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OBR forecasts and mortgages

ended 08. March 2024

A journalist at The Observer is writing a piece about mortgages for the weekend. Background: The OBR predicted this week that average mortgage rates are to rise to an average of 4.2% by 2027 so it appears that consumers will be facing high rates for some time to come (compared to what has been the case). The journalist is working on an advice-driven piece for consumers. and would like your responses to the following questions:

  • Where are average mortgage rates at the moment?
  • Should people should lock in now in light of the OBR advice?
  • Under what circumstances should a tracker be considered?

Any other thoughts, jot them down.

12 responses from the Newspage community

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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
If the OBR is correct, people seeking mortgages should seriously consider 5 year fixed rates. Driven by underlying Sonia SWAPs these have been in complete reversal of normal market trends for some time now, priced lower than shorter term, 2 or 3 year fixes. At the premium end of the market (75% Loan to Value), 2 year fixes are floating around the 4.5% - 4.75% rates, unless of course you wish to pay astronomical fees, offsetting to achieve a lower rate. In contrast, 5 year fixed rates are coming currently priced around 4.1% - 4.5%. Base rate trackers in the meantime have pay rates pushing 5.5%, so anyone considering will need to see significant base rate reductions to catch up with fixed rate pricing, and would need further base rate reductions to recoup on the overall costs. Many mortgage tracker products don't have early repayment charges, leaving the customer in a position where they are fee to exit their mortgage.
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Darryl Dhoffer
Founder at The Mortgage Geezer
At the time of writing my response, 7th March 2024, the average 5-year fixed-rate mortgage is 4.82% and 2-year fixed-rate mortgage is 5.19%, with a 40% deposit.
Rates have been relatively unstable in the the last seven days, due to increases, with lenders withdrawing a repricing higher rates. The Office for Budget Responsibility (OBR) recently advised that interest rates are expected to fall throughout 2024. This suggests that mortgage rates could potentially decrease in the coming months. However, there is no guarantee of this, and external factors could cause them to rise again.
Deciding whether to lock in now depends on your individual circumstances and risk tolerance - locking in, provides stability and predictability in your monthly payments but may mean missing out on potential future rate reductions.
Waiting, could lead to lower rates in the future but also carries the risk of rates increasing, potentially making mortgages more expensive.
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Simon Bridgland
Director at Charwin Private Clients
Personally I feel rates are currently where they will be in a couple of years time. Although many advisers have been shunning 3-5 year fixed deals I have been predicting that its where smart money should be going. the deals on offer are still okay for the medium term products and I cant help think that you would be paying over the odds longer term by securing a 2 year product now, I believe rates will be a little higher at the end of a 2 year period from now. Of course client circumstances will always dictate what is recommended, but that aside 3-5 year products are my go to thing at present.
Trackers can serve a purpose, but currently I would only recommend them if they were accompanied with zero redemption penalties and the client was looking to make substantial capital repayments. I havent got crystal balls, but I do know the base rate wont go down much if at all anytime soon. That could change however at the end of the year, but I wouldnt bet my house on it.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Mortgage rates are never, ever, going to return to near zero. They languished there for over a decade and this restricted the central banks ability to respond to crisis, not that they are very adept at that anyway. Rates will subsiude from their current levels over the next 24 months as inflation may even turn into deflation as the economy worsens. However, the governement will want to use fiscal stimulous to improve the situation, rather than interest rates to the same extent as in the last decade. Bank rase rate will have a floor of 2% and it will take some very bad news to get it that low.
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Chris Barry
Director at Thomas Legal
There are parts of inflation coming down but there are two key areas sticking which are services, driven by wages, and shelter, driven by mortgage/rental costs.

Due to the unlikely event these two areas of inflation will come down, the goverment will not meet their 2% inflation target and therefore will not be able to reduce base rate significantly.

The other factor to consider is national transaction numbers. The average number of purchases per year in the UK is around 1.2m. post covid reached dizzy heights of 1.4m and last year's uncertainty reached lows of just 1m.

however this year, even with base rate at recent memory highs, we are likely to get back to 1.2m purchases, so, one may argue base rate doesnt need decreasing if wages are increasing higher than inflation.

In real terms, it costs the same to buy a house today as it did in 2007 when you adjust for inflatin and wage rises.

