What’s happening with mortgage interest rates? Will the base rate come down, and what should you do if you’re due to remortgage? Our Sales Manager, Phil Leivesley, answers these questions in this monthly mortgage market update.
Will interest rates keep coming down?
Interest rates are the talk of the town at present, and I’ve seen the phrase “rate war” splashed across many media outlets recently. A rate war definitely did happen throughout December and early January, where we saw the cost of fixed-rate pricing come down quite significantly. However, a ceasefire appears to have been called.
Swap rates are the best indicator we have of the direction of fixed rate pricing in the short term, and these have climbed throughout the start of the year as tensions in the Middle East continue, and inflation in the UK remains stickier than many would have hoped.
Some lenders are tweaking their products downwards still in an attempt to claim some market share, but the frequency of announced rate changes has dropped, and it’s certainly no longer a given that rate changes in the short term will be downward ones. A small number of large lenders in the UK market have even announced increases to their rates very recently.
The long-term view still remains that the cost of borrowing will shuffle downward; however, in the very short term, I expect a levelling off of the cost of fixed-rate mortgages, with some stability returning to the market over the coming weeks. Some lenders might feel that they’ve been a little too optimistic with their fixed-rate pricing, so I’d caution anyone who has been holding off committing to a product that the rates we can see today might shortly be traded for slightly more expensive ones.
Will the base rate go down soon?
It seems inevitable that the base rate will reduce, but I certainly wouldn’t expect to see this in the first half of 2024. Inflation figures had been encouraging in the late stages of last year, which caused a swell of upbeat predictions about the Bank of England cutting rates throughout this year.
The Bank of England still faces many challenges in reducing inflation, and it has been very consistent in its messaging that it will only seek to reduce the base rate when inflation falls below its target of 2%. The Office for National Statistics figures saw inflation increase in December, and the market appears to be betting on the same when January’s figures are announced mid-February, which would delay the good news that we’re all hoping for.
What should you do if you’re due to remortgage soon?
It’s understandable that someone due to remortgage in the next six months might be tempted to hold back and see what happens as fixed-rate pricing has recently dropped. I’d urge a little bit of caution, though; we might find that the cost of fixed-rate borrowing slows, stops or even increases. My tip would be to secure a product that’s available if your current deal is due to end in six months. You’ve always got the option then to revisit it. A lender is not going to prevent you from doing that.
If you apply to a lender now and you have some months to go, you can check in regularly to see if there are cheaper products available. A good broker will do this for you.
If you’re mid-application and the same lender launches a cheaper product, it’s typically very simple to request a change to the new product. If you switch to a different lender, there are other factors to consider. Has the valuation of your property changed, or has your income changed? Are there going to be any issues with affordability? Again, leave this in the hands of your broker; they will be able to tell you what deal is available, and if it’s a case of switching to a different lender to secure a better product, it’s worth completing additional paperwork.