A monthly update from our Managing Director, Monica Bradley, on the reported ‘price war’ among mortgage lenders and what the long-term future might be for interest rates.
What’s been happening in the mortgage market in the past few weeks?
Over the last few weeks, I’ve spoken to a number of clients due to remortgage who are holding on and wanting to watch what the media has described as a “price war” play out. From my perspective, the fixed-rate price war has already happened, with lenders slashing rates by approximately 0.5% over the last few weeks, and now they don’t have much margin left to sacrifice to make their rates cheaper still.
Why do you think it will take so long for the cost of borrowing to come down?
The assumption from many people is that the Bank of England would taper down the base rate as inflation fell away. However, the message from the Bank has been very clear of late. It won’t reduce the base rate until the inflation target of 2% has been achieved, and according to the Bank of England’s own projections, it expects this to happen no sooner than the second quarter of 2025. It seems, therefore, that the outlook over the short to medium term is a settled one, but one in which interest rates will remain higher for longer.
What is your advice to anyone due to remortgage in the next six months?
We find ourselves in an atypical situation where we can say with a reasonable degree of confidence that we’re at, or almost at, the top of the current base rate cycle. There could be a small base rate increase in November – it remains a coin toss whether the Bank of England will raise rates again at the next review meeting on 2 November. However, at the same time, it also seems likely that we’re at the bottom of where fixed-rate mortgage pricing can realistically go, given how tight margins currently are.
Our advice to anyone due to remortgage in the next six months is to secure a new product sooner rather than later. This will give you something to hang your hat on in case the cost of borrowing increases. However, it’s important to add that by applying for a mortgage and securing a rate, you are not committed to that rate. Our pledge to our clients is that should the cost of borrowing continue to fall; we will then reapply to ensure that you get the best mortgage product available.
It’s been an unpredictable few years, to put it mildly. How confident are you that things won’t suddenly change?
The only certainty is that uncertainty is always around the corner. Anyone who is due to remortgage within the next six months and who is waiting for interest rates to continue reducing risks missing the best rates that will be available over the short term if an uptick in inflation figures, a larger-than-expected hike in base rates, or anything else which spooks the markets causes the cost of fixed-rate pricing to increase.