For advice on your mortgage, contact us here or call our team on 01614 434 830.
The Bank of England (BoE) has announced that it will hold its Base Rate at 5.25% for a third consecutive time this December. This has raised questions from both homeowners and potential buyers about what this could mean for their mortgages.
The BoE base rate has been kept at a steady 5.25% since September 2023, following 14 consecutive increases during previous months. However, despite the hold, interest rates are still at a 15-year high.
The Bank is dealing with the challenge of keeping inflation down, while protecting the wider UK economy. High levels of inflation can increase interest rates and limit spending power, which then impacts wider economic growth.
Inflation was over 10% in early 2023 – well in excess of Government targets of just 2%. As a result The Government announced its intention to lower inflation to 5% by the end of the year.
By increasing interest rates and making it more expensive to borrow, it is hoped that consumers will have less to spend and that this will bring about a drop in demand – and inflation.
In November 2023 it was announced that inflation had actually fallen to 4.6%. Although this would seem to suggest that the BoE’s plan is working, many analysts still think that it is unlikely that interest rates will start to fall until mid-late 2024.
The latest rate hold will be some relief to borrowers with variable or tracker
mortgages, but it could be even better news for first-time buyers or customers looking for a new mortgage in the New Year.
Since the Base Rate has held steady from September to December, lenders have been more comfortable to allow customers to borrow. As a result, mortgage rates have seen a continued decline over the past few months.
This is because ‘swap rates’ have fallen in-line with the drop in UK inflation. If you’re wondering what swap rates are, we’ll explain:
In the context of mortgages, swap rates are what lenders use to monitor their exposure to interest rate fluctuations. So, if the market thinks that interest rates will be higher in the future, swap rates (and hence mortgage rates), will increase too.
The drop in inflation and steady Bank of England base rate have given lenders more confidence in recent months, as their cost of borrowing has lessened, so they are able to offer more attractive rates.
For example, the average rate for a 5-year fixed mortgage was 6.08% during July 2023 and has dropped to circa 5% during December 2023. Likewise, the average rate of a 2-year fixed term mortgage has fallen from 6.61% in July 2023 to around 4.5% in December 2023.*
One immediate benefit for homeowners with variable rate, or tracker mortgages is that their monthly payments will remain steady for at least another month. Borrowers with fixed-term mortgages will have their rates set for a period of time, so won’t really notice this benefit unless their current deal is set to expire soon.
If you are on a fixed-term rate that is due to end in the near future, now could be a good time to look for a new deal to take advantage of sub-5% mortgage rates. Most lenders will allow you to remortgage your property between three and six months before your deal is due to end.
You can approach lenders directly to secure a new mortgage and your bank or building society may even be willing to offer you a new deal to stay with them. This would normally be arranged by a product transfer rather than a remortgage and can be a faster solution. However, to make sure that you secure the best mortgage rate, you need to look at all of the available options.
A mortgage broker can compare thousands of products from hundreds of lenders, so they’ll be able to cover a lot of ground quickly to help you find the best deal. Remember, even if you have approached lenders directly and been offered exclusive deals, a broker will also have access to unique rates. You’ll never really know that you’re getting the best product unless you explore every avenue.
With lender’s rates coming down in recent months there is a lot of competition to attract new customers, so investing the time to explore your options could really save you money on the cost of your mortgage.
Knowing exactly how the market will behave in the future is difficult to predict, however most analysts agree that the Base Rate has reached a peak. It is hoped that the rate will remain steady during early 2024, before eventually falling in the latter half of the year.
It should be noted that there is no guarantee that the Base Rate will remain steady or even fall during the New Year – there is a lot that can happen to change the Bank of England’s decision.
The next announcement on interest rates will be made on 1 February 2024, so if current mortgage rates are appealing to you, now could be a good time to lock in a new deal with steady monthly repayments.
Speaking to a mortgage broker sooner rather than later can help you fix your mortgage at an affordable rate. At Edward Mellor we speak to more than 50 lenders, offering over 2,000 products to find the best deal for you. These include exclusive deals with high street lenders that you won’t find anywhere else.
For the best friendly, expert advice contact us today or give us a call on 01614 434 830.
We’ll take care of the whole remortgaging process, from liaising with lenders right through to the paperwork.
Your home may be repossessed if you do not keep up repayments on your mortgage.
*Data according to Rightmove. December 2023
Related Pages
Mortgages | Mortgage and Protection guides | Mortgage Calculators
