Is There A More Optimistic Outlook For Mortgage Rates?

November 8, 2022

A recent article in the Financial Times (FT) has suggested that mortgage rate rises will not be as steep as first feared, and may eventually begin to fall. This is surely welcome news for homeowners and potential new mortgage applicants, after a turbulent few weeks on the property and financial markets. 

The surprise mini-Budget in October spooked the markets, causing lenders to spike interest rates on their products and withdraw many deals from the market. The situation has eased slightly as Jeremy Hunt was appointed chancellor, and reversed most of the extreme measures announced by his predecessor, restoring some confidence.

However, although the Bank of England (BoE) put up interest rates from 2.25% to 3% recently (the biggest jump for 30 years), it indicated that predictions of a peak of 6% were unlikely to come to pass. This in turn should eventually feed back into lower rates for fixed-rate mortgages.

One senior banking executive told the FT: “I think the most likely thing is that we see longer-term interest rates moderate. In time it will hopefully bring mortgage interest rates down a bit — but it will take a while for it to filter through and for expectations to shift.”

Another added: “We expect in a few weeks and months to see fixed rates start to drop but almost certainly consumers will be getting rates higher than those they locked in at previously.” They also commented that the super low rates of 1 or 2% which have predominated over the past several years are unlikely to ever return. 

Average fixed rate terms now stand at around 6.3% for a five-year term, the FT explains, which is down from the October peak of 6.65%. However, before the mini-Budget, they stood at 4.75%. It is a similar story for two-year fixed rate mortgages; before the mini-Budget, they stood at 4.74%, before peaking at 6.65%, and falling to 6.46% more recently.

This translates as a difference of hundreds of pounds a month in repayments for the average priced mortgage. The new Prime Minister Rishi Sunak has made it clear that he shares the concerns of mortgage holders who are worried that their monthly repayments will become unaffordable. 

Speaking to the Times, he said: “I absolutely recognise the anxiety that people have about mortgages. It’s one of the biggest bills people have. So what I want to say to people is that I’m going to do absolutely everything I can to grip this problem, to limit the rise in those mortgage rates.”

He added: “I think inflation is the number one enemy, as Margaret Thatcher rightly said. Inflation has the biggest impact on those with the lowest incomes. I want to get a grip of inflation.”

If you have experienced financial difficulty over the last few years, and are worried about whether this has affected your prospects of getting a new mortgage, you may find it helpful to speak to a mortgage broker for poor credit.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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