When will mortgage rates go down?

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With the continuous increases to the base rate to combat inflation and the knock-on effect that has had, a question we’re frequently asked is ‘When will mortgage rates do down?’ Here, we’ll explain what impact the higher rates have had, look at the current and predicted trends for mortgage rates and determine how the rates are affecting different types of borrowers.

What impact have the higher interest rates had?

The Bank of England base rate recently increased for the 11th consecutive time to reach 4.25%. The decision was made by the Monetary Policy Committee (MPC) as a further measure to combat inflation. Whilst inflation had started to show signs of a downturn, it unexpectedly rose again in February 2023.

By increasing the base rate, the cost of borrowing increases, which encourages people to spend less and save more. This, in turn, causes the rate of inflation to slow down and eventually decrease. But what effect have these higher rates had on the housing market and mortgages?

How the interest rates have affected the housing market

As the increase in interest rates makes it more expensive to borrow, this affects mortgages. For many first-time buyers, the higher rates have put the affordability of mortgages out of their reach. This has reduced the demand for property from those hoping to get onto the property ladder, slowing the housing market.

Investors have also been affected. Those looking to increase their portfolio can’t meet the higher affordability requirements for buy-to-let mortgages. This is because the projected rent needed to meet the requirements would simply be too high to charge tenants. As a result, they’re unable to invest and so the demand for buy-to-let properties has also declined.

How the interest rates have affected mortgages

Borrowers with a fixed mortgage rate won’t be affected until their fixed term comes to an end. If you have a fixed-rate mortgage for your home in Bexley, it’s likely that the rate you remortgage to will be higher than the one you’re paying now due to the recent increases. However, securing a new fixed or variable rate prevents it from switching to the lender’s standard variable rate (SVR). The SVR will be more expensive than other rates.

Borrowers with variable rate mortgages are affected quite quickly, depending on the rate type. Tracker mortgages tend to increase as soon as the base rate does. Other variable-rate deals increase at different speeds and amounts depending on the lenders.

Will mortgage rates go down?

Fixed mortgage rates peaked after the Autumn Statement was released but have since started coming down. Since October 2022, fixed mortgage rates have gradually lowered in response to the government’s reversal on issues announced in the Autumn Statement. Lenders have also begun to increase the number of mortgage products available and make them more affordable due to the decline in mortgage approvals, which hit a low point in January 2023.

At the end of March 2023, the UK’s leading provider of financial data, Moneyfacts, confirmed that the average SVR is 7.12%. This is the highest it’s been since April 2008. In comparison, the average mortgage rate for a 2-year fixed deal is 5.35% whereas the average 5-year fixed rate mortgage is 5.04%. These fixed rates are much lower than the averages were last autumn.

Although another base rate increase is expected in May 2023, it’s hoped that fixed rate mortgages won’t be affected too much in the future. This is especially the case for deals with longer fixed periods, such as 5 or 10 years. To combat the lower demand for mortgages, lenders need to be more competitive with their rates. As such, it’s been predicted that 5-year fixed mortgage rates will fall under 4% within the next few months.

How can you get a cheaper mortgage rate?

The best mortgage rates are usually offered to existing homeowners who either want to remortgage or move up the property ladder. This is because they’re considered to be less of a risk for lenders. If you’re a homeowner in Pimlico, you usually need to have equity or a deposit that equates to 40% to be offered the cheapest mortgage rates. You also need to have an excellent credit score. Generally, lower rates are offered for 5-year fixed rate mortgage deals than the rates offered for shorter fixed-rate deals.

How are first-time buyers affected by the rates?

As a first-time buyer, it can be really hard to save a substantial deposit. This puts you at an immediate disadvantage as the lowest mortgage rates are offered to those with the biggest deposits. As many low-deposit mortgages were withdrawn by lenders during 2022, you’ll have fewer deals to choose from if you have a small deposit of 5% or 10%. However, you need to take the fees into account too as some mortgage products with low rates can have high fees and vice versa.

To benefit from the cheapest mortgage rates as a first-time buyer, speak with one of our mortgage brokers. Our expert brokers will compare the mortgage rates, fees and terms for you to find the optimum first-time buyer mortgage deal. There are also numerous schemes to help you as a first-time buyer as well as incentives offered by lenders.

Find a competitive rate for your new mortgage or remortgage

As we’ve already mentioned, fixed mortgage rates are coming down and fixed mortgage rate predictions are positive for the future. This highlights the benefit of arranging a new fixed deal before your current one ends or switching your existing variable-rate deal to a fixed one. Currently, the best fixed rate mortgage deals are those being offered for 5 years. Therefore, it’s worth considering this fixed period over a shorter 2-year term or a longer 10-year fixed term.

That doesn’t mean you should discount a variable rate mortgage altogether. As the inflation rate steadies, mortgage rates will come down as a result. Some lenders have already cut their variable rates to be more competitive and attract new borrowers.

As with any mortgage product, the rates, fees and terms you’re offered will depend on your circumstances. Give our mortgage brokers a call on 01322 907 000 to discuss your situation and they’ll compare the mortgage rates available for you.