Fixed mortgage rates are falling, and ‘could be back at 4% next year’

When the Bank of England’s Monetary Policy Committee raised key interest rates by 0.75 percent to 3 percent earlier this month, the reaction was muted.

Some expected mortgage rates to rise in the wake of the decision, given that each of the eight times the bank has raised base rates since December 2021.

But while tracker mortgage rates have risen with the rate hike, fixed rates continue to fall from the highs they reached after September’s ill-fated mini budget.

Lenders including Platform, Yorkshire Building Society, HSBC, Halifax, Lloyds and NatWest all cut their fixed rates over the past week.

The two-year average fix, which peaked at 6.65 percent on Oct. 20, according to Moneyfacts, now sits at 6.28 percent (Nov. 14), while the five-year fix, which peaked at 6.51 percent, is now at 5.07 percent sitting. cent.

This is partly because government bond yields, which determine the cost of government borrowing and influence mortgage interest deductions, have fallen back to pre-mini budget levels.

In addition, market predictions for how high interest rates will rise next year have fallen significantly, with most expecting base rates to peak at 4.5 percent, 1.5 percent lower than predicted in the wake of September’s ill-fated mini-budget.

Some mortgage intermediaries therefore predict that fixed mortgage rates with a five-year term will fall below 4 percent in the new year.

Mark Harris, CEO of mortgage broker SPF Private Clients, says: ‘Prices for fixed-rate mortgages have been falling in recent weeks and if this continues, we expect five-year fixes below 4 percent by early 2023.

With lenders reporting that volume and activity are falling due to higher rates, we expect this trend to continue.

“That desire for pipeline and the falling cost of funds will push lenders to cut rates further, which will be welcome news for struggling borrowers.”

Where are the rates now?

Following the September mini-budget presented by then Chancellor Kwasi Kwarteng, government bond yields skyrocketed, driving up the cost of borrowing for banks.

In response, lenders raised their own mortgage rates to ensure they didn’t fall short of the surge in credit costs by passing it on to their customers.

Before the mini-Budget on Friday, Sept. 23, the average two-year fixed rate across all loan-to-value brackets was 4.74 percent and the five-year fixed rate was 4.75 percent, according to Moneyfacts.

Rates now stand at 6.28 percent and 6.07 percent, respectively, both down since the announcement of the base rate on Nov. 3.

The consensus is that fixed interest rates are falling, despite the Bank of England hike, because lenders had already priced in future increases.

Chris Skyes, technical director at mortgage brokers Private Finance, said: ‘We hope this direction of fixed rate pricing will reassure some borrowers as this lender activity suggests that some level of base rate hikes have already been factored into pricing. fixed mortgage rate.’

Where are mortgage rates now?

According to Moneyfacts, the average two-year fixed-rate deal is now 6.28 percent.

On a £200,000 mortgage, this means monthly payments would be £1,323, £49 lower than on 1 November when the rate was 6.47 per cent.

A similar trend can be seen in five-year fixed rate deals. The average rate is down 0.25 per cent since the start of the month to 6.07 per cent, saving £31 per month on a £200,000 mortgage.

This month, Platform, the mortgage arm of The Co-operative Bank, released new mortgage rates, pushing some of its five-year fixed rates below 5 percent.

And it’s not the only one lowering rates. Yorkshire Building Society has cut its rates by up to 0.38 per cent, with its cheapest now 5.34 per cent on a two-year fixed deal.

HSBC has cut its rates by up to 0.29 percent, citing the lower cost of borrowing as the reason for the decision.

Virgin Money has also lowered its rates. The most significant reduction was the five-year fixed rate with a 15 percent down payment, which has been reduced by 0.34 percent to 5.29 percent.

Currently, according to the latest Defaqto data, the best home purchase deal on the market is a five-year flat rate of 5.19 percent. For mortgages with a low deposit, the best offer has fallen significantly in recent days.

On Nov. 9, the best two-year firm deal on a 5 percent down payment was 6.24 percent, by Nov. 11 it was down to 5.99 percent.

On a £200,000 mortgage, the rate reduction reduces the monthly payment from £1,318 to £1,287, saving £31 per month.

If borrowers are willing to put in a longer term to get a lower interest rate, First Direct offers a 10-year fixed-rate mortgage at 75 percent loan-to-value for 5.04 percent.

Despite falling interest rates, lenders are rethinking their affordability calculations as September inflation remains at double digits at 10.1 percent.

As the cost of living rises, they may decide to set tighter limits on the income they require from borrowers to ensure they can meet their repayments.

You can view tables of the best buy and best mortgage rates for your circumstances with our mortgage finder powered by London & Country – and find out what you’re actually paying using our new and improved mortgage calculator.

Where will the rates go after that?

Swap rates — the contract whereby lenders “swap” payments at fixed interest rates for variable interest rates to offset the risk of a fixed interest rate — have fallen in recent weeks, suggesting that lenders have tempered their view of higher interest rates going forward.

Government bond yields, which affect the cost of mortgage loans, have also fallen, but mortgage rates are not falling as fast.

In addition, there is still a lot of uncertainty in the market. This includes the Chancellor’s autumn fiscal statement on Nov. 17 and the likelihood of another rate hike by the Bank of England when the Monetary Policy Committee meets on Dec. 15.

However, there is an emerging view that mortgage rates will continue to fall, at least for now.

In his press conference following the announcement of the base rate, Andrew Bailey, Governor of the Bank of England, said the next rate hike will likely be as high as the market had already priced in. on new fixed-term mortgages should not rise as they have.’

Justin Moy, managing director at broker EHF Mortgages, said: ‘As money markets have improved in recent weeks, the cost of money has also come down, and those savings are now being returned to mortgage holders.

“There will be further changes from other High Street lenders, but we expect the market to stabilize, rates to stabilize over the coming months, and most lenders to have similar products in a “near-cartel” fashion, so no lender takes too many applications.’

Craig Fish, founder and director of Lodestone Mortgages & Protection, says that while rates are starting to fall, the pace of change is “slower than brokers would like.”

He said: “As expected, lenders have started lowering their rates, and I strongly suspect they will continue to do so as we see the start of an interest rate war between lenders.

Lenders often vary rates to manage workloads, so while this could be part of the reason, it could also be that many lenders are close to meeting year-end lending targets and so don’t plan on bringing in much more business. I expect a very positive start next year.’