving forward into 2024, it is essential to maintain vigilance over inflation and keep a watchful eye on any developments in the Ukraine situation. Assuming these factors improve, I am confident that we will achieve a degree of stability in the financial markets, leading to minor rate reductions.

UK Mortgage holders will have to recognise these normalised market conditions.

In the short term (the next few weeks) the answer is yes rates will come down, however, the long term outlook for where rates will go remains uncertain. We have seen a market scare (SVB) and inflation remains a key challenge. The market indicates that the BoE base rate will increase by at least another 25bps, but will peak in the summer. This means we could see mortgage rates rise again in the coming months. The BoE base rate isn’t expected to start to fall until Q1 2024, only then can we expect to see mortgage rates fall with more certainty. Therefore, borrowers need to think about buying the right product not just focus on getting the best rate. Taking independent advice has never been more important.

I anticipate interest rates will start to drop in Q3 and Q4 as inflation starts to decrease and the Bank of England begins cutting the base rate from its current level. Borrowing has to be affordable for those on the lowest incomes as they are the ones who are most affected by a hike in rates.