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This week, Bank of England Governor Andrew Bailey told MPs that fixed mortgage rates had fallen from October highs in the wake of the mini-budget.
“We’ve seen new fixed-rate mortgage rates come down since then, both for the lower-risk part of the mortgage market — I’m talking about a loan below 75 percent — and for the higher-risk part of the mortgage market,” he said. said.
‘We have seen a correction in that respect and that benefits people who are looking for a mortgage.’
Rates have fallen rapidly since November last year. On November 1, the average rate for a two-year mortgage was 6.47 percent, but by January 20, it had dropped to 5.53 percent.
Falling: Fixed mortgage rates have been falling steadily since late November and are expected to fall back below 4%
On a £200,000 loan, the drop will result in mortgage payments becoming £115 per month cheaper.
On five-year fixes, the drop in rates from 6.32 percent to 5.3 percent will save the homeowner £204 per month.
Most year-end forecasts expected interest rates to be somewhere between 4 and 5 percent. But with the cheapest five-year fives now hovering around 4.2 percent and declines showing no signs of stopping, could they go even lower?
>> Nationwide and Halifax LOWER mortgage rates: is this the start of a ‘price war’ and will borrower costs fall further?
What are the best mortgage rates on offer?
Current deals for those with 40 per cent deposits include a 4.19 per cent rate from Yorkshire Building Society with a five-year term and 4.49 per cent for a two-year deal from Bank of Ireland.
For a 10-year fixed rate, Halifax offers an even cheaper 4.04 percent, though all of these deals come with surcharges that will drive up the overall cost.
Jane King, mortgage and asset release advisor at mortgage firm Ash-Ridge says: ‘The best deals are for buyers or owners with large deposits, as you would expect.
“If you want a permanent five-year contract, the offer with the Yorkshire is worth considering.”
Ups and downs: Mortgage rates have risen gradually since the Bank of England started raising base rates. They then peaked after the mini-Budget, but are now slowly declining
In addition, major lenders, including Halifax, Nationwide, and The Mortgage Lender, have all lowered their rates.
Nationwide cut its rates on its product range by up to 0.2 percent, while The Mortgage Lender cut prices by up to 0.4 percent.
Will we see rates fall below 4% again this year?
“I think we’re really in an interest rate war,” said Matt Coulson, principal and director of mortgage brokerage firm Heron Financial.
“Lenders are reacting to the slowdown in activity at the end of last year and they can only really compete on rates because there is only so much you can do on criteria. So if they want more turnover, they have to make their products cheaper.’
Nicholas Mendes, mortgage technical adviser to John Charcol, says mortgage rates are falling in part because swap rates have continued to fall over the past few weeks.
Swap rates are an agreement in which two counterparties, such as banks, agree to exchange one stream of future fixed interest payments for another stream of floating interest payments, based on a fixed price. They usually show where the markets think mortgage rates are headed in the longer term.
“Lenders could theoretically have made bigger discounts on fixed rates faster, but the impact this could have had with existing mortgage applications wanting to change their rate to a lower rate, as well as taking on new business, would have impacted their level of service,” says Mendes .
‘As a result, we saw small reductions on a weekly or biweekly basis.
“With the time it takes lenders to process a mortgage now getting shorter, we’re returning to a period of competition,” he says.
Chris Skyes, director of technology at Private Finance, says it is inevitable that rates will fall below 4 percent, but when this will happen is less clear.
Unfortunately, it’s anyone’s guess – but with 10-year mortgages closest to less than 4 percent, and swaps in this space more stable and lower than previous weeks and months, it’s possible that lenders will cut rates further to help long-term companies to attract. ,’ he says.
Lenders could even cut below 4 percent as a kind of loss leader or break-even product just for the headline. We’ve seen this before.’
However, the Bank of England’s Monetary Policy Committee meets in two weeks and is expected to raise key interest rates by 0.5% to 4%, continuing the fight against inflation.
Big decision: The Bank of England is expected to raise rates to 4% in two weeks as it ramps up its fight against stubbornly high inflation
The Bank has already raised interest rates from a record low of 0.1 percent in December 2021 to 3.5 percent now in a desperate bid to tackle inflation.
CPI inflation was 10.5 percent in December, down from 10.7 percent the previous month and also from a 41-year high of 11.1 percent in October.
Rising interest rates have pushed up the cost of mortgages and other loans, so borrowers will be awaiting the Bank’s decision on Feb. 2.
> Check out the best fixed rate mortgages you can apply for
Should Borrowers Consider a Tracker Mortgage?
Another option for those looking to lower their costs is to look into variable rates. This could allow them to stick with a fixed rate until the picture of rates becomes clearer.
Mike Staton, director of Staton Mortgages says: “Tracker mortgages with no prepayment fees still seem to be popular as customers use them to bridge the gap between the current high fixed rate and a potential return of less than 4 percent fixed rate on two years in early 2024.
While 10-year and 5-year fixed rates should fall below 4 percent in time for the summer, buyers should expect huge fees for these products as the lenders want to make money somewhere.
“If you have a 40 percent deposit, trackers are currently available for 3.74 percent.”
How about a cheap fixed mortgage for 10 years?
A number of lenders, including Halifax, Leeds Building Society and Yorkshire Building Society, are now offering 10-year fixed-term products at lower rates than shorter-term deals.
This is because 10-year interest rate swaps are currently lower than their two- and five-year equivalents, meaning that the market believes interest rates will be lower in 10 years compared to two and five years.
However, it’s not that simple. It’s hard to predict where interest rates will be a year from now, let alone ten years from now, unforeseen events can move the market – as the mini budget proved.
If you enter into such a long-term agreement, you risk paying more for your loan overall if rates fall faster than the market predicted and you’re stuck with a higher rate.
But there is often flexibility within the products. Most allow you to transfer your mortgage – you take it with you on the same terms if you move property before the end of the loan.
But if your circumstances change and you want to get rid of the loan, most will face high prepayment fees, making it costly to do so.
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