The surge in mortgage borrowing costs in recent months has caused widespread concern and contributed to the fall in house prices, but the latest figures show that fixed rates are continuing to fall from the highs they reached following September’s disastrous mini-Budget.
The Bank of England’s Monetary Policy Committee’s decision to increase the base rate by 0.75% to 3% earlier this month – the eighth consecutive hike since December 2021 – has seen tracker mortgage rates rise, but fixed rate deals have got cheaper.
Lenders including Platform, Yorkshire Building Society, HSBC, Halifax, Lloyds and NatWest have all reduced their fixed rates in the last week.
The average two-year fix, which peaked at 6.65% on 20 October, according to Moneyfacts, now stands at 6.28% while the five-year fix, which peaked at 6.51%, now sits at 5.07 per cent.
The fall is owed in part to the fact that gilt yields, which dictate the cost of government borrowing and impact mortgage rates, have dropped back to pre-mini-Budget levels.
To add, market projections for how high interest rates will go next year have fallen sharply with most expecting the base rate to peak at 4.5%, 1.5% lower than predicted in the wake of the September’s mini-Budget.
Some mortgage brokers are therefore forecasting that five-year fixed mortgage rates will fall back to below 4% in the New Year.
Mark Harris, chief executive of mortgage broker SPF Private Clients, commented: “Fixed-rate mortgage pricing has been edging down over the past few weeks and if this continues, we would expect five-year fixes below 4 per cent by early 2023.
“With lenders reporting that volume and activity is falling away thanks to higher rates, it is a trend we expect to continue.
“That desire for pipeline and the falling cost of funds will incentivise lenders to reduce rates further, which will be welcome news for hard-pressed borrowers.”
The consensus is that fixed rates are falling, despite the Bank of England increase, because lenders had already priced in future rises.
Private Finance’s Chris Skyes commented: “We hope this direction of fixed rate pricing will put some borrower’s minds at ease, as this activity from lenders suggests that a certain level of base rate increase has already been factored into the pricing of fixed mortgage rates.”
Justin Moy, managing director at broker EHF Mortgages, added: “As the money markets have improved over the last few weeks, this has meant the cost of money has also reduced, and those savings are now being passed back to the mortgage holders.
“There will be further changes by other High Street lenders, but we expect the market to settle, rates to stabilise over the next few months, and, in a “near-cartel” fashion, most lenders will have similar products so that no one lender takes too many applications.”
Several lenders have lowered rates this month.
Platform, the mortgage arm of The Co-operative Bank, has released new mortgage rates taking several of its five year fixes rates below 5%.
Yorkshire Building Society has reduced its rates by up to 0.38%, with its cheapest now 5.34% on a two-year fixed deal.
HSBC has cut its rates by up to 0.29%, thanks to cheaper borrowing costs, while Virgin Money has reduced its five-year fixed rate with a 15% by 0.34% to 5.29%.
Swap rates – the contract by which lenders ‘swap’ payments on fixed interest rates with variable ones to offset the risk of a fixed rate – have fallen in recent weeks, indicating that lenders have tempered their view on higher interest rates in future.
Gilt yields, which impact the cost of mortgage lending, have also fallen – but mortgage rates are not falling as quickly.
Bank of England governor Andrew Bailey said the next rate rise is unlikely to be as high as the market has priced in and should settle mortgage rates. But all eyes will be on chancellor’s autumn fiscal statement tomorrow, as it will influence whether the Bank of England increase rates again when the MPC next meets on 15 December.
SOURCE: Property Industry Eye | NOVEMBER 16, 2022 | MARC DA SILVA
Estate Agents
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