Will mortgage rates continue to fall in the UK?
The average rate for two-year and five-year fixed mortgages fell slightly for the first time since May 29, giving borrowers hope that mortgage rates could have peaked.
Currently, the two-year average fixed rate for all deposits is 6.79 percent, compared to an average rate of 6.81 percent yesterday, according to MoneyFacts.
The fixed average over five years is now 6.31 percent, compared to 6.33 percent.
Falling inflation offers some breathing space for the mortgage market, but it is unclear whether this will translate into rate cuts
Markets reacted positively to news that both CPI and core inflation in the UK fell in June after disappointing data in May resulted in a series of sharp interest rate hikes as lenders estimate the likelihood of further base rate hikes.
The measure of consumer price inflation fell from 8.7 percent in May to 7.9 percent in June, falling further than the market forecast of 8.2 percent.
As a result, swap rates – the main pricing mechanism for mortgage rates – are expected to continue falling after falling slightly last week.
However, despite the news, NatWest increased several of its fixed income products by up to 0.4 percent for new business. All affected mortgages are for buyers or homeowners with 10 percent equity in the home.
Still, Nick Mendes, technical manager of mortgages at John Charcoal, says it’s hard to understand why NatWest has raised its rates, but suggests it might be to maintain service levels.
For borrowers who have to take out a new mortgage in the coming months, the question is whether they should make a deal now or wait for interest rates to fall further.
So far, brokers say they haven’t seen lenders cut rates directly, though many suggest they now have some breathing room after the relentless pace of increases in recent weeks.
While the cost of credit is now marginally down, lenders will be happy to play it safe and avoid being caught if costs rise again.
This means that they are unlikely to immediately drop their prices in line with swap rates and instead maintain a margin that keeps prices around their current level.
Rapidly changing mortgage rates in recent weeks have left brokers and borrowers struggling to catch their breath in the chaos
The market still expects the Bank of England to raise its key interest rate from its current 5% to around 6% by the end of the year, suggesting that borrowers may be hurt even more.
Kirsty Wells, director of Blueprint Mortgages, said: ‘Lenders have been sending emails this week advising on rate hikes, so I think it’s too early to breathe a sigh of relief.
“Sentiment may have improved, but so far it hasn’t translated into a downgrade of a major lender.”
Others agree, recommending borrowers who risk being disappointed when they look for overnight discounts.
Phil Leivesley Sales Manager at MB Assocaites says: ‘It is reported today that, according to Moneyfacts, the average fixed product with maturities of 2 and 5 years is priced lower today than it was yesterday.
“This must mean that some lenders have lowered their prices, or that those who offered above average products have withdrawn their products.
“But unless the lenders who offer the very cheapest products on the market lower their rates, the vast majority of borrowers will not benefit.”
Leivesley adds that customers have contacted him who expect the rates we recently obtained to be immediately cheaper.
“We hope the picture will improve, but it is important to remember that the pricing of fixed-rate mortgages is a complex issue, and in the near term the best expectation is that the cost of borrowing will stop rising and remain stable.”
If lenders cut interest rates to take advantage of the fall in swaps — the main mechanism used for mortgage pricing — borrowers on the verge of coming off their fixed rate can get a cheaper deal.
Most lenders allow you to lock in a new rate six months before your current deal expires. It means that if rates rise before your old deal expires, you’re protected.
If they continue to fall, you can jump up and down to a cheaper one until your existing fix comes to an end, meaning borrowers can get the best rate within six months.
Kylie-Ann Gatecliffe, director of KAG Financial ‘Generation Home’ was the first lender last night to send an email saying ‘we are lowering our rates’.
“This is the first of its kind in weeks, so it’s a welcome change for brokers and their clients. Hopefully we will see more lenders follow suit in the coming days and weeks.”
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