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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Like everything from the OBR, the devil is in the detail. Average fixed rates taken out are currently higher than the peak they mention by 2027, so they must be talking about the average rate across all products in the market including the specialist higher risk products. If mortgage rates were in any way easy to predict reliably, we would not need so many product options. Sadly though you have to take all predictions with a large vat of salt and base your rate control period on your personal circumstances, future plans and attitudes to risk. Anyone basing their mortgage choices on the predictions from the OBR, the government or any other party is likely to end up disappointed.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
Here are some sage words of advice from a seasoned property developer and portfolio landlord who is actively taking out new mortgages every month.

Expect rates to be in the region of 4.x% for the next 12-18 months. The play is going to be on product fees/arrangement fees. Choose wisely based on your circumstances and total cost over the term instead of headline rates.

Our entire buy-and-hold portfolio is on long term fixed rates, barring a few new developments that are on variable bridging rates that we intend to sell. However if I had to choose again now, I would look at 5 year fixed rates for properties that we intend to hold for the long term and variable rates for anything that we intend to sell off within the next few years.

You can never perfectly time the market, but wise investors will always count the time in the market over timing the market. Property is a long term game, and you have to be patient and sometimes see through difficult interest rate cycles to make profits.
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Gary Bush
Financial Adviser at MortgageShop.com
How the OBR thinks that the average mortgage rates will rise and that the peak will be in 2027 at 4.2% is puzzling - the average "new" application rate currently is above that level and has been for some time, perhaps in making this statement they are talking about the average of all mortgages in existence - this would make more sense and is quite likely by the takeup of 5 year fixed rates in the last 2 years.

We are just seeing the first in an expected round of mortgage rate reductions for applications, post-budget having not been another nightmare, and we would expect this to continue should the inflation data be released as expected shortly. The next few weeks should be a good time to lock in on a fixed rate, the ducks appear to be lining up again.

Trackers should be considered at the moment only if there are no redemption penalties applicable, this would allow you to hedge and fix later if the mood music goes in the right direction. Speak to a Financial Advice firm for help.
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Jonathan Burridge
Founding Adviser at We Are Money
Rates are beyond consumers control and for most borrowers they should be focusing on affordability and suitability of the product rather the pricing. Of course, no one wants to pay more than they could, but, we simply do not know the future. The mortgage arrangements should be based around what the borrower is comfortable to pay each month and then consideration should be given to matching the product features to the borrowers circumstances and plans. To fix or go variable, to take a two, three, five, ten or even term product, these are all down to the borrowers situation and aspirations. There are of course those that beleive they are smart enough to predict the market, but, in my experience forecasts are either wrong or lucky. So focus on cost and a product that suits plans rather than rate chasing.
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Graham Cox
Director at Bridging Hub
With a clean credit score and 25% deposit or equity, 5-year fixes are available around 4.4% and 2 year-equivalents at 4.7%. What the right course of action is depends on the borrower's specific requirement, but in general, I would steer towards two-year fixed-rated deals at present.

The base rate has probably peaked and should start falling by the summer. Because lenders suspect the same, trackers are currently quite a bit more expensive than fixes. Unless the base rate falls further and faster than expected, they're probably not the best bet right now.
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Akhil Mair
Director at Our Mortgage Broker
Mortgage rates currently vary based on factors like mortgage type, lender, and borrower credit. Homeowner and buy to let mortgages vary from c4% plus. Deciding to lock in a mortgage rate should be based on individual financial situations and risk tolerance. While OBR predicts rate increases, it's essential to weigh costs and benefits, including early repayment charges and flexibility. Trackers can be attractive when rates are expected to stay low or decrease. They follow a specified base rate (e.g. Bank of England's rate) plus a margin. Trackers suit those comfortable with payment fluctuations and who seek potential savings during low-rate periods. Professional advice is essential for decision-making. Our recommendation is to seek guidance from a qualified and experienced advisor, rather than relying on advice from a friend at the pub.
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Mark Robinson
Managing Director at Albion Forest Mortgages
Average mortgage rates have returned to the dismal heights of the start of the year, and the OBR predictions are not shining any light in this area. Trackers need to be considered for people that are not adverse to the risk of rates increasing. However, if rates do increase too much I think we are all in trouble